Google Radio Buy A Big Deal

Okay, this is another big step for Google toward revenue diversification and dominance of all media.  Google is buying dMarc Media Networks, which provides an electronic dashboard that allows advertisers to research, buy, and manage radio campaigns on a market by market basis.  Depending on dMarc's performance, Google might end up paying $1.1 billion for it--a boatload of money for most mortal companies, chump change for Google.

So let's extrapolate: If there aren't already, there will soon be companies like dMarc for all media: Television, newspapers, magazines, telemarketing, outdoor advertising, etc.  Google will buy the leading player in each market.  Advertisers will go to Google to design and manage coordinated advertising campaigns across all media--with Google, presumably, taking a cut of every dollar spent on other companies' media properties (the TV and newspaper equivalent of AdWords for Google Network Partners).  Other media companies will continue to manage the expensive hassle of creating content, and Google will monetize it. 

The profit equation, in other words, will look similar to the current one on the web: Other companies create the content, Google helps users find it and advertisers find them.  In exchange for this service, Google keeps a fat cut of the profits. 

Not a bad business if you can build it (which Google seems well on its way to doing).

Comments

[Bruce Hamm]

Makes sense that they would operate what is essentially an ad exchange for this discreet market - radio. But what Google lacks in that market is organic inventory, which is what you need to make the profits add up. Not that they shouldn't begin to proceed down this path - as radio is one where the economics are well suited towards a similar level of spend as Google's broad base each has - individually and where direct reponse markets that rely on frequency are good candidates for cross-media buys, but do you see them extending to buy organic inventory, which would imply acquisitions of station groups?

[Henry Blodget]

I would be surprised if they bought any stations (or other offline properties) in the near-term. I think the play is to extend the Google Network offline, without buying any actual content or licenses. The radio stations (and TV networks, and newspapers, etc.) should want to participate, as it will just represent another channel for ad sales--one that might be more efficient than existing channels.

[Simon Andrews]

"If there aren't already, there will soon be companies like dMarc for all media: Television, newspapers, magazines, telemarketing, outdoor advertising, etc."
There are already and they're called media agencies - owned by WPP, IPG etc. Right now advertisers go to Mindshare (WPP) or Universal McCann (IPG) and ask them to plan and buy the best campaign to meet their objectives. The agency uses their experience and get paid 1% or 2% of the spend.
Google will have more scale and therefore more learning and will therefore be more effective - so attracting more advertisers.
Google is reinventing the ad agency with a better business model.
We covered this when the NYT ran an interview with Eric Schmidt - including this;
"In any case, there is little doubt that Mr. Schmidt believes that science will replace much of the art of marketing. "I have this fantasy that goes like this," he said at one point. "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?"
http://simonandrews.typepad.com/big_picture/2005/10/google_wants_to.html

[John]

Google's plans make a ton of sense, but they still need to show that their inclusion in these different mediums nets out to an economic positive for the media owners and advertisers.

If it turns out they are a net positive then a lot of people are going to be looking for a job, if not...well, who cares?

[Timothy]

Well here comes another search engine (www.evaal.com) that looks like it will share the wealth with the web community not take over everything

[Steve D]

Why is Yahoo's revenue diversification often set as a example that Google should follow. Yahoo's marketing-services business - which is made up of branded and sponsored-search advertising - accounted for 88% of Yahoo's gross sales by end of 2005. Yahoo derives the remaining portion of revenue from its fee business, consisting mostly of revenue from its Internet-access partnerships with SBC Communications Inc., Verizon Communications Inc., BT Group PLC and BellSouth.

88% of Yahoo's revenues is derived from advertising, while 99% of Google's revenues is derived from advertising. That's not a big difference. Moreover, Yahoo has 'heavy' branded advertising which is lower margin business due to sales force and ad creation team expenses, while Google does not. Yahoo could auction-sell graphic ads on let's say Y!Finance or even its front page (after quality approval of an ad) with paid-for-impression pricing instead of setting arbitrary pricing and keeping human sales force. But they don't. They are not tech focused in a way Google is. In my opinion, that's not something Google should imitate. Instead, Google is going to introduce its ad auction system to TV and radio advertising and spread its paradigm-changing innovations to those areas with a laser focus. Yahoo has become a second fiddle and losing in everything to best of breed providers due to their dispersed focus: to Google in search, to Ebay in shopping, to Skype in communication, to PayPal in payments, to mySpace in social networking, to Expedia in travel, to Apple in music. That's not something for Google to imitate and it seems very unlikely Google will want to become what Yahoo is now.

[Stuart MacDonald]

As somebody who used to spend a few hundred million on marketing, I can tell you that this is a Really Big Deal. If there ever was any doubt, this is a clear indication of GOOG's intention to just "be" the hyper-aware plumbing of the global advertising business. Now the big question is, what are they *really* going to do to get out in front of the next wave of branding ad dollars moving online? Because surely that's the next big move to solidify their core online leadership position.

-- Stuart

[P-]

Henry... you might have missed and important point...

'Google is buying dMarc Media Networks, which provides an electronic dashboard that allows advertisers to research, buy, and manage radio campaigns on a market by market basis.'

and a post from the comments section...

"If there aren't already, there will soon be companies like dMarc for all media: Television, newspapers, magazines, telemarketing, outdoor advertising, etc."
There are already and they're called media agencies - owned by WPP, IPG etc. Right now advertisers go to Mindshare (WPP) or Universal McCann (IPG) and ask them to plan and buy the best campaign to meet their objectives. The agency uses their experience and get paid 1% or 2% of the spend.

-Simon Andrews

... Google maybe is valuing the radio slice in terms of reward more than television or print in terms of what it could do with it. Could it be too that they're seeing that the sellers aren't seeing the inherent value
of their own space more so that it doesn't translate into a higher asking price, hence Google is picking it up??...

Could be a little of both!

P-

[George]

There have been numerous attempts to create advertising exchanges and none of them succeeded. Google is Google, but only one man walks on water.

[George]

"Moreover, Yahoo has 'heavy' branded advertising which is lower margin business due to sales force and ad creation team expenses, while Google does not."

It will be interesting to see which model holds better when mortgage companies and homebuilders reduce the spending on keywords.

[Peter Childs]

My feeling is that it's part of a strategy to strengthen Google Local, provide more commercial destinations (ad placements) for Google maps in anticipation of more prevasive mobile internet. And of course for the reasons mentioned above.

[atlantic city casino]

Great site! Very interesting information! Please, visit my site - atlantic city casino

[Mark Vane]

Hi, Added a new value add to my blog this weekend - a news widget from www.widgetmate.com. I always wanted to show latest news for my keywords in my sidebar. It was very easy with this widget. Just a small copy paste and it was done. Great indeed.