Ovum Analyst Discusses The Future Of Google
Google has been in the news a lot recently following its acquisition of the online ad company DoubleClick and the announcement of its strong profits increase for the first quarter of the year. In light of Google’s recent manoeuvres, MediaTel INSIGHT spoke to Ovum analyst David Bradshaw about where the search engine giant could be heading.
On the purchase of DoubleClick, which Google bought for £3.1 billion, Bradshaw said: “Obviously it concentrates more of the online advertising market on Google, which already has a very substantial dominance of the search-based market, as opposed to the display market. Google essentially has two different advertising models at the moment, the sponsored ads in search results on its own site and the ‘ads by Gooogle’ that it places on partners’ sites (as well on some of the sites it owns). The second type uses search technology to place the most appropriate, available ads on the partners’ web pages.
DoubleClick adds a third, one that was missing, and which has a different business model from the one Google already has, although it’s closely related and can use the same technology in a slightly different way. Google could use the same kind of technology as it has for partner sites on the display ads. In other words the display advertising could be targeted contextually on the site. There will probably be a combination of that kind of automated placement and placements that are specific to particular sites.”
Almost as soon as Google had bought DoubleClick, various people – including Martin Sorrell, CEO of WPP – voiced concerns about privacy issues arising from the information the two companies could now share.
However, Bradshaw pointed out that Google already has to take care with the information it handles in order not to damage its business. He referred back to Altavista, an earlier champion of the search based market, saying that its main error had been to not distinguish properly between sponsored search ads and “genuine” search ads that had been found by the search engine.
Users found that they were not necessarily getting the best results out of Altavista, because they were clicking on sponsored links which were appearing higher up the rankings, said Bradshaw.
He added: “Google has learnt that lesson well. It has to treat its users properly and it has to treat its advertisers properly. It doesn’t want people to perceive it as a threat to their business. If they do then they clearly will stop using Google. Google is well aware and has been aware for some time that it can’t abuse people’s rights. There was a lot of concern when Gmail first appeared that it was going to be paid for by contextually-placed sponsored ads and that these would become intrusive. I think that the popularity of Gmail testifies that they have managed to behave properly there – they understand these issues.”
At the recent MediaTel Group Future of Digital seminar, one of the subjects up for discussion was search and Google’s dominance of the market (see The Future Of Search).
It is quite hard to see a challenger knocking Google from its perch as the number one search engine, although Bradshaw said that whilst it might be difficult, it is not impossible for it to happen. “The potential is there for somebody to take its place at the top of the tree but it has to be said that Google is in such a dominant position that it would take a serious mistake for that to happen. It’s not impossible that Google will make that kind of error, but as we have seen, they have learnt the lessons from the past so at the moment it seems unlikely. Never say never though, it could well happen,” he said.
Bradshaw said that Google’s profits, which rose almost 70% in the first quarter, are to an extent under its control as it has an enormous engine for profitability in terms of its existing revenue stream.
“The question is what is Google going to spend on trying to develop its new businesses? For me, that’s the key question and the key future imperative for the company is finding new sources of growth. That said, I don’t believe that search is likely to run out of steam anytime soon. If you look at where they make their money it’s in two countries generally, it’s in the US and the UK, so there is a lot of potential to make similar amounts of money around the world,” he said.
The Ovum analyst finished by saying that a lot of Google’s success comes from the fact that it is potentially possible for its advertising customers to track what impact a particular search ad has on thier revenue. He said: “You can see the clickthrough come in from Google, you know how much you’ve paid for that ad and if you have the capabilities you can potentially track this visitor to your website through the browsing session, to any orders that the customer places, the revenue from that order and all the way through to the profit it generates. All these things are potentially possible but not many people can do it because there are so many moving parts. But even without fully tracking the outcomes, internet based advertising is intrinsically a lot more measurable than any other media, and as a result, the prices are driven to results as well as what advertisers are prepared to pay.
“While there are some limitations on the measurability and there are some disputes about just how effective it is, internet based advertising is still an awful lot more measurable than a typical print or TV or radio ad and that’s why it’s going to continue to grow for the foreseeable future.”
Google: www.google.com Ovum: www.ovum.com