Google Wants to Dominate Madison Avenue, Too

Interesting article on Google over at NY Times. A little long, but a good read. Here are my highlights:

This year, Google will sell $6.1 billion in ads, nearly double what it sold last year, according to Anthony Noto, an analyst at Goldman Sachs. That is more advertising than is sold by any newspaper chain, magazine publisher or television network. By next year, Mr. Noto said, he expects Google to have advertising revenue of $9.5 billion. That would place it fourth among American media companies in total ad sales after Viacom, the News Corporation and the Walt Disney Company, but ahead of giants including NBC Universal and Time Warner.

Those are crazy numbers. Almost $10 billion in ad revenue and they are only a little over 5 years old. When I look at Google, I see a company that's success is based on two simple to explain things that were extremely hard to do right: the best web search (based on the idea of ranking pages based on how pages linked to each other) and how to put adds in with search results that were relevant and not distracting. And that is all you need to get $10 billion. But I didn't realize how good and complex the ad part is.

Google introduced its current system for determining which ad to show on which page late last year. It is a wonder of technology that rivals its search engine in complexity. For every page that Google shows, more than 100 computers evaluate more than a million variables to choose the advertisements in its database to display - and they do it in milliseconds. The computers look at the amount bid and the budget of the advertiser, but they also consider the user - such as his or her location, which they try to infer by analyzing the user's Internet connections - as well as the time of day and myriad other factors Google has tracked and analyzed from its experience with advertisements.

100 computers, 1 million variables! And yet, whatever I search on I always get the same: "Browse a huge selection now, Find exactly what you want today, www.eBay.com". I could do that with 1 computer and 1 variable.

And just like Ebay was able to come up with a model that created new middle class jobs as at-home merchants, so has the Google advertising allowed for the creation of new middle-class jobs as stay at home bloggers.

In addition to selling ads on its own site and on other sites that use its search technology, Google also places text ads on all manner of sites published both by professional media companies and by amateurs. Mr. Brin created this program in early 2003 after he became worried that the Internet crash would keep people from creating interesting Web pages for Google to index. This technology, called AdSense for Content, has made advertising on Google more attractive and provided the economic foundation for the rise of blogs.

So, what isn't to like about Google? How about the lack of transparency?

"Google is very opaque and bizarre to deal with," said Joshua Stylman, a managing partner at Reprise Media.

For a company that's first rule is do no evil, they should really think about how hard that is to do without also promoting transparency. To toss out 3 quotes (where really 1 would be sufficient):
Where secrecy or mystery begins, vice or roguery is not far off - Samuel Johnson

Corruption thrives where things are hidden - Joseph Stiglitz

Sunlight is the best disinfectant - US Supreme Court Justice Louis Brandeis

Long term I just think that you need the check of openness and transparency to stop people from cutting the little corners that leads to more cuts and cover ups which leads to evil.

Their ads are old sold in a market system, but that market is not open at all to allow people to really understand how it works. Are people being over charged? Who really knows?

There is a growing sense that a significant number of clicks that advertisers pay for are fraudulent - made by competitors trying to deplete advertising budgets or by Web sites trying to bolster the revenue they get for displaying the ads. Google says it has technology to minimize what is called click fraud, but many people in the Internet business are skeptical that the incidence of fraud is as low as Google contends.

Google also "gives" ads away to nonprofits, which by putting them in competition in the market system with the paying adds raises the rates of all the other advertisers on the page (and allows a tax write off for Google). Of course, I don't know that for sure because the whole thing is secret, but from what I do know it appears that it works this way.

On the other hand, advertisers make their decisions on how much in total they have to pay and what the results are for that money. So even if competitors are faking clicks and nonprofits are causing the ads to be more expensive, since they are still buying the ads it must still be a good deal for them. Put another way, Google could get rid of these issues and instead charge more for their ads and the advertisers would be in the exact same spot.

Via New York Times