Google - just another publisher

When publishers discuss Google, they are mostly concerned with search engine optimisation and copyright issues. They see Google as a way of distributing and publicising their web offerings, or as a competitor. Those publishers are missing the point.

In this extract from an article first published in the Subscriptions Strategy newsletter in January 2009, we look at why mainstream newspapers such as the Independent and the Sunday Times fail to make money from their websites – and how to turn things around through subscriptions marketing and classified advertising.

Google is a publisher
Because Google’s operation is digital and originates outside mainstream publishing, many publishers don’t realise that Google is a publisher just like themselves, and has pulled off the greatest classified advertising success story in history.

Luckily, we publishers can exploit that success for our own ends.

How Google got rich
The founders of Google became absurdly rich not just by inventing a different kind of search engine (others have done that and remain struggling) but also by exploiting the effectiveness and earnings potential of classified advertising. Any of the other search engines could have done the same, but didn’t. Likewise, any publisher could have done the same, but didn’t.

So what does Google do that others don’t?

It is both fascinating and puzzling to discover how novel Google’s approach is. Fascinating (to me, anyway) because it’s clear there are mountains of money to be earned through classified advertising – and puzzling because the majority of publishers just don’t get it.

Classified advertising sales
For those who don’t know, classified advertising sales (generally lineage and smaller ads bundled into subject categories) are usually consigned by traditional publishers to junior and ‘hard-nosed’ sales staff and managers. Classified is treated either as a training ground or somewhere to put people who can sell but don’t quite belong in the world of major advertising agencies and clients. When a new launch of a consumer title is announced, you won’t hear much talk of classified revenue. It’s just not seen as an important or mainstream field to work in.

The exception to the rule among big consumer publishers is the Guardian newspaper, where the managing director is appointed from a classified advertising background. Perhaps that is because the newspaper began as a regional publication in Manchester where classified advertising was always a major source of revenue. Whatever the reason, it’s why the Guardian makes so much money while other big media owners don’t.

The equivalent in the world of traditional advertising would be if the Independent newspaper began to carry lineage and other classified ads in the borders of editorial pages and developed editorial to match demand. The newspaper would suddenly break into enormous profit and overtake the Guardian. Instead, the Independent loses an estimated £10m a year.

Google as a classified publisher
Like most secrets of business success, the key to Google’s market mastery is both simple and cleverly hidden.

Google is just a classified publication, a digital version of a directory like the Yellow Pages. Google simply lists other publishers’ websites. Like the Yellow Pages, companies do not pay for their basic listing, only if they advertise.

Like Yellow Pages, Google distributes the pages of listings free, which guarantees a wide readership.

Google Adwords
Advertisers buy classified ads, Adwords, around the basic listings. Advertisers can also pay to place Adwords next to the content of the websites and even select which websites to advertise within. Advertisers pay not per insertion but according to the demand for space on the page from other advertisers in their market and the number of clicks they receive. Google works out how much this costs and advertisers pay each month. That is a nice arrangement for Google because it is in command of its revenue stream.

Google Adsense
Adsense is Google’s system of paying website publishers a cut for accepting ads on their website pages. The publisher is paid according to the number of clicks those ads receive.

So roughly how much money does it cost to place Adwords? How much money does a website publisher receive for accepting those Adsense advertisements?

The marvel is that, unlike a traditional publisher, Google publishes no fixed rate card for placing an advertisement. Nor do the website publishers receive a fixed rate for accepting Adsense words from Google. Google decides what it charges and pays as the whole show rolls along, ‘adjusting’ its automated systems to pay itself a proportion of ad revenue depending on the market and the demand.

Advertisement budgeting – unpredictable and erratic
From a budgeting point of view, life for advertisers is unpredictable. With Adwords, who knows what demand there will be from other advertisers in your market? With Adsense, who knows how many clicks you, as a publisher, will get and how much revenue will be forthcoming for the ads you accept on your site?

Most companies involved with Google simply ‘suck it and see’. But you can’t plan future income on that, because once you are up and running revenue changes with every market fluctuation.

As there is no fixed rate card for advertisements, nor a transparent way of auditing the number and quality of those clicks, it is not possible to plan income and expenditure ahead of the advertisement appearing. Google advertising therefore suits businesses that can monitor results day-to-day and those that can lever high margins from a fluctuating volume of enquiries.

How much does Google make?
Fortune, as they say, favours the prepared. The Google finance people don’t have any budgeting problems because they invented and are in total control of the system. They can forecast their income with extreme accuracy for years ahead, because they are the ones deciding how much to take as their cut. So how much does Google make?

Google made £925 million in advertising revenue in the UK in the first nine months of 2008 and is set to come in at about £1.25 billion for the year. A year ago it generated £871 million, so its UK annual growth is about 43.5 per cent.

If, as a publisher, you have always regarded classified advertising as the poor relation to display advertising, then you will be surprised to learn that between July and September Google generated £327 million during the three-month period – all from classified advertising. ITV1 earned an estimated £317 million in display advertising across the UK: £10 million less.*

*The Times newspaper analysis

Revenue publishers continue to miss
The Google classified ads act like traditional display ads, running alongside and within editorial. The difference is that they are lineage rather than quarter, half and full pages.

Traditional publishers don’t see this advertising potential because they normally arrange their own classified ads in huge blocks at the back of their magazine, paper or website, not within the contents and editorial as Google does with Adwords and Adsense.

A traditional publisher will arrange his website with huge listings of ads in a separate section, all under ‘Classified’ subject headings. Advertisements are therefore only seen by people who are actually looking for an item, service or job at that time. In other words, advertisers have lost most of their potential market: impulse purchasers and those who realise or remember they need or want something when they come across the advertisement.

Publishers are not exploiting their information profitably. Many remain blinkered as to the revenue potential of Adsense. They argue that they don’t really want to run classified advertisements next to editorial, because it breaks up the page and is visually unattractive. And who wants to start an argument with the guys running the website?

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