Google's Revolution May Not Be Televised

The search giant has teamed up with EchoStar to change the culture of TV advertising. But it's unlikely to have the impact it has had online

First Google began selling video ads on YouTube. Now, through a partnership with EchoStar Communication's Dish Network satellite TV service, Google is extending its advertising reach to place commercials on your tube. The move makes sense for the search giant, which already dominates online advertising and has begun selling radio and print ads. The endgame is to become a one-stop shop for marketers looking to target audiences across all media.

But can Google revolutionize the way 30-second TV spots are bought and sold? Don't bet on it. What makes Google (GOOG) an online advertising force doesn't readily translate to the offline world.

No Keywords

Consider what makes Google so appealing to online advertisers: its ability to keep them from spending money needlessly on audiences unlikely to be receptive to a sales pitch. It does this by delivering ads related to information individuals are searching for online and then charging advertisers only when those individuals demonstrate an interest in their ad. Google's ability to do this better than peers translated into $10.6 billion in sales in 2006.

Offline, Google lacks the same extensive targeting ability. Marketers will be able to target specific audiences based on the network, the time of day the ad runs, and the geographic regions where the ad is shown. Marketers also will be able to buy ads based on desired audience, and Google will deliver the ads to matching networks in the appropriate time slot, says Keval Desai, director of product management for Google TV ads.

But marketers won't be able to show their ads only to individuals or households who recently have looked for their product online. "We don't offer keyword-based targeting," says Desai.

Not Much New to Offer

That could all change as TV set-top boxes become more integrated with the Internet, says Desai. Internet Protocol television (IPTV) devices such as the Apple TV (AAPL) will help advertisers use information collected by Web users to serve more relevant ads both online and on TV (see, 9/13/06, "Apple's iTV: Bridging the Big Divide"). However, Google will have to avoid relying on surfing habits to the point that TV viewers' privacy is compromised. "User privacy is something we take very seriously," Desai says.

Without the extra targeting capability, it will be hard for Google to offer much more in terms of helping advertisers reach the right consumers than cable companies currently offer. Time Warner (TWX), for example, lets marketers remove target ads in the same way that Google is testing, says Time Warner spokesman Mark Harrod. Time Warner is also testing advertising that involves some of the interactive aspects that Internet ads currently offer. For example, it has tested ads with brands such as General Electric (GE) that let consumers click a button on the remote to see more of the ad and the company's offer. "Cable's TV network architecture is particularly well suited to offer advertisers better targeting and better measurement because of its inherent two-way capability," says Harrod.

Google will be able to track TV ads and charge advertisers only when a given ad is broadcast to a user's home. (It won't be able to tell, of course, whether the user is in the room at the time.) Here again, Google is not offering something entirely new. Cable companies have ad tracking, and third-party systems, such as ErinMedia and TNS Media Intelligence, track whether ads are served to actual set-top boxes, accounting for digital video recorders and changing the channel during the commercial breaks (see, 2/6/07, "Ganging Up on Nielsen").

Of course, these third-party companies, which have limited reach themselves, do not set pricing for ads. TNS Media Research, for example, is new to the U.S. market. Its service is in 300,000 homes in Los Angeles and thousands of homes using DIRECTV. But its data can, and arguably does, influence network prices.

Trust and Good Feelings

Furthermore, some advertisers may not entirely trust data provided by a company that takes a share of the advertising dollars spent, says George Shababb, chief operating officer of TNS Media Research. "I think that the industry will always look for third-party objectivity," says Shababb.

For Google's service to really become revolutionary, it must also change how marketers and networks perceive advertising. Today, advertising is not a mere commodity to be bought, sold, and traded based solely on price. It is purchased, in part, through relationships individual media buyers and advertisers have with networks and the deals they negotiate. A network, for example, may choose to give deals to an advertiser with whom it wants to build a relationship or whose brand it feels has a positive association for its content. Marketers may choose to sponsor a show they feel engenders good feelings toward its brand.

High Bar

These hurdles, of course, don't mean that Google won't make money from TV advertising. Google has a network of advertisers, many of which have yet to spend money on television because they are too small and lack the knowhow and connections to produce television ads and buy time on networks. Google's service would lower the entry barrier by making it more straightforward to buy advertising on EchoStar's 125 national networks. Google will also give its advertisers access to the roughly 23,000 subscribers it reaches through Astound Broadband, a California television operator.

Google also plans to launch a service that would match businesses with agencies capable of producing a video ad for them at their desired price, says Desai. "I think having an online platform will be hugely helpful to them," says Desai.

The effort to reach beyond online advertising won't be bad for Google either, says Merrill Lynch (MER) analyst Justin Post. The television initiative, combined with similar efforts in radio, print, and e-commerce technology and software, could increase Google's share value by about $40, Post reckons.

For most companies, that would be a momentous lift. But considering that Google's stock is already north of $470, it's short of revolutionary.

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