It is inevitable, to my mind, that Google will get into brokering television ads. But the rumors running around the web (BB has a good round up) feel a bit premature. My guess is we’ll see a test in the next few quarters…
I interviewed Omid a couple of months ago for my B2.0 column, here it is in full.
TITANS OF TECH
The Wizard of Ads
Google’s Omid Kordestani conjured a formula that took its sales to $3 billion. Now he’s rethinking the world of advertising again.
By John Battelle, October 2005 Issue
You’ve heard of Larry Page and Sergey Brin, Google’s famous co-founders. But there’s another figure insiders know to be Google’s “business founder”: Omid Kordestani, the company’s 12th employee and senior vice president for global sales and business development. He may be the only sales guy on the planet who’s taken a company from zero to $3 billion in revenue — and from all appearances, he’s just getting started.
When Kordestani joined Google in the spring of 1999, the company had plenty of lava lamps, but no business model to speak of. Kordestani, a veteran Netscape salesman, recognized that the startup had one incomparable asset: its burgeoning Web traffic. Having overseen Netscape’s lucrative banner-advertising deals, Kordestani was a pro at leveraging the value of traffic.
Advertising — yes, those dead-simple text ads that appear alongside Google’s search results — accounts for 99 percent of the company’s revenue, making his formula for success seem deceptively easy. But where users once signed up to buy text ads with a credit card, Kordestani, 41, now has to manage relationships with agencies that want more control over their clients’ campaigns and with publishing partners who see Google as a prime source of online revenue — and a long-term threat to their media businesses. Business 2.0 sat down with Kordestani to find out how he keeps Google’s unstoppable sales machine rolling and what he sees coming next.
Is Google a technology company or a media company?
We’re absolutely deep in advertising, but let me clarify. The difference between us and our competition is that we innovate through applying technology. The angle of a media company is you’re packaging content or advertising inventory. We look at ads as commercial information, and that goes back to our core mission of organizing the world’s information. When people in the media world hear this, they say, “What are these guys talking about?”
Google has introduced a lot of products lately, but the engine of your revenue and profit is clearly your text-based AdWords. How did they start?
When I joined Google in 1999, we still hadn’t suffered the dotcom collapse, and a lot of money was still being spent on classic portal sponsorship deals, the kind I did at Netscape — multimillion-dollar deals. And at Google, I called those same clients and asked them to do a $1,000 or $5,000 AdWords test with me.
Once we proved that the text ads on Google could be successful and not interfere with the search experience, then it really turned into a science. We applied auction theory to maximize value — it was the best way to reach the right pricing, both for advertisers and for Google. And then we innovated by introducing the rate at which users actually click on the ads as a factor in placement on the page, and that was very, very useful in relevance.
Sergey Brin once told me that if AdWords didn’t work, he figured that Google could always run to DoubleClick as a life preserver. How close did you get to doing that deal?
Initially we debated whether to build our own ad product. Larry and Sergey believed we could develop a better product than the existing online advertising offerings, but we knew that they could be a fallback if Google’s ad program did not work.
Right after the collapse, people were cynical about online advertising. But we monitored our traffic and the click-through rate of the ads. It quickly became apparent that AdWords was working. The model was perfect because people were willing to try something out for $1,000 and see if they could get enough leads to justify additional spending. And as we gradually built a customer base, it had this nice trend line, up and to the right.
Did you ever realize how big this was going to get?
I didn’t. This is a difference between Larry and me. Larry said, “Are you crazy? I always thought it was going to be this big.” What was amazing about these founders was that during the hardest times, they had confidence that we could get through things. I’m very optimistic, but I’ve been through two unsuccessful startups, and I was at Netscape, where we had incredible challenges after competition heated up. So I wanted to be more paranoid about things.
Do you feel the pressure of being a public company now?
I certainly do, yeah. This level of growth is just unprecedented. But our business is different from traditional businesses. I’ve been in the enterprise software business, where the customer is trained to maximize discounts by waiting until the last day of the quarter to buy. You end up having the sales force trying to save the quarter on the last day.
The beauty of our business is we can’t do that. The way the auctions and the pricing models are working together involves lots of math — that’s the beauty of it. When it’s more predictable, when it’s more math-based, then in some ways you have more control. It’s not about doing a diving catch at the end of the quarter to make your numbers, but making sure all the dials on the dashboard are where you expect them to be.
What do you see as the future of advertising?
The measurability of online advertising will extend broadly to all areas of media. You have companies spending billions of dollars on television. As more and more consumers adopt technologies like TiVo, I think you’ll be able to have much more useful forms of advertising — more targeted, more measurable, and with new pricing models. Just imagine if we made it possible for our advertisers to quickly publish relevant ads that could range from the local plumber on one end to Super Bowl commercials on the other.
You’re now selling ads for a vast network of third-party websites. Is Google turning into an ad agency?
No. As a matter of practice, Google will work with advertisers in any way they want to work with us, whether directly, through a traditional agency, or through a specialty search-engine marketing firm. Google sees agencies as crucial. Agencies create and execute marketing strategies for their customers, and Google helps them execute those objectives.
You’ve taken some knocks from advertisers who feel frustrated because, they say, they can’t get anybody at Google on the phone. What are you doing about that perception?
People call us a black box because we make things too simple. I have a huge organization focused on this. And I apologize if people are not having the best experience. I take that seriously.
I’ve heard horror stories about click fraud. What’s your take?
We watch it very carefully. Whenever we find it, we are very good at refunding the advertisers. We’ve got some of our best researchers working on this. It becomes a little bit of a cat-and-mouse game where people become more sophisticated and try to beat the system, but ultimately we find it.
Google is the big target now. Microsoft is clearly gunning for you. Any feeling of déjà vu from your days at Netscape?
Netscape ran into a bad mix of competition and “gold rush” mentality in short order. Google, being a generation later, was able to learn from what Netscape did well and build on it. The best déjà vu is working with the distinguished Netscape alumni at Google.
John Battelle is program chair of the Web 2.0 conference and author of “The Search” (Portfolio, September 2005).
Find this article at http://www.business2.com/b2/subscribers/articles/0,17863,1104033,00.html
©2005 Business 2.0 Media Inc. All rights reserved.
Reproduction in whole or in part without permission is prohibited.
(More thinking out loud….)
I recently spoke to a reputable person who is a senior exec in a major structured database company ( I promised not to name this person or the company/industry.) I can’t go into specifics, but the company owns a very large repository of valuable industry listings, and has an web-based interface that allows folks to search those listings. Think Autobytel, or even Craigslist, but this is a vertical player in a very information intensive business. The data this company owns is locked behind a registration wall, search engines can not get to it through normal crawling techniques. It’s part of the paid or “dark” web: not freely available. The company has spent a lot of time and money creating specialized search interfaces that are useful to its target market.
Anyway, a few months ago or so Google approached this person and asked if the company would want to work with Google. In essence, Google asked the company to upload its entire database into Google, which would then be mashed up, perhaps, with Google Maps and Local, and given a structured search front end and a structured database backend. When GoogleBase story broke, the person put two and two together. This is what Google wanted to do – upload the company’s data into GoogleBase, this person told me. But at the time of their discussion, Google made no mention of that product.
When Google comes calling asking for your entire database, one might reasonably wonder what the company which owns that database might get in return. In this case, and in other cases I’ve heard about, the answer was “give us your data and you’ll get lots of traffic in return.” No discussion of syndication models, or shared revenues.
How does this differ from Oodle? Well, Oodle either asks for permission (as in the case of Monster, etc.) or crawls the publicly available web (as in the case of Craigslist, until they asked Oodle to stop. As to why, Jim Buckmaster, CEO of Craigslist, comments here, and Craig Donato, CEO of Oodle, posts his thoughts here.) But Google came into this company with no business model to compel the target company to share its database other than “we’ll send you traffic,” and precious few details on how Google was going to use the data should the company make it available.
The company representative decided against working with Google given such terms (or lack thereof), and I have to say I certainly understand why. This is not a freeweb company that plays in the tit-for-tat world of web search. This is a domain specific company that has built a sophisticated vertical search engine which is difficult to replicate. Would the company be willing to work with Google if Google offered a syndication deal, or a split in revenues, I asked? “Yes, we’d at least have kept talking,” the executive said. “But they wanted full control of how they might use our data, without even telling us what the model was,” or even what the product might look like. The Google line, the exec said, was pretty much “We’re Google, we know what’s best for your data, give it to us, stand back, and watch as we make your stuff work better than you can” (my paraphase here).
This approach to business development does not feel very compelling – it’s a “free web” approach to a “paid web” model. And that mismatch creates a tone that, off the record, is similar to the one publishers described to me with regard to Google Print/Library. I think the main issue here is lack of details and transparency – Google wants your data, but doesn’t want limitations on what it might do with that data in the future. I think this stance, more than any other, is what might stymie the progress of a service like GoogleBase, at least in terms of cracking the major vertical industries which might otherwise make the project extremely valuable. As I’ve said before, I think Google could build a killer meta engine over many vertical search engines (including books) if only it was willing to cut revenue sharing deals. Why, I wonder, is the company allergic to this partnering model?
The Travel sector heats up. From the Yahoo blog:
What if, instead of having to do all your own research on “Paris hotels” and “wine tasting in France,” you could enter a single search and get a fully formed trip, courtesy of a fellow traveler, back? Even better, one that you could use to help plan your own trip—copying and changing it to fit your needs?
That’s the idea behind Trip Planner, now available in beta on Yahoo! Travel.
Trip Planner is a new tool that helps you organize your travel research from Yahoo! Travel and all over the Web to a trip plan. Save hotels, attractions, and useful web sites into your trip plan, then add your own notes, tags, driving directions and more. When you’re done, you can share your trip with a few friends or with the entire Yahoo! Travel community.
While Google is asking forgiveness instead of permission over in BookLand, in video, so far, it’s playing the opt-in game. Today brings news that it has struck a deal to run the Academy of Television Arts & Sciences Foundation archive of American Television interviews available for free viewing on Google Video (yup, that’s Mr. Rogers over there on the left.)
Microsoft will join the Open Content Alliance (SEW) and index books, but only with permission. More as I can bear to post more, as this issue just drives me nuts. It’s so…..big.
I’m behind in posting my B2.0 columns, but this one (paid sub required, so read on below) was fun to do….
TITANS OF TECH
The Internet Puzzle
NBC Universal CEO Bob Wright has put together all the pieces of the perfect media conglomerate. Will the Web tear it apart?
By John Battelle, September 2005 Issue
Bob Wright stepped into the big leagues of media last year, when he led NBC’s merger with Vivendi Universal Entertainment. The megadeal turned the TV network chief into a major Hollywood player, with movie studios, theme parks, and an expanded lineup of cable channels in his domain. At a time when big media is aching to get smaller — look no further than Viacom’s planned breakup into two companies — Wright decided to double down on creative content. And he might not even be done yet: In July the New York Post reported that NBC Universal is in talks to acquire DreamWorks SKG, a move that would beef up its movie portfolio.
So far, sticking with content looks like a smart bet. Even as NBC plummeted to fourth place in viewership, cable and film earnings kept the company, which is 80 percent owned by GE (GE) and 20 percent by Vivendi, growing in the double digits. But Wright has more on his mind than a replacement for Friends. Electronic piracy, the bane of the music industry, is starting to hit movies. Google, TiVo, and Yahoo are threatening to upend the video business. Wright still believes he’s made the right bet — content, he says, will have value, no matter who distributes it. But he openly admits that the Internet is making things “awkward” for him. Business 2.0 met with Wright to find out how he plans to sort things out.
What do you make of the fact that a major television executive like Lloyd Braun has gone to Yahoo?
I’m happy that things worked out so well. You have to admit, it’s surprising. A year ago ABC was down in the dumps and he and Susan Lyne got “Goodbye and good luck.” Both of their shows, Lost and Desperate Housewives, turned out to be rescue shows for ABC. It’s really quite remarkable that both of them are elsewhere now.
This kind of movement is evolutionary, though. We are all migrating to a digital world, and people move from content businesses to distribution businesses all the time. You happen to be picking one who went to the Internet. They could just as easily have gone to the wireless side or cable or satellite, or some other piece of the distribution game. But of those forms of distribution, the most awkward ones for us are the Internet search engines. And they are very important. I don’t mean to downplay them.
What do you mean by “awkward”?
Our business is developing, producing, and marketing programming. By choice, not chance, we have taken the position that we are not tying ourselves to one or two forms of distribution. We’re going to try to make our programming as available and as marketable to as many forms of transmission as possible. We have broadcasting, cable, satellite, DVDs, and our theatrical base. We’ve seen wireless join recently, though it’s still very early there.
But I think the one that we haven’t really embraced as much as we’d like is the Internet, which is represented by Lloyd and his compatriots. The awkwardness of the Internet is that in other forms of distribution we have a relative degree of comfort with the security of the programming that we’re transmitting. We know there’s leakage from theaters, we know there are stolen and counterfeited DVDs, we know that people steal satellite cards and cable boxes. But each one of those channels has its own form of security. When we get to the Internet, it’s just much harder. It’s early in the process, and you don’t have that level of protection.
Do you think the music business has solved that problem?
I ask that question all the time. And I get different answers from people in the music industry. I think they feel obligated to say that iTunes has been very beneficial, but then they point out that they really can’t live on the revenue. They look at it as sort of supplemental income. It brings some level of recognition that there is real value in their intellectual property, even if it’s only 99 cents, that it’s valuable, and that people are respecting that it has some value. But I don’t think any of them think it’s an answer. And the reality of it is that the peer-to-peer aspect of Internet trading is still wide open.
The history of music was radio and a lot of free promotion. It never had the history that motion pictures did, where people paid for it from the beginning, whether it was a nickel at the nickelodeon or $12 today at a theater. Television has always had advertising support with it. It was never really given away.
Online, leaders like Yahoo haven’t figured out the value of video content. And we’re grappling with that. We’ve got to find a way to get there. We have to be able to provide programming in such a way that we don’t damage our existing distributors intentionally or even accidentally. The process of how we embrace the Internet isn’t clear.
Won’t we be able to combine advertising and video over the Internet?
The model is just taking form. When I talk to advertisers or agencies, it’s not clear exactly what they want out of the Internet. We’re not there yet. It’s not lost on me that video seems to be the fastest-growing segment in search. And Google and Yahoo recognize that they’re going to have to start either producing or licensing content. And I think it makes a lot more sense to license because there’s so much content available.
News is one of your key content operations. You recently said that despite all the negative stories about the broadcast news business, the sky wasn’t falling. Why?
There’s always going to be a news business. That’s the one thing that’s for sure. And there’s always going to be a large audience for it. The reported death of network news has been the slowest death of all times. You are so overcome today with alarmingly huge choices for information that there is a need for a place for people to come to get a condensed but big view of what’s happening. If I go online, it’s hard to find that context.
Now that you have Universal, prime-time advertising is only 15 percent of your business. But it’s still a critical barometer of the NBC network’s health. What has to be done there?
We do have work to do. Prime time is the major league of entertainment programming, and you’re trying your very best to get the largest possible audience. We’re going through a period here where we don’t have as many winners as we’re accustomed to having. I’m not denying that we would like to have some wonderful replacements for Friends or ER, but, you know, they don’t all show up on the same day.
Does the advent of video-on-demand and the DVR mean the 30-second slot is an endangered species?
No, I don’t think so. Some of the cable operators have said to me, “Bob, you know, if you’ll give us your programs and let us put them in a video-on-demand basis, then we’ll make sure we attach the advertising to them.” That’s fair. I think we can have our cake and eat it too. I think people are going to get the ability to pick and choose and we’re going to find a way to attach advertising to it. Almost like Yahoo does now with search.
Is Yahoo a partner or a competitor?
Six or seven years ago, Yahoo was the king of the Net. Then it went into the ditch with everybody else. After the crash in 2001, the people there went back to their roots and rebuilt Yahoo as a search engine. Terry Semel, when he came in there, said, this is a great deal, but other people can be search engines, so we’ve got to differentiate ourselves here. Yahoo has a significant future. But it isn’t quite clear what it is.
John Battelle is program chair of the Web 2.0 conference and author of “The Search” (Portfolio, September 2005).
Find this article at http://www.business2.com/b2/subscribers/articles/0,17863,1096191,00.html
Spurred by early looks given to Jeremy and Om, I prodded Sphere CEO Tony Conrad to walk me through the beta of Sphere, his new blog search product (still in closed beta, but coming out in a month or two). It comes from a team out of Oddpost (Oddpost was planning to launch this there, but then got bought up by Yahoo. Oddpost founder Toni Schneider remains an advisor to Sphere, though he now works at Yahoo. Other advisors include WordPress dude Matt Mullenwegg and the irrepressible Mary Hodder.)
The financials: Tony has taken angel money from some impressive folks – notably KP partners Will Hearst and Kevin Compton, among others. I think perhaps the most important decision for Sphere, having seen it, is what to do with the money that folks will want to throw at it, but more on that later.
Sphere works better than other blog search I’ve seen, plain and simple. Why? It uses a combination of factors to do a more robust ranking methodology of blogs and posts. It pays attention to the ecology of relationships between blogs, for example, and it gives a higher weighted value to links that have more authority. This will insure, for example, that when a Searchblog author goes off topic and rants about, say, Jet Blue, that that author’s rant will probably not rank as high for “Jet Blue” as would a reputable blogger who regularly writes about travel, even if that Searchblog author has a lot of high-PageRank links into his site.
Sphere also looks at metadata about a blog to inform its ranking – how often does the author post, how long are the posts, how many links on average does a post get? Sphere surfaces this information in its UI, I have to say, it was something to see that each Searchblog post gets an average of 21 links to it. Cool!
Lastly, Sphere uses content semantic analysis to help determine rank. This helps defeat one kind of spam (blogs that simply say “Tickets tickets tickets” over and over again), but it does not defeat the kind Joel wrote about. That kind of spam, however, is defeated by the ecology of links – the system will not rank blogs well that are not part of a larger ecosystem of linking.
In short, spam falls to the bottom of the rankings, and that’s a great thing. Tony forwarded me early research his company has done which shows his results are markedly better than any other blog search engine out there. From my initial use of the system, I can say it most certainly is. This is not to knock Technorati or Feedster, but I calls em as I sees em, and in any case, both of those companies have their own differentiation: tagging and RSS, to be specific.
The service gives you ways to filter your results, which I like very much: By date, by relevance, and by language. I also got to see a new version of the service which had some neat interface hacks along the lines of a time axis. More on that as it comes live. As for business models, Sphere also surfaces related content on the right side, and Conrad is thinking of negotiating deals with those publishers, as well as the time honored sponsored links approach (they’d probably use Overture, as Toni is over at Yahoo…)
So back to the larger question. Great blog search is sure useful to folks like me, and to readers of Searchblog, who according to the survey you took a while back are a pretty bloggy crew (I’ll have a link to those results soon). But will normal folks want blog search, and if so, how will it be delivered (Yahoo, for example, thinks it’s within news results…)? Tony admitted that to scale his service he needs two things – many more machines (solved by money) and a lot more distribution (solved by a deal or selling to Yahoo, or Google, or AOL or….etc.). So what to do with his company? In short, should he pull a Flickr or Oddpost, and sell if the right offer comes? Or should he take some VC money and try to make it on his own, like Six Apart and Technorati?
Ah, to have such problems. Good luck Tony, the first look is promising.
Will…Someone…Please…Tell…Them…To…STOP ROLLING OUT NEW FEATURES!
Now, I was not aware that you could do this – it’s a very interesting evolution of Google’s service. It works in the US too….
I may have just missed this, perhaps it’s been around a while?