Google Sets Sights on TV Ad Market

May 15, 2006  •  Post A Comment

Google in eight short years has come to dominate the $12 billion Internet advertising market and the company is beginning to infiltrate radio and publishing.

Its next target? The $58 billion television ad market.

Google co-founders Larry Page and Sergey Brin and CEO Eric Schmidt last week provided new clues about their television strategy. The company is testing a TV advertising product internally and if it works, Google may seek partners in the TV industry, Mr. Schmidt said.

“There has been no fundamentally new breakthrough in TV since color,” Mr. Schmidt said during a Google press event at its Mountain View, Calif., headquarters. “The question is, is there another breakthrough here?”

An attempt by Google to capture a portion of the television advertising business may threaten the current structure of that market, embodied in the upfront ad presentations this week in New York. Asked whether Google has any interest in applying its technology to the upfront, Mr. Brin pointed to the company’s other forays beyond the Internet.

“We have experimented with radio, magazines and newspaper,” he said. “We will continue to try out different media. I am certain we can bring something to the table in these different areas.”

Google built a $6.1 billion-per-year Web business by creating an efficient, automated way of selling ads that target consumers with the spots they most want to see. Finding technology and a business plan that can transfer that success to television could take about five years, said David Hallerman, a senior analyst with market research firm eMarketer.

Google executives declined to comment on when they might introduce their TV ad product or what role it might play in the market.

“We have not yet found a model that looks like broadcast advertising and broadcast video,” Mr. Schmidt said. “We haven’t made it work yet. There may be one. There may not be one.”

Google’s motivation to enter the TV ad market may push it past the obstacles. The company will be driven into new fields to maintain profit growth as competitors including Microsoft and Yahoo improve their Web search and ad technologies, said Brad Adgate, senior VP of research for Horizon Media.

Advertising executives predicted Google, for all its dominance on the Internet, will find it difficult to succeed in new markets.

“They’re trying to take over the world,” Jon Mandel, chief negotiating officer for MediaCom, said of Google’s television plans. “It’s one of those things where they should stick to their knitting.”

Google’s forays outside the Internet so far haven’t matched its Web products’ ability to tailor ads to consumers, Mr. Mandel said. The company’s radio ad project, designed to sell, schedule and deliver ads, has limited appeal, he said.

“They are basically just a remnant space broker,” Mr. Mandel said. “For stations, that makes a lot of sense because they’re able to sell their remnant space for money when they weren’t getting any. But for an advertiser, why was that space there? Because it was a dog. It’s like having a microphone in an empty auditorium.”


Google’s television technology may be based on its radio ad product, said Jonathan Rosenberg, a senior VP for product management for Google.

“Clearly there is an opportunity to apply it to TV,” he said. “As TV gets more [Internet protocol-based] and more programming is available, we believe TV will become more of search-based paradigm.”

Earlier this year Google acquired dMarc Broadcasting, whose technology automatically sells, schedules and delivers radio ads. Google is currently meshing that technology with its online auction for Internet search terms. Under the publication ad project, Google buys space in magazines, then auctions it to the highest bidder.

Mr. Rosenberg’s formulation of Google’s opportunities in TV advertising is based on the company’s two strengths: acting as an intermediary between buyers and sellers of ad space, and linking ads to relevant content. Beyond that, Google executives aren’t articulating how the company can become a player in the television ad market.

Google is putting the TV ad market in its sights as others pitch changes to the system.

Wal-Mart Senior Marketing VP Julie Roehm, who has been an advocate of changes in the upfront TV ad market since her days at DaimlerChrysler, has proposed setting up an online auction for ad time. At an Association of National Advertisers meeting last week, she said marketers should pony up $50 million to develop a test system.

At the meeting Carat USA President Ray Warren suggested an eBay-like auction system to match ad sellers and buyers.

To create a product that can match ads to programs and place them in schedules, Google must figure out how to search and organize video content. It’s a problem the company already is working on for Google Video, where users upload home movies and other video clips.

The site currently ranks as the third most-used video-sharing stop on the Internet, according to Nielsen//NetRatings. Mr. Schmidt last week said Google is committed to building the business and that organizing its content is a priority.

“We have done some testing with video-based advertising and we are generally very excited about taking the properties of search-based advertising-which is measurement, metrics, ease of creation and all those things-and applying that to the video space,” said Google co-founder Mr. Page.

It’s too early to say what a Google TV ad product would look like, or whom in the current market structure the technology would threaten. Advertisers, though, are seeking ways to target their spots more precisely.

“I don’t know how the algorithm works for that, but the perfect thing would be to have segmented advertising in a show, where you and I can both be watching the same show, but you get the car ad and I get the pizza ad,” said Bruce Lefkowitz, executive VP of ad sales for Fox Cable Entertainment Networks. “It seems like we’re a long way from that.”

Whether Google can ever apply its auction-driven, performance-based ad sales model to the TV ad market remains to be seen, said Tolman Geffs, managing director of the Jordan, Edmiston Group, a New York-based investment bank.

Mr. Schmidt in February said Google might use data collected from set-top boxes used by cable, satellite and television companies to deliver tailored ads to viewers, providing a hint as to the company’s plans.

One of the big roadblocks Google may face is getting its software into TV set-top boxes, a necessary step for tailoring ads to individual viewers.

“The hardest part about TV is the gatekeeper who owns the box,” said Tracey Scheppach, VP and video innovations director for Chicago-based media agency Starcom USA. Set-top boxes don’t get replaced often, so Google might face a difficult road in getting its technology into homes, she said.

Google’s expertise in matching ads to consumer interests tracks with advertisers’ TV strategies. The company’s ability to mine the Web for information on users may let it develop a product that complements regular television ads, Mr. Adgate said.

“They know what shows you watch, where you live. They can create algorithms to know what type of car you might want to buy,” Mr. Adgate said. “The idea might be [that] a 30-second commercial could lead you to a long-form commercial where you will become more engaged.”

Jon Lafayette contributed to this report.