Google's Search for Ad Dominance

The company's new Ad Planner has already hit the competition hard, but will it really follow through?

Despite online advertising's promise of pinpoint targeting, finding just the right audience for a particular ad remains more art than science. That's all the more true as myriad social networks, blogs, and other services have splintered audiences across thousands of Web sites, making it increasingly tough to target large enough demographic groups.

Now Google (GOOG) is aiming to jump-start a fledgling drive to turn that art into a science—and once again, the ambitious search giant's efforts are roiling the ad industry in the process. On June 24, Google introduced Ad Planner, a free online service that lets media planners plug in the age, language, or other characteristics of people they want to reach. The service then spits out a list of Web sites that attract audiences with those characteristics so the planners can place ads on them. Although some startups such as Quantcast already use similar approaches, Google's entry, coming from an aggressive online leader with vast resources, could accelerate the digital transformation of advertising—and help the company burrow its way even deeper into Madison Avenue.

Prime Web Data

That's because few companies can match the fearsome data-gathering capabilities of Google. For one thing, "Google has the broadest audience to draw their data from," says John Squire, chief strategy officer of online data analytics and marketing firm Coremetrics. Google also has spent billions of dollars on software and computer servers to track and save myriad data on the complex interactions of people and services on the Web, amassing a data trove widely considered to be among the world's largest and most detailed.

Google's approach presents a stark contrast to the decades-old methods of analyzing mass audiences and divining their buying preferences. Even the current leaders in online measurement, comScore Networks (SCOR) and Nielsen//NetRatings, rely chiefly on those same methods. They estimate Web activity by analyzing a sample of Web surfers who have agreed to let the companies track their online wanderings. Although advertisers and ad agencies crave such data, critics say the firms' consumer panels may not represent the Web population at large, and often result in smaller or niche sites getting underrepresented. Google aims to allow much more precise targeting by going beyond estimates and tapping into its own extensive pool of data on what millions of people actually do online. Google isn't saying precisely which information sources it's drawing from, but it's using search data, its own analytical data on Web sites, unnamed market research from other companies, and outside consumer panels.

Google makes the bulk of its money today by placing short text ads alongside search results on its own site and on a network of thousands of other Web sites. But it has much bigger ambitions to expand into all kinds of ads on the Net, as well as radio, television, and print. Ad Planner could be a prime vehicle for Google to move beyond search advertising. Despite the continuing growth of that market, Google already owns at least 75% of it, so to keep its own growth humming, it needs to move into online display and video ads.

Not a Surefire Success

In the process, however, Google could wreak havoc on the increasingly central audience measurement market itself. Within hours of Google's announcement, comScore's stock plunged almost 23%, closing at 21.45 a share on June 24, as investors assumed Ad Planner would knock a hole in its revenues. That's unlikely in the short term, according to several online ad industry experts. Indeed, investors pushed comScore's stock back up a bit, by 7%, the next day, after realizing their overreaction. For one thing, the Google service is invite-only for now. And given the ad industry's insatiable appetite for data, Ad Planner in all likelihood will become just one of many tools in the arsenal of media planners. "It's not a zero-sum game," says Todd W. Greenwald, analyst with the boutique investment bank Signal Hill Capital Group.

What's more, Ad Planner is no sure winner. Google has a habit of tossing out new services with abandon, not all of which succeed. At this point, Ad Planner is more limited than the comScore and Nielsen services, and Quantcast recently released a similar media planning service. Analysts say Google's service doesn't provide as much detail on users as comScore's, for instance, and doesn't yet link to offline databases such as retail loyalty-card lists.

As a result, it's likely to appeal at first mostly to small and midsize ad agencies that don't yet use more sophisticated services, says David L. Smith, CEO of digital media planning and buying firm Mediasmith. Moreover, some ad agencies, already suspicious of various Google services that appear to encroach on their territory, have no intention of depending on a possible competitor for their data. "How much more of the fox guarding the henhouse do we need?" says R. Michael Leo, CEO of online ad services firm Operative. "I do not see agencies and media companies accepting measurement data from the same people selling them ad inventory."

Not right away, anyway. But Google has the resources, the will, and potentially the richest trove of data to offer advertisers and agencies. Ultimately, for all their misgivings, media buyers may find themselves unable to resist the lure of solid data on where their most promising customers are. If so, Google will be another relentless step closer to remaking the ad industry in its image.

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