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Internet and Social Media Marketing Topics & news related to pharma marketing via the Internet in general and social media in particular.

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Old 20th January 2012, 08:00 AM
Pharma Newshound Pharma Newshound is offline
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Default Google Increases Investment in Display Ads

Source: WSJ

New Display Ad Push Adds to Bag of Tricks

By AMIR EFRATI

Google Inc., long labeled as a one-trick pony that sells Web-search text ads and little else, is quickly learning another trick: selling online display ads.

The Internet giant is getting a big boost from selling online display ads—such as graphical and video ads—on its YouTube site and thousands of non-Google sites. The business, which has become Google's second-biggest revenue generator after the short text ads that pop up next to Web-search results.

On Thursday, Google Chief Executive Larry Page said growth in Google's sale of display ads was accelerating and is currently on pace to generate $5 billion per year, or well over 10% of Google's overall revenue.

How Google has been able to turn online display ads into a meaningful business—and steal market share from longtime leaders Yahoo Inc. and AOL Inc.—boils down to investments in technology and a change in the way it approaches advertising agencies, which hold the purse strings of the world's top advertisers.

For years, many ad agencies were suspicious of Google because it sometimes tried to work directly with advertisers and cut the agencies out of the equation. But more recently, Google embarked on a charm offensive to win over the agencies.

The Mountain View, Calif., company assigned more than 100 employees—including many former ad-agency employees—to work closely with the top agencies. Google also began publishing voluminous research touting the results advertisers can get from pursuing display-ad campaigns. The company hosts dozens of top agency executives and other partners at an annual "Zeitgeist" conference, featuring well-known personalities such as cyclist Lance Armstrong. And it hired former creative-advertising directors to offer free help to agencies and their clients in shaping interactive ad campaigns on YouTube.

Social network Facebook Inc., whose sales arm is run by former Google executives, is pursuing similar tactics in order to capture a greater share of ad dollars, ad agency executives said. It is now the market leader in online display ads.

Google's strategy is beginning to pay off at ad agencies such as Aegis Group PLC's iProspect, which represents advertisers such as Gap Inc. and Bristol-Myers Squibb Co. Two years ago, iProspect asked Google to provide a dedicated employee to help it navigate Google's array of ad services and get better results, said iProspect Chief Executive Rob Murray.

Google assigned an employee to iProspect's Boston office, said Mr. Murray. Another Google worker set up shop inside iProspect's San Francisco office a year ago, working there at least twice a week, he added.

Now rather than "talk to 100 different people at Google," Mr. Murray said, Google employees help solve problems and "spend more money on Google efficiently for our clients." Last year, iProspect spent $340 million, or 70% of its $485 million digital advertising spend in the U.S., on ads through Google, up from $240 million, or 65% a year earlier. Display-ad spending on Google grew twice as fast as search-ad spending during the period, Mr. Murray said.

Google is betting big on online display ads as it works to diversify its revenue streams and quash the notion that it can only make money from small text ads that appear next to results on its Web-search engine. Since 2007, Google has spent more than $4 billion to acquire display-ad technology companies such as AdMob, which places ads on mobile devices, following its 2006 purchase of YouTube.

Google's rise in online display ads comes as it capitalizes on the woes of Yahoo and AOL, which are struggling to keep advertisers happy as Internet users flocks to other sites, including Facebook. Yahoo, which for years dominated the U.S. online display-ad business, has seen its share of that market slip to 13.1% in 2011 from 18.4% in 2008, with AOL's share falling to 4.2% from 7.6% during the same period, according to eMarketer. Google's slice of the fast-growing market, which is now worth $12.1 billion in the U.S., has risen to 9.3% from 2.4% during that time, while Facebook's share rose to 16.3%, up from 2.8%.

Google's top display-ad executive, Neal Mohan, said he believes the display-ad market, now worth $25 billion globally, could eventually reach $200 billion.

Most of Google's gains in display ads is driven by services that help advertisers buy cheaper ads, also called remnant inventory, in bulk to reach broad audiences online, including on mobile devices. Because it has invested so much more than its rivals in this area, Google now has a "competitive advantage," said Daniel Khabie, chief executive of Digitaria, a digital ad firm owned by WPP PLC.

Yahoo and AOL declined to comment.

Ad agency executives, mindful of Google's growing influence in display advertising, have been supportive of a recently announced initiative by Yahoo, AOL and Microsoft Corp. to effectively pool much of their unsold ad space so that advertisers can easily buy ads across all sites. The deal is widely viewed as an effort to counter Google's rising clout.

Google began shifting its approach to ad agencies under former top Google sales executive Tim Armstrong several years ago. Around the time Mr. Armstrong left Google in mid-2009 to become AOL's chief executive, Google's sales offices began to hang up giant posters of the CEOs of top ad agency holding companies such as Interpublic Group of Cos. Google also started hosting more agency representatives at its Silicon Valley headquarters. It has hired aggressively at its New York office, its main sales hub, which now has more than 2,500 employees—half of whom are in sales—up from 1,600 in 2008.

By the start of 2010, Google had hired former ad-agency executive Torrence Boone to build out its "agency relations" team. Mr. Boone said Google previously was "not as collaborative" with agencies but came to realize that agencies control the "overarching brand strategy" for their clients, including their spending on television and other forms of media. Google executives said the company hopes to divert such spending to the Web.

As a result, "agencies were highly skeptical of Google," Mr. Boone said. "But the relationships we've built have been a big accelerator for digital ad spending and Google has benefited."

Google earns money by helping more than 2 million website publishers such as Time Inc. sell display ads on their sites. Google also collects fees for playing matchmaker between those publishers and advertisers in an automated marketplace, the Google DoubleClick Ad Exchange, which launched in 2009 and is becoming the dominant player in the industry.

Google also invested funds to develop special tools for ad agencies such as Publicis Groupe SA and Omnicom Group Inc. to help them buy ad space for their clients across the Web in an automated fashion.

In addition, Google sells display ads on YouTube, where ads on its home page cost between $500,000 and $1 million a day. It has steadily increased the number of high-price "oversized" home-page ads it sells on the site over the past year, according to Macquarie Research.

David Cohen, an executive vice president at Interpublic's UM media-buying agency, said Google several years ago "did not understand how agencies worked and [was] impossible to deal with on payment terms, terms and conditions and other legal matters." Now relations have markedly improved and his firm gets important previews of future Google offerings, among other things, though he added that the relationship is "still a work in progress."

Last year, Mr. Cohen adds, 20% of UM's spending with Google involved display ads, up from 10% two years ago.

—Suzanne Vranica contributed to this article
Write to Amir Efrati at amir.efrati@wsj.com
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Old 1st February 2012, 12:14 AM
evantanski evantanski is offline
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I appreciate you taking the time to write all this up for us; it’s great to hear another point of view.
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