Is a Google Backlash Building?

The soon-to-IPO search giant is hearing more advertisers gripe about its pricing and service. That could hurt down the road

By Alex Salkever

It started with two geeks in a garage in 1998, a classic Silicon Valley tale of smart Stanford University kids with big dreams. Since then Google has grown into the hottest technology concern on earth. The world's largest search engine will rake in an estimated $1.6 billion in 2004 revenues, with profit margins in the 60% range, according to Standard & Poor's (for more, see S&P's take on Google's competitive position, its potential valuation, and its standing among users, according to an exclusive S&P search engine user survey). Amazingly, cofounders Larry Page and Sergey Brin have maintained a rollicking company culture long on roller hockey and free massages and short on business processes.

For years, Google's basic mantra of "don't be evil" had injected a refreshing dose of good intentions into the business world. Yet the slogan is now becoming a wry joke among the growing ranks of Google watchers who say the little search engine that could has grown a little too big for its britches. "People think they have a God complex," says Chris Winfield, a search-engine expert and president of Web design firm 10E20. "And 'don't be evil!' has turned into a punchline."


  Indeed, after years of glowing praise and fawning press, America's search darling is now dealing with a backlash. With an initial public offering just weeks away, complaints are beginning to surface: Some customers are irked, management experts are skeptical, and Google is feeling a new kind of heat. For the first time, the pesky little upstart has more than competitors to worry about.

One of the most vocal groups is small Web publishers, which complain that checks from Google for ads placed on their sites have come late. Ad buyers say they can't get technical answers from Google or talk to a human when they have questions.

Trademark holders have expressed dismay at a May decision to allow competitors to purchase trademarked names and phrases as part of Google's AdWords system. This system allows bidders to buy keywords and place clickable text ads alongside the search results generated by those keywords.


  This happens not only at Google's site but also at those of AOL (TWX ), the Washington Post, and any other Web property that has contracted with Google for online search. A growing list have filed trademark-violation suits against Google, including French luxury-goods maker Louis Vuitton and financial-services outfit AXA (AXA ).

Other complaints arose when Google tried to bundle the sales of keyword advertising with contextual-advertising sales. The latter matches relevant ads to a Web page's actual content rather than merely linking an ad to specific keywords in a search. Advertisers didn't want to pay extra for the bundle and complained loudly until Google dropped the service's price in the spring of 2004, offering unspecified discounts for certain types of sites.

However, many advertisers remain dissatisfied. "My problem is they still aren't being transparent about their reporting. The pitch I was getting is that they're going to selectively discount some clicks on some sites at some times. How can I tell if that's saving me money?" says Dana Todd, co-founder of San Diego interactive marketing agency SiteLab.


  Observers say the rising tide of criticism and Google's reputation for high-handedness could come back to haunt Page, Brin, and Google CEO Eric Schmidt. "I'm sure that's going to be a real problem for them. If they have burned some bridges, that will hurt them if they're trying to strike deals down the line," says Danny Sullivan, editor of Search Engine Watch.

Sullivan says no evidence shows that Google has been damaged yet, but he cautions that as the search business becomes more competitive, customers could become less forgiving. Despite several requests for comment, Google declined, citing the "quiet period" preceding its IPO.

Consider the fate of America Online. The largest dial-up Internet service provider gained a reputation for driving hard bargains during the dot-com heyday when its huge pool of subscribers was considered the premier marketing target on the Internet. As AOL's growth waned, the tactics it had used to secure highly lucrative ad deals came home to roost as advertisers bailed in droves and others dictated terms. AOL's advertising revenues fell by 31% in 2002 and 40% in 2003, and the Time Warner subsidiary has yet to recover.


  Google competitor Yahoo! (YHOO ) went through similar problems when a mad scramble occurred in the mid-1990s to be listed in its directory. "There were people very upset with Yahoo because they couldn't get calls back from the company. It was so busy Yahoo wouldn't even deal with small accounts. They had to rebuild a lot of goodwill," recalls Sullivan. Yahoo spent considerable resources building a customer-services arm and reestablishing its reputation as a good partner.

Google may avert a similar fate. The complaints about it haven't fallen on deaf ears. The outfit has ramped up efforts to help big customers increase the effectiveness of their keyword-advertising campaigns. Larger customers who spend over $10,000 per month on AdWords get their own account representative. They also get help from copy writers who specialize in crafting text ads to entice more surfers to click.

Furthermore, some say the arrival of CEO Schmidt presaged a shift from geek culture to a more traditional emphasis on customer satisfaction. Says analyst Allan Weiner of tech consultancy Gartner Group: "Is it a company in need of polish? Without question. But these things will be fixed over time."


  How much time could prove a key factor in Google's future. Yahoo continues to turn up the heat in the market for paid-ad placements. Microsoft (MSFT ) is hustling to build its own search technology. At the same time, a host of smaller rivals, such as Kanoodle, are eager to poach Google's highest-paying customers with promises of better returns on ad dollars and even more finely targeted placements. "We're going to see the company put in a position where they have to play nice with others," says S&P analyst Scott Kessler.

That might be a hard transition for the search giant. But Page, Brin, and Schmidt might not like the alternative to playing nice with others -- which is not playing with them at all.

Salkever is Technology editor for BusinessWeek Online

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