ABC Interview: Google as an advertising aggregator

I have said for many years that the best way to understand Google is as an advertising aggregator (I would argue that even with its diversification over the last few years). Building on its successful search engine, it has sold ads that are served both on its search results, and also on a broad array of non-Google sites, initially through its AdSense program. It has for some years also sold advertising for delivery on radio, television, and newspapers. This was described in our Future of Media Strategic Framework which appeared in the Future of Media Report 2006.

Back in March I was interviewed by the ABC’s Media Report program about Google and Microsoft’s bid for Yahoo! at the time. While some of the interview topics are a bit dated now, much of it is still relevant, including my description of Google’s role in the media landscape. I’ll expand on this in another post soon.

You can read the transcript on the ABC site and below (note that there are some errors in the transcript).

Antony Funnell: Now let’s stay with search engines for a little bit longer, and look at the business manoeuvrings of some of the big players. Google last week announced it’s beefing up its presence in Australia with a new headquarters, and it’s seeking to grow in a whole range of areas. It’s also announced that it’s successfully acquired internet advertising firm DoubleClick.

Meanwhile, in another online universe, Microsoft appears to be still actively stalking the second-tier search engine company Yahoo. What’s it all about? Well let’s ask Ross Dawson. Ross is a communication strategy consultant and chairman of the Future Exploration Network.

Ross Dawson: It’s important to understand that Google is not just a search engine, and that it is in fact, more than anything else, an aggregator of advertising. What it does is it goes to advertisers and says, ‘We can present information about you, not just on our own search engine, but also on many, many other websites’.

Google’s adsense program is that advertisers can access many small websites as well as the front page of Google. So through that, Google has become the major centre for advertising on the internet, and using search as a mechanism to build that advertising. Now it’s using that revenue, and clearly its positioning on the internet space, to be able to build a whole series of other things including software such as Google Docks, which is Google applications which are a type of software, be able to extend it to other forms of advertising — and in fact Google sells advertising not just on the internet, but also in newspapers, on television and on radio and is looking to extend across the whole advertising space — and into other areas, technological areas as well. So from this area of advertising on the internet, is in fact a better way of understanding Google rather than just as a search engine.

Antony Funnell: And then of course they’ve grown quite significantly in a very short period of time. Is there a danger of them over-stretching?

Ross Dawson: Google has moved not just in line with the extremely rapid growth of online advertising, but has also taken an increasing share of that market, so it’s been able to build from that. It made a massive amount of capital clearly in its public share offering from a few years ago now, and so it still has not just a lot of money in the bank, but also a lot of revenue coming in.

So at the moment, while Google is making quite a few acquisitions, as you mentioned, DoubleClick, which has cost several billions of dollars, this is still well within the financial capacity of Google, and its ongoing innovation in terms of its internal initiatives still is relatively straightforward.

The only thing that could really overstretch Google is an extremely large acquisition. Comparing this with the Microsoft attempt to acquire Yahoo, is I think instructive. Microsoft has a massive amount of cash in the bank, almost enough to be able to buy Yahoo outright, and the ability to raise money at very low cost, so Yahoo is not a stretch for them. Whereas Google, if they did attempt to acquire Yahoo today, you’d find that that would basically stretch them. But I don’t think they’re going to try to do an acquisition of this scale.

So at the moment, all of Google’s growth is both through innovation and through smaller acquisitions which enable it to stretch its capabilities across this very rapidly-growing revenue source of internet advertising.

Antony Funnell: Now picking up on something you said there, Microsoft’s pursuit of Yahoo; what’s the game plan there from Microsoft’s side of things? What are they hoping to achieve by swallowing up Yahoo?

Ross Dawson: One of the very important issues in Microsoft is indeed being able to combat Google. Microsoft certainly rose through the ’70s and ’80s and ’90s, and now it’s seen the very rapid rise of Google which has positioned itself in the internet space. Microsoft was in fact a latecomer to the internet industry, and partly through being behind, now sees that Google is very attractively positioned in the advertising, online advertising, market.

Steve Bulmer the CEO of Microsoft when making the bed for Yahoo pointed out that the advertising revenue on the internet next year is expected to be US$80 billion. This is clearly a very rapidly growing market, and at the same time, Microsoft’s current revenues from its software are being eroded to alternatives of open-source operating systems, applications on the internet such as Google’s and Yahoo’s online applications, existing positioning has been eroded and this very rapidly growing market is one where it’s not well positioned.

So as such, Microsoft buying into acquiring Yahoo give it a far stronger positioning in the online advertising space, and associating with that would potentially present a credible competitor in the search space.

Antony Funnell: And would that be good for internet users? I presume you would say the average internet user would benefit from that added competition?

Ross Dawson: There are two aspects to this. One is that there is a lot of duplication between what Microsoft and Yahoo do at the moment, and we would actually see from consolidation so that there would be some reduction in the number of offerings in the marketplace, but at the same time there would be an intensification of the degree which the Microsoft-Yahoo combination would not only make new offerings in the internet services space to consumers, particularly offering more online applications, also it to foster new innovation generally of the industry that I think would see a lot more of these start-ups be able to be in a situation to offer fairly new offerings to consumers to do what they want to on the internet.

Antony Funnell: And that was strategy consultant Ross Dawson, who’s normally based in Sydney but was speaking to me there on a rather fuzzy line from London.