[LINK] SMH: 'Google monster'

[Roger Clarke]

[Who is Julian Lee?  This seems to be a well-informed and sober 
analysis of a complex topic.]


Google monster
Julian Lee
SMH Weekend Business
August 15, 2009
http://business.smh.com.au/business/google-monster-20090814-el49.html?page=-1

The search giant has the power to make or break the media, Julian Lee 
writes, but the industry seems powerless to kill off the beast it 
helped create.

They call it fear of Google, or FOG for short. That feeling in the 
small hours when you sit bolt upright in bed in sheer terror at how 
much your livelihood relies upon an algorithm. That the traffic to 
your website, the clicks that result in sales leads, indeed your 
entire presence in cyberspace, hinges on a search engine - the 
formula for which is as closely guarded a secret as Coca-Cola's 
recipe.

That formula can change any time and you won't even know it, until, 
that is, your company's ranking on Google's all important home page 
sinks like a stone to the bottom of a well. Or rises to the top.

Now FOG is creeping over to the media and advertising industries, 
which are experiencing the same symptoms; a cold realisation that 
Google's power threatens to eclipse their business models and put 
them out of business. The irony is that the media helped create the 
monster now giving them nightmares and there is little they can do to 
stop it.

With nearly 10 million visitors a month Google is the most visited 
website in Australia. Nine out of every 10 searches made on the 
internet is through Google. Those eyeballs translate into an 
estimated 90 per cent share of search advertising - the fastest 
growing area in online advertising as the number of advertisers using 
the service soars close to 50,000 in Australia. Google's revenue is 
estimated to be $700 million and fast heading towards $1 billion as 
more advertisers divert their budgets into a medium that delivers 
them measurability and sales leads. Soon Google will have the ability 
to sell and serve richer display brand ads on 62 per cent of 
Australian websites. A suite of products from maps and mobile phone 
applications to computer operating systems, video traffic on YouTube 
and cheap telephone calls only helps rust consumers onto the Google 
brand.

The more time we spend on the internet, and hence on Google, the more 
money it makes. All of which is making the Australian media, already 
grappling with the structural changes the internet has wrought on it, 
deeply uncomfortable. Now it is plotting its revenge; how it goes 
about exacting it is another thing altogether. But while Google's 
monopoly of information is not in doubt, to date there is scant 
evidence of Google using its muscle to distort the market, only a 
fear that it might do so in the near future. That has not stopped a 
growing chorus of voices expressing concern at Google's dominance, 
but such is the might of Google, few are prepared to go on the 
record. Telstra's Sensis, News Limited, Ninemsn and Microsoft all 
declined to publicly air their grievances because some of them still 
do business with Google.

One that did, though, is the man who arguably has the most to lose 
from Google's continued
dominance and the most to gain from its downfall: Rohan Lund, the 
chief executive of Yahoo7!, Google's main competitor in search.

He says all he can see is a future where the Google Death Star, as he 
dubs it, will reign supreme. "There needs to be a conversation in 
industry and government about Google's role in the market and what 
this means for business and consumers both now and in the future,'' 
Lund says, adding that Google may now be Australia's largest media 
company by reach and profit.

''Commentators in the US are concerned that Google has a 60 per cent 
share. Let's not forget that in Australia that climbs to nearly 90 
per cent share, even after the Yahoo! and Microsoft search businesses 
join forces."

Last month Yahoo signed a global deal with Microsoft to combine their 
forces to take on Google with Microsoft's new search engine, Bing. 
Despite 2 million Australians a month using Yahoo's search engine, 
its share of paid search advertising remains static, forcing the 
company to look to other areas, such as mobile, for growth. It faces 
being trapped in a vicious cycle where if it can't get enough people 
asking Yahoo the questions, then it can't attract the advertisers and 
the internet-browsing public continues to turn to Google where it can 
get more relevant answers.

"There are plenty of media and ecommerce players out there feeling 
very nervous about the Google Death Star. I'd be stunned if 
government isn't thinking the same way," Lund says.

It is not. The Australian Competition and Consumer Commission said it 
''had nothing to add on the matter'' and government loves Google. The 
Communications Minister, Senator Stephen Conroy, made multiple 
references to Google in his recent paper on the national broadband 
network.

The Treasury never blinked when in May the Herald revealed that the 
company was siphoning off hundreds of millions of dollars in revenue 
from its Australian business to a subsidiary in Ireland. For the year 
ending December 31, according to documents filed with the Australian 
Securities and Investments Commission, Google's revenue was just $90 
million when the real figure could be as much as 10 times that.

Last year the NSW Government awarded Google the contract to provide a 
customised version of its email service, Gmail, to 1.5 million 
students. Google has also done deals with computer manufacturers such 
as Dell and browser companies such as Mozilla to embed its search 
engine into their products.

''Distribution is key. Once you start locking up distribution your 
reach gets bigger, then the revenue per search gets bigger and then 
as that gets bigger the more you are able to pay others to lock up 
distribution,'' says Lund, who has spoken out despite pleas from 
Google for him to remain silent on the matter.

At present there would be little public support for a backlash 
against Google, which provides an ever expanding suite of free 
products to internet users. Google has succeeded where Microsoft - 
which not so long ago was the centre of anti-competition 
investigations - failed, in creating a quirky fun brand with strong 
consumer appeal.

But while the lines between Yahoo!7 and Google are clear cut - they 
are rivals - the same cannot be said of its relationship with 
publishers. What started out as a marriage of convenience with the 
media enthralled by the lure of its glamorous new partner, now 
threatens to descend into a bitter divorce.

On the one hand News Limited and Fairfax Media are Google's biggest 
customers, each year paying millions of dollars to it for search 
terms to deliver them traffic for their websites - anything from cars 
and houses to jobs and holidays. Ads on Google drive up to 20 per 
cent of their traffic. Publishers also get a cut of the revenue from 
the little text ads that appear at the bottom of the page and which 
are sold on the relevancy to the adjacent story, a program known as 
Adsense. Each month Google directs a billion clicks to newspaper 
websites worldwide and last year it paid out $US5 billion ($5.9 
billion) to Adsense media partners.

But as it stands, the ledger is firmly on Google's side. As one 
publisher, who declined to be named, put it: ''Google is a drug. It's 
addictive. The thought of giving it up is scary.'' Along with FOG, 
''turning off Google'' is a phrase often muttered in media circles. 
Most are contemplating it but in an environment where he who gets the 
most clicks wins, no one has the guts to do it. Yet.

The uneasy relationship between Google and the media came to a head 
last month when Google began putting real estate listings up on its 
popular Google Maps service, pitting it directly against its biggest 
customers, Fairfax Media's Domain and the News Limited controlled REA 
Group, the owner of Realestate.com.au. In retaliation, both Fairfax 
and News threatened to pull their search advertising budgets from 
Google, fearing that at stake was a category that commands $144 
million of annual classified advertising revenue.

The REA Group chief executive, Greg Ellis, continues to rattle his 
sabre, clearly encouraging others to join him. The Australian 
internet market should not underestimate the significance of Google's 
entry into the classified space, he says. Since Google parked its 
tanks on his lawn he hasn't even had a phone call from Google 
discussing how the two companies can do business, he says. 
"Historically Google's partnership offering is for local companies to 
provide Google with their content. Google does not offer any 
meaningful branding or reporting associated with the listings. This 
is not a mutual partnership approach. The approach is 'provide us 
with a list of your customers and then buy our keywords to drive 
traffic to your listings'."

To make matters worse, says Ellis, the keywords at the top of 
Google's map search product for real estate are taken by Google 
itself. "REA is currently reviewing its customer relationship with 
Google. It will be interesting to see the classified market's 
response when our decisions become public,'' he says.

Fairfax's tone towards Google has also changed in recent weeks. Nic 
Cola, chief operating officer of Fairfax Digital, talks about Google 
as being like ''a friendly King Kong''. ''They can pick you up and 
crush you without realising it.''

But he says to describe Google as a partner would be wrong. ''They 
are a big supplier but they are also now our biggest competitor. They 
talk to the same people as us for advertising Š they are bringing out 
products that directly compete with us. But I would certainly not 
characterise them as partners.''

The faultlines in Google's relationship with the media began to 
appear earlier this year when Rupert Murdoch launched his tirade 
against Google and other online news aggregators which link to news 
articles while selling search terms or ads on pages that provide the 
links.

One of his chief lieutenants, Robert Thomson, the editor of The Wall 
Street Journal colourfully described the company as ''parasites or 
tech tapeworms in the intestines of the internet''.

At the same time in Australia it became increasingly apparent that 
Google was breaking away from the mainstream media and pursuing its 
own path. Earlier this year it pulled out of the top-tier membership 
of the industry body, the Interactive Advertising Bureau. It already 
refuses to share its revenue figures with auditors Pricewaterhouse 
Coopers, who each quarter report an aggregated industry revenue 
figure. Media executives say both acts are a sign that Google intends 
to pursue what appears to be an isolationist policy.

Another flashpoint looms later this year when Google will be able to 
track and serve up ads based on people's behaviour as they move 
around the internet, a technique known as behavioural targeting but 
which the industry prefers to call interest-based advertising. By 
studying people's behaviour on the internet it can then serve up an 
ad at the most appropriate moment in the ''path to purchase''. For 
example it can be assumed that a person who is browsing a lot of car 
websites is in the market to buy a car. Ads for individual dealers or 
invitations to test drive can be served up to that computer address - 
along with many others like it - at the beginning of the purchasing 
journey and move on to car refinancing products towards the end of it.

But while individual publishers might have a view on consumer 
behaviour on their own websites, they don't have that universal view 
that Google has, given it covers 62 per cent of Australian websites. 
Publishers are now faced with a choice; play with Google or against 
it.

Either they block Google's technology from serving up ads to their 
readers or let Google in and take a cut in the ad revenue generated.

Google has yet more weapons in its armoury. Later this year when it 
turns on its DoubleClick ad serving platform - which it bought for 
$US3.1 billion in 2007 - it will be able to serve up display ads, 
such as banners, pop-ups and videos, to advertisers who are looking 
to do brand ads online. To date, Google's focus has been on selling 
search keywords to advertisers and text ads to small businesses. 
DoubleClick, which serves and measures the effectiveness of display 
ads to half the websites in the world with more than 1 million unique 
monthly visitors, delivers Google advertisers from the big end of 
town. It also pits it once more against its key customers; the 
publishers and the media-buying agencies who each year earn their 
bread and butter from a market worth $500 million a year. Google 
insists it is not about to cut their grass and that its priority in 
Australia is on building search advertising revenues. It adds that, 
even it it wanted to, it doesn't have the skill sets of either a 
publisher or a media agency to undertake such a task.

But, as one internet advertising veteran, who asked for anonymity, 
says: ''What worries them [the media] is the sheer volume and quality 
of data about customers that Google will own and how that can be used 
in other advertising models. There's a real danger that Google does 
everything that they do only they'd do it much better and more 
efficiently.''

And yet media and advertising agencies appear to be strangely 
acquiescent in the face of Google's dominance. Google is now a 
must-have on an advertiser's media schedule, to the extent that some 
advertisers are prepared to pay top dollar at auction to secure the 
vanity top spot in Google's listings. The fact that the margins 
agencies can earn from charging advertiser clients for planning a 
Google campaign are higher than in other areas of online advertising 
might have something to do with it. As Google grows so do they.

The managing partner of the media agency OMD, Leigh Terry, says 
Google is collaborating more with media agencies than, say, two years 
ago when it tried to bypass the agencies to go directly to clients. 
Why wouldn't Google collaborate when, as one media executive, puts 
it: ''Someone is selling your advertising and you don't have to pay 
them a cent to do so.'' Indeed the relationship is a very lucrative 
one for both parties. The world's second largest marketing services 
group, WPP, is Google's biggest customer, spending $US900 million 
with it each year and accounting for about 4 per cent of Google's 
total revenue. Search also happens to be the fastest growing revenue 
stream for WPP.

Yet Terry concedes there is some concern at Google's dominance: 
''Being big is okay but being dominant is another thing altogether. 
The concern that I have is that if they change something then it can 
quite quickly skew the results and a site can do less well.''

A key area that does spook agencies and advertisers is the Google 
algorithm - the secret recipe, which determines the rise and fall of 
a website in Google's rankings. The company regularly makes changes 
to it but does not feel inclined to tell people, yet the ranking of a 
company's website on Google's page can mean the difference between 
staying in business and going bust.

One that fell victim to such a change was the Sydney-based online 
training company Braincorp International. It was an effective user of 
what is known as search engine optimisation - where tweaks in the 
website's code and intelligent use of keywords on a site improves the 
volume or quality of traffic to it. Braincorp used to get about 200 
sales leads a day through Google; that dropped to 10 a day when, 
without warning, Google changed its algorithm. The company went into 
liquidation in January. The tweaking of Google's algorithm was 
understood to be a significant factor.

This sometimes arbitrary approach was very publicly played out a few 
years ago when Google punished BMW for abusing ways to boost its 
position in the search engine results and effectively handed down a 
death sentence by demoting the car manufacturer's presence on the 
internet.

Google's senior competition counsel based in California, Dana Wagner 
rejects the notion that the playing field in Australia is not level. 
''We operate in a very competitive space.'' Advertisers have plenty 
of options - both online and in other media - and are constantly 
shifting their dollars around. ''We are a drop in the bucket, with 
overall advertising spend, it's 2 or 3 per cent. Our sales people are 
always trying to convince people to spend more money on Google. There 
is lots of activity on the net and in the world of advertising Š we 
are just one of them.''


-- 
Roger Clarke                                 http://www.rogerclarke.com/
			            
Xamax Consultancy Pty Ltd      78 Sidaway St, Chapman ACT 2611 AUSTRALIA
                    Tel: +61 2 6288 1472, and 6288 6916
mailto:Roger.Clarke at xamax.com.au                http://www.xamax.com.au/

Visiting Professor in Info Science & Eng  Australian National University
Visiting Professor in the eCommerce Program      University of Hong Kong
Visiting Professor in the Cyberspace Law & Policy Centre      Uni of NSW