Google's Threat to Madison Avenue (GOOG)

| About: Alphabet Inc. (GOOG)

Features on Google's advertising business and ads placement strategy appeared recently in both the New York Times and Wall St. Journal. The Times article, which includes statements from Google co-founder Sergey Brin and CEO Eric Schmidt, is the more thorough of the two and demonstrates, as John Battelle says, that "Google is using the Times to talk with the folks on Madison Ave - and Wall St."

Three key points from these articles/trial balloons:

1) Google is testing the waters in key offline markets:
  • TV -- Brin: "If we can figure out a way to improve the quality of ads on television with ads that have real value for end-users, we should do it... [When I watch TV] why do I see women's clothing ads?... Why don't I see just men's clothing ads?"
  • Magazines -- WSJ reprints a Google ads page recently purchased in PC Magazine, and suggests a novel version of pay-per-click for print: "a system of counting the phone calls to toll-free-response numbers featured in Google-placed print ads. That way, advertisers could gauge the success of their ads and Google could charge advertisers only for each response they get -- as it does online."
  • 2) Google's foray into traditional media may make the entire media buying operation -- one of Madison Avenue's bread-and-butter products -- obsolete. Why pay human analysts to determine where to deploy your advertising budget if Google can automate that decision -- and track its results -- far better? Schmidt: "I have this fantasy that goes like this... You are the C.E.O. of a large company, and I come to you and say, 'Give me $1 million and give me your Web site, and we will guarantee you will get $100 million in sales.' Which C.E.O. would turn that down?"

    3) Google has a potentially disruptive plan for the retail advertising sector: "to have big retailers link their inventory systems directly to its advertising auction. That way, a toy store chain, for example, could respond to a search for dolls with an ad for either Barbies or Bratz, depending on which were overstocked in the store near the user's home. 'Most retailers only advertise 5 percent of their products,' said Tim Armstrong, Google's vice president for ad sales. 'We can let them advertise all of them.'"