Case Study:
Google, Inc.: The Right Ads at the Right Time
“So what we did, in essence, is we said advertising should be useful to a consumer just as much as the organic search results, and we don’t want people just to buy advertising and be able to show an ad if it’s irrelevant to the consumer’s need,” says Richard Holden, director of product management at Google. To accomplish this, Google developed a “Quality Score” model to predict how effective an ad will be. The model uses many factors such as clickthrough rates, advertiser history, and keyword performance to develop a score for each advertisement. “Essentially, what we’re trying to do is predict ahead, before we actually show an ad, how a consumer will react to that ad, and our interest is in showing fewer ads, not more ads; just the right ads at the right time,” Holden continues. The Google advertising model has revolutionized the advertising industry, and it continues to improve every day!
THE COMPANY
Google began in 1996 as a research project for Stanford computer science students Larry Page and Sergey Brin. They started with a simple idea—that a search engine based on the relationships between websites would provide a better ranking than a search engine based only on the number of times a key term appeared on a website. The success of their model led to rapid growth, and the founders moved the company from their dorm room, to a friend’s garage, to offices in Palo Alto,
California, and eventually to its current location, known as the Googleplex, in Mountain View, California. In 2000, Google began selling advertising as a means of generating revenue. Its advertising model allowed advertisers to bid on search words and pay for each “click” by a search-engine user. The ads were required to be simple and text-based so that the search result pages remained uncluttered and the search time was as fast as possible. Page and Brin’s first search engine was called “BackRub” because their technique was based on relationships, or backlinks, between websites. The name quickly changed, however. The name “Google” is a misspelling of the word “googol,” which is a mathematical term for a 1 followed by 100 zeros. Page and Brin used the name in the original domain, www.google.stanford.edu, to reflect their interest in organizing the immense amount of information available on the Web. The domain name, of course, became www.google.com and eventually Webster’s dictionary added the verb “google” with the definition “to use the Google search engine to obtain information on the Internet.” The name has become so familiar that Advertising Age recently reported that Google is “the world’s most powerful brand”! Today, Google receives several hundred million inquiries each day as it pursues its mission: to organize the world’s information and make it universally accessible and useful. The company generates more than $21 billion in annual revenue and has more than 20,000 employees. As Google has grown, it has developed 10 guidelines that represent the corporate philosophy. They are:
1. Focus on the user and all else will follow.
2. It’s best to do one thing really, really well.
3. Fast is better than slow.
4. Democracy on the Web works.
5. You don’t need to be at your desk to need an answer.
6. You can make money without doing evil.
7. There’s always more information out there.
8. The need for information crosses all borders.
9. You can be serious without a suit.
10. Great just isn’t good enough. Using these guidelines, Google strives to continually improve its search engine. “The perfect search engine,” explains Google cofounder Larry Page, “would understand exactly what you mean and give back exactly what you want.”
ONLINE ADVERTISING
Google generates revenue by offering online advertising opportunities—next to search results or on specific web pages. The company always distinguishes ads from the search results or the content of a web page and it never sells placement in the search results. This approach ensures that Google website visitors always know when someone has paid to put a message in front of them. The advantage of online advertising is that it is measurable and allows immediate assessment of its effectiveness. As Gopi Kallayil, product marketing manager, explains: “There is a very high degree of measurability and trackability that you get through online advertising.” In addition, he says, “With online advertising you can actually track the value of every single dollar that you spend, understand which particular customers the ad reached, and what they did after they received the advertising message.” The online advertising market has grown from its initial focus on simple text ads to a much larger set of options. There are five key categories of online advertising. They are:
? Search: 47%
? Display: 35%
? Classified: 10%
? Referral: 7%
? E-mail: 1%
Google is the dominant provider of online search requests and receives more than 60 percent of the search advertising revenue. The fastest-growing advertising category, however, is display advertising, where Yahoo! and Microsoft are established providers. Google believes that there is an opportunity to grow its display advertising sales by making the ads useful information instead of visual clutter. According to Google cofounder Sergey Brin, “It’s like search matching people with information they want. It just happens to be promotional.” Several improvements in technology and business practice tools contributed to Google’s success. First, Google developed its patented PageRank™ algorithm, which evaluates the entire link structure of the Web and uses the link structure to determine which pages are most important. Then the process uses hypertext-matching analysis to determine which pages are relevant to a specific search. A combination of the importance and the relevance of web pages provides the search results—in just a fraction of a second. Second, Google developed two business practice tools— AdWords and AdSense—to help (1) advertisers create ads, and (2) content providers generate advertising revenue. Both tools have become essential elements of Google’s advertising model.
AdWords
To help advertisers place ads on their search-engine results, Google developed an online tool called AdWords. Advertisers can use AdWords to create ad text, select target keywords, and manage their account. The process allows advertisers to reach targeted audiences. Frederick Vallaeys, AdWords evangelist, explains: “One of my favorite things about AdWords is the fact that it really helps you find the right customer at the right time and show them the right message. With AdWords you can very specifically target your market because you’re targeting them at a time when they do a search on Google. At that time they’ve told you a keyword, you know exactly what they’re looking for, and here is your opportunity as a marketer to give them the exact answer to what they’ve just told you they wanted to find.” Google has found that text ads that are relevant to the person reading them have much higher response (“click-through”) rates than ads that are not targeted. AdWords is also easy for any advertiser to use. Large or small businesses can simply open an account with a credit card and have ads appear within minutes. “When AdWords rolled out their self-service product, it really was one of the first times when it was very easy for a small business to put their ad up on the Internet on a search engine and compete on a level playing field alongside Fortune 1000 companies,” says Vallaeys. Google has an experienced sales and service team available to help any advertiser select appropriate keywords, generate ad copy, and monitor campaign performance. The team is dedicated to helping its advertisers improve click-through rates because high click-through rates are an indication that ads are relevant to a user’s interests. Methods of improving advertising performance include changing the keywords and rewriting copy. Because there is no limit to the number of keywords that an advertiser can select and each keyword can be matched with different ad copy, the potential for many very customer-specific options is high. Another advantage of Google’s AdWords program is that it allows advertisers to easily control costs. The ads appear as a “Sponsored Link” next to search results each time the Google search engine matches the search request with the ad’s keywords and Quality Score, although the advertiser is not charged unless someone “clicks” on the link. In a traditional advertising model, advertisers were charged using a CPM (cost-per-thousand) approach, which charged for the impressions made by an ad. According to Holden, the Google model “transformed that to what we call a CPC, or a cost-per-click model, and this is a model that an advertiser, instead of paying for an impression, only pays when somebody actually clicks on that ad and is delivered to their website. So, in effect, they may be getting the benefit from impressions being shown, but we’re not actually charging them anything unless there’s a definite lead being delivered to their website.” Google also offers advertisers real-time analytical services to allow assessment of and changes to any component of an advertising campaign.
AdSense
The AdSense program was designed for website owners as a tool for placing ads next to their web page content rather than next to search results. Currently, thousands of website managers use AdSense to place ads on their sites and generate revenue. Google applies the same general philosophy to matching ads with websites as it does to matching ads to search requests. By delivering ads that precisely target the content on the site’s pages, Google believes the advertising enhances the experience for visitors to the website. In this way advertisers, website publishers, and information seekers all benefit. AdSense is one of the tools Google is using to pursue its goal of increasing its display advertising business. Yahoo! and Microsoft’s Bing are leaders in display advertising because they can put ads on their own websites such as Yahoo! Finance and MSN Money. To provide additional outlets for display ads, Google recently purchased YouTube. In addition, Google purchased DoubleClick, an advertising exchange where websites put space up for auction and ad agencies bid to place ads for their clients. Google is also trying to make it easy for anyone to create a display ad by introducing a new tool called Display Ad Builder. Some experts observe that because Google is so dominant at search advertising, its future growth will depend on success in display advertising.
GOOGLE’S FUTURE STRATEGY
How will Google continue its success? One possibility is that it will begin to try to win advertising away from the U.S. TV industry. While this is a new type of advertising requiring creative capabilities and relationships with large advertising agencies, Google has dedicated many of its resources to becoming competitive for television advertising expenditures. For example, Google recently helped Volvo develop a campaign that included a YouTube ad and Twitter updates. Google is also likely to develop new websites, establish blogs, and build relationships with existing sites. Another opportunity for Google will be mobile telephone advertising. There are currently more than 5.4 billion mobile phones in use, and 1.9 billion of those are Internet-capable. Just as Google’s search engine provides a means to match relevant information with consumers, phones offer a chance to provide real-time and location-specific information. Some of the challenges in mobile advertising will be that the networks are not fast and that the ad formats are not standardized. Google believes its new phone and its Android operating system will also help. Finally, as Google pursues its mission it will continue to expand throughout the world. Search results are already available in more than 40 languages, and volunteers are helping with many others. It is obvious that Google is determined to “organize the world’s information” and make it “accessible and useful.”78
Q1. Describe several unique characteristics about Google and its business practices.
Q2. What is Google’s philosophy about advertising? How can less advertising be preferred to more advertising?
Q3. Describe the types of online advertising available today. Which type of advertising does Google currently dominate? Why?
Q4. How can Google be successful in the display advertising business? What other areas of growth are likely to be pursued by Google in the future?
Your answer must be typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.