Google Ads: The Safety Net That Became a Trampoline

By Exclusive Concepts Blog Team

I think that Google is the most interesting company in America and the most important company to follow if you are interested in how to make your online presence and your online ads more effective. I’ve been writing a lot about Google because there is so much news coming from Mountain View on a daily basis. The New York Times this Sunday has a very important article for those of us who want to understand where Google came from and where it’s going. Google Wants to Dominate Madison Avenue, Too.

As Stanford graduate students sketching out the idea that became Google, the two software engineers sniffed in an academic paper that “advertising-funded search engines will inherently be biased toward the advertisers and away from the needs of consumers.”

They softened that line a bit by the time they got around to pitching their business to venture capitalists, allowing that selling ads would be a handy safety net if their other, less distasteful ideas for generating revenue didn’t pan out.

Google soared in popularity in its first years but had no meaningful revenue until the founders reluctantly fell on that safety net and started selling ads.

As it turned out, the safety net was a trampoline. Those little ads – 12 word snippets of text, linked to topics that users are actually interested in – have turned Google into one of the biggest advertising vehicles the world has ever seen. 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.

HIDDEN behind its simple white pages, Google has already created what it says is one of the most sophisticated artificial intelligence systems ever built. In a fraction of a second, it can evaluate millions of variables about its users and advertisers, correlate them with its potential database of billions of ads and deliver the message to which each user is most likely to respond.

Because of this technology, users click ads 50 percent to 100 percent more often on Google than they do on Yahoo, Mr. Noto estimates, and that is a powerful driver of Google’s growth and profits. “Because the ads are more relevant,” he said, “they create a better return for advertisers, which causes them to spend more money, which gives Google better margins.” (Yahoo is working on its own technology to narrow that gap.)

Some media industry executives wonder whether Google, which has already become the most powerful force in Internet advertising, should also become the clearinghouse for ads of all types – a kind of advertising Nasdaq.