Google's Core Competency May Not Transfer To Offline Media

What is Google’s (GOOG) core competency? I would argue that it’s harvesting the value from massively scaled, complex human activity, i.e. millions of websites linking to each other and hundreds of thousands of advertisers bidding on key word and experimenting with ad creative, clickthrough rates, and conversion rates. The other critical element of this core competency is a natural feedback loop, e.g. the “relevancy” of a search results page or an online business’ cost of sales through paid search advertising.

The reason that Google has struggled to apply this core competency to offline media, i.e. magazines, newspapers, and now TV, is that these media lack both the scaled of activity and the natural feedback loop that enables Google to create efficiencies by harnessing these market dynamics.

If you read Google’s press release about its new TV ad system, it’s clear that they are aiming to pump as much feedback data and activity into the system as possible:

Advances in set-top-box technologies make it possible to report aggregate statistics on how many times an ad was viewed and whether it was watched through to the end. As part of this trial, we will be working with partners to use aggregate, anonymized set-top-box metrics to deliver timely and accurate viewing reports. Advertisers can use this data to understand the effectiveness of their TV ad campaigns and use this information to provide more relevant ads to viewers.

The problem is that the “sensitivity” and “specificity” of the data and the scale of activity (i.e. number of advertisers using the system and the number of bids per advertiser) don’t even begin to compare to what exists in search. First, the number of advertisers who will be able to create video ads is likely to be dwarfed for some time to come by the number of advertisers who have created text ads. Second, the ability to track, at the individual user level, the performance of each text ad for each keyword AND, critically, the ability to track that individual user’s behavior on a site AFTER they click doesn’t even begin to compare to “aggregate statistics on how many times an ad was viewed and whether it was watched through to the end.”

The irony here is that Google is running in the completely opposite direction with its cost-per-action advertising program, which provides the ultimate feedback loop.

Back in the days of mass marketing of mass products, i.e. when everyone was a potential customer, TV was an immensely efficient medium because reaching everybody was the objective. As consumer audiences and product target markets fragmented, TV became more and more inefficient, to the point where the entire system is now propped up by the inertia of deeply entrenched economic interests. While Google will no doubt introduce greater efficiency into the TV ad sales system, it will have the net effect of driving money out of the system.

Of course, if that money is driven into the more efficient online marketing space, Google will ultimately be the beneficiary — perhaps the whole foray into offline media is all a strategy to crush the competition from other media by completely disrupting each medium’s core advertising market, and thereby freeing up those dollars to flow into Google’s online coffers.

Rather than create new money-making machines, wouldn’t it be far more efficient for Google to find new ways to feed the one it already has?

GOOG 1-yr chart:

Comments

[SethConsulting:]

It was unfortunate to read an article with such a weak competency assessment and opportunity analysis in a trusted web site.
The author has not been able to dig deep below to understand the "Why" and "How" factors that make Google a success and those uncontrollable elements that could pose a threat to Google's sustainable development.

Ritesh Seth

2007 Dec 01 11:48 AM

[Jason Shanks:]

I agree with the above comment writer about this article. The author does a poor job at analyzing Google.

2007 Dec 25 03:34 AM

[Atif Ali:]

I have to agree to both the above comments...its a very poor assessment of Google in terms of its core competence. Remember the three fundamental core competence characteristics as put forward by Hamel and Prahalad.

Mar 24 01:35 PM