Say you're watching TV and an ad for Chevy's Silverado pickup catches your eye. Come this fall, viewers using Google's new interactive television technology will be able to type the object of their desire into an onscreen search box and launch a YouTube GOOG video or surf over to Chevy's (FIATY) website.
Advertisers foresee a new medium to get their message to consumers. "Google is going to revolutionize the way we use media," says Shattuck Groome, president of New York ad agency Gotham Direct Interactive, which buys TV ads for brands that include M&M's candy and Zappos.com (AMZN). "It's the future of advertising."
Gotham Direct already buys TV ads for clients through a prior initiative called Google TV Ads, an online marketplace where advertisers can upload video spots and place them on more than a dozen networks, including ABC Family (DIS), through services from the DISH Network (DISH) and TiVo (TIVO). Groome says he's looking forward to being able to measure precisely who is viewing the ads Gotham creates—and to pay only for ads that viewers actually watch.
Google announced its plans for "smart" TVs at its Google I/O developer conference in San Francisco on May 20. Google software will put Web content on televisions and will work with Intel (INTC) chips in TVs from Sony (SNE) and a set-top box from Logitech International (LOGI) that will allow Google TV to run on generic sets. Using Google TV, viewers will be able to search for Web programming through an onscreen search box that presents the results on their TV screens.
Big savings for Advertisers?
Advertisers say Google TV will let them reach TV viewers faster, more cheaply, and more effectively than via traditional TV spots. With Google, advertisers will know exactly who viewed their ad, how many people clicked on it, and how many people chose to use a "click-to-call" feature to contact advertisers immediately.
The platform could make TV advertising more affordable, too. Today advertisers pay thousands or even millions of dollars per spot to push fast food, cars, and beer. But an online video ad costs about only $30 per 1,000 viewings, according to the Diffusion Group, a market researcher. Jeroen Coppelmans, vice-president for the Americas at Spotzer Media, which produces video ads for small businesses, says that "someone with a budget of a couple of dollars a day could do TV advertising."
Google hopes Google TV will help it create revenue streams in addition to that from ads linked to searches conducted by computer users on PC Web browsers. Those ads contributed the bulk of the company's $23.7 billion in 2009 revenues. TV advertising in the U.S. accounted for $83 billion in spending last year, according to the Diffusion Group. If Google were able to grab even a small chunk of it, the company would tap a lucrative source of revenue.
smartphone-like remote controls
Google TV brings the company's familiar search box into the living room. The company describes the technology as creating an "entertainment hub" that lets viewers search channels, record shows, and find websites. "Many times, I see an interesting commercial and can't do anything with it," Rishi Chandra, a Google senior product manager, said at Google I/O. He added in an interview: "Now your TV advertising becomes interactive …. Every advertiser has a website."
At first, advertisers won't know whether the ads they buy through Google's advertising network are being viewed on PCs or on TVs. Google plans to let advertisers tailor messages for Google TV viewers, however. "We are looking at ways for advertisers to target specific devices," says Chandra. To facilitate typing, he says, manufacturers are working on remote controls that might resemble smartphone keyboards.
Although TV, cable, and technology companies have been pushing the idea of interactive TV since the early 1990s, the concept hasn't taken off. Among Google competitors pursuing interactive TV are Apple (AAPL), Microsoft (MSFT), Yahoo! (YHOO), and Wal-Mart Stores (WMT), which bought online movie rental service Vudu on Feb. 22. Nearly half of the flat-panel TVs sold in 2013 will be Web-enabled, up from 19 percent this year, according to consultant ABI Research.
Do consumers want full TV Web access?
Yahoo may roll out a TV advertising program in the coming months, says Russ Schafer, a senior director of marketing at the company. Yahoo's Connected TV service, which was launched last year and lets users stream movies online from Amazon.com and Blockbuster (BBI), is available on more than 2.5 million devices from Sony, Vizio, Samsung, and LG Electronics. Yahoo recently demonstrated the ability to show TV viewers a Macy's (M) ad and let them forward a related coupon to a cell phone.
Wal-Mart's Vudu service may offer advertising capabilities in the future as its audience expands, says Executive Vice-President Edward Lichty.
Microsoft's Mediaroom service lets telcos, including AT&T (T) and Deutsche Telekom (DT), offer access to such websites as Facebook on subscribers' TV screens. Ben Huang, Microsoft marketing director, says consumers may not want full Internet access on their TVs, as Google is proposing. "If the point is to allow open Web surfing on a TV, I'm not sure that's what the consumer wants," he says.
from cable companies: Canoe Ventures
Cable companies stand to lose most if Google TV takes off. "There's been enormous frustration among ad agencies about what they can do with the television platform," says Bill Niemeyer, a senior analyst at Diffusion Group. Interactive TV ads "could be a $10 billion to $20 billion industry over the course of the decade," he says. Much of that money may come out of advertisers' TV budgets, he says.
Cable companies and telcos are fighting to defend their turf. Comcast (CMCSA), Cablevision (CVC), and Time Warner Cable (TWC) have been testing interactive TV ads for months.
Comcast and other operators have formed Canoe Ventures, which has developed set-top box software that makes TV ads' effectiveness easier to measure. An overlay on customers' TV screens lets them request direct mail or coupons by pressing a button on their remote. On May 17, Canoe announced that Comcast, Discovery Communications (DISCA), NBC Universal, and Rainbow Media plan to launch the technology in this quarter.
Advertisers face a number of options to combine TV's reach with the Web's precision. Still, interactive TV is seeded with wild cards, including questions about how aggressively TV manufacturers will buy into it and how hard it is to predict consumer tastes. "It's too early to tell," says Darren Herman, chief digital media officer at ad agency Kirshenbaum Bond Senecal + Partners, whose clients include Delta Air Lines (DAL) and Victoria's Secret. "All these folks are currently wearing diapers."