Friday, October 20, 2006

Google Margins Nearly Double on Ad Revenues, Dominant Search Position Grows

Bloomberg covers the extraordinary quarterly report from Google in which it yet again beat street estimates handily and nearly doubled its profits from a year ago. Search share is up to 44 percent of the market, up from 37 percent this time last year. While Google's push to broaden its offerings is a part of this picture clearly the margins from ads go hand in hand with search growth - much to the detriment of Yahoo, which continues to lag as a search starting point and turned in suboptimal financials this reporting period. At the same time The New York Times reports on the softening of news ad revenues for them and the Tribune company, with continuing weakness from the NYT's New England (Boston Globe) division's print revenues leading the glum story.

We've been hearing - and warning - about a slowdown in ad revenues for some time, but clearly a sinking tide doesn't lower all boats equally in an ad market that's increasingly global, online and search-driven thanks to Google and other ad networks. With a worldwide Web footprint and the ability to get both extremely narrow and broad in its ad marketing footprint Google has the ability to weather out specific local economies while developing economies still ride high, wherever or however they may define themselves. Best of all, their own page inventory is constantly replenished and relevant via its search technology to become immediately relevant and valuable to advertisers - an instant editorial cycle.

What this may add up to is somewhat the opposite of what some doomsayers have been predicting for some time. Yes, eventually online ad revenues will sink along with other types, but in this economic cycle when ad budgets need to be cut it's far more likely that print ads will get the short end of the stick this time around in a greater proportion than in the past. For traditional media outlets there will be no gloating over a dot-com bust this time around - especially since such a significant portion of their own revenues now rely on online content that competes with the myriad of sources surfaced by search engines.

Along with this short-changing of print there is the new echelon of small and medium businesses advertising on the Web through Google, eBay and other outlets who are able to bypass traditional media altogether to make contact with their markets. With a continuing myopic focus on "walled gardens" most mainstream publishers are hard pressed to position themselves for this direct-to-market echelon of advertisers who are developing mass marketing strategies independent of the gardens.

So hang onto your hat, we're beginning to enter an era in which the advertising chickens are coming home to roost as never before - and they're not settling into their old coops. Business media will continue to enjoy a higher level of insulation from this trend as it continues to appeal to senior managers slower in dropping the print habit but on the consumer side it's going to be a much tougher transition through 2007. Congratulations, Google, you're making us all think. Ouch.
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