Authors: Ken Auletta
Tags: #Industries, #Computer Industry, #Business & Economics
Googled (40 page)
NOR, BY THE END OF 2008, had traditional media companies found the silver bullet. With some exceptions—the thriving worldwide game business being one—most media businesses seemed to be falling off a cliff. Their fall preceded the worldwide recession that struck like a category five hurricane in the last half of the year. The dismal headlines were not pretty.
By the end of 2008, daily newspaper ad revenues dropped 17.7 percent, about double the 9 percent decline of the previous year; average daily newspaper circulation among 395 dailies dropped 7.1 percent.
Magazine advertising pages plunged 11.7 percent in 2008, fell 26 percent in the first quarter of 2009, and were projected to fall 10.9 percent for the year.
The number of viewers tuning to prime-time network shows dropped almost 10 percent, and according to Nielsen, this figure includes viewers who later watch the shows on DVRs. Broadcast network television advertising fell 3.5 percent.
Broadcast radio advertising fell 9.4 percent.
Aside from Internet advertising, whose growth rate dipped in 2008 but still rose 10.6 percent, according to Nielsen the only medium to experience ad revenue growth in 2008 was cable television, rising 7.8 percent.
Record album sales dropped 14 percent.
The number of people going to movie theaters dipped, but thanks to an increase in ticket prices, box office revenues rose by 2 percent. DVD sales, which had been a revenue gusher, dipped to their lowest level in five years.
Book sales of about three billion books fell 2.8 percent, according to the Association of American Publishers (1.5 percent, according to the annual report from Book Industry Trends). And although electronic book sales climbed 7 percent to $113 million, this was a tiny percentage of the just over $11 billion generated by adult books.
Advertising spending in the United States was flat in 2008 at about $162 billion, and was projected by GroupM to fall by 8 percent in 2009. World wide advertising spending of about $450 billion grew just 1 percent in 2008 and was projected to fall by almost 7 percent in 2009, according to ZenithOptimedia, the media-buying arm of Publicis, the world’s fourth largest advertising/marketing company. Although estimates of ad spending differ, the other major firms predicted similar drop-offs. Total marketing spending—direct mail, event marketing, public relations, etcetera—dropped 1.7 percent in 2008.
In a December 2008 report, Morgan Stanley’s Mary Meeker produced a chart that should alarm traditional media. Titled “Media Time Spent vs. Ad Spend Out of Whack,” the chart reveals that advertising expenditures don’t conform to where consumers spend their time. Newspapers, for example, consume 8 percent of our time, yet receive 20 percent of advertising dollars. By comparison, the Internet garners 29 percent of our time, yet attracts just 8 percent of advertising dollars. At some point, those ad dollars will shift away from traditional media, probably dramatically. Whether or not one factors in the most severe recession to strike the United States since the thirties, change was slamming into traditional media with new ferocity. Unlike the fog in Carl Sandburg’s famous poem, it did not creep in “on little cat feet.”
CHAPTER FOURTEEN
Happy Birthday
(2008-2009)
I
n September 2008, Google was ten years old, which in Internet years virtually qualifies it for senior citizenship. Yet the company did not slow down and move on “little cat feet.” Announcements of fresh initiatives kept rolling out.
n September 2008, Google was ten years old, which in Internet years virtually qualifies it for senior citizenship. Yet the company did not slow down and move on “little cat feet.” Announcements of fresh initiatives kept rolling out.
In the second half of the year, it was announced that the Google Content Network would employ its AdSense program to identify video-hosting Web sites and sell syndicated programs to them. The first show was a new animation series,
Cartoon Cavalcade of Comedy,
created by Seth MacFarlane, whose credits include
Family Guy,
a hit comedy show on Fox. There was Google Ad Planner, which provides advertisers with digital data free of charge to identify the Web sites their desired audience visits. There was the exchange of employees between Google and Procter & Gamble, with P&G saying it hoped to better understand how its present and future customers use the Internet and Google not saying that it hoped to snare a bigger slice of P&G’s $8.7 billion ad budget.
Cartoon Cavalcade of Comedy,
created by Seth MacFarlane, whose credits include
Family Guy,
a hit comedy show on Fox. There was Google Ad Planner, which provides advertisers with digital data free of charge to identify the Web sites their desired audience visits. There was the exchange of employees between Google and Procter & Gamble, with P&G saying it hoped to better understand how its present and future customers use the Internet and Google not saying that it hoped to snare a bigger slice of P&G’s $8.7 billion ad budget.
There was Google Maps for transit, an online navigation tool to allow riders to figure out subway routes in New York City and other metropolitan areas, and an announcement that Google News would pay to digitize newspaper archives, place ads next to the search results, and share any revenues with the publications. There was a new partnership with General Electric to improve the efficiency of the electric grid; new investments were made in renewable energy that would be cheaper, and cleaner, than coal.
Larry Page, usually parsimonious with his public appearances, mounted a campaign of speeches to persuade the FCC to set aside an unused block of the radio spectrum (known as white space) for wireless devices, including Wi-Fi and other high-speed wireless connections to the Internet. Broadcasters and Broadway theater owners protested that the use of that spectrum by these devices might interfere with broadcast signals and wireless microphones in theaters. The FCC voted 5 to 0 to open the spectrum. Google launched Knol, a searchable user-edited encyclopedia, to compete with Wikipedia; Google strayed still deeper into content by signing up Michael Davies, creator of
Who Wants to Be a Millionaire,
to produce an entertainment-news show called
Poptub,
to be distributed on YouTube and the Google Content Network.
Who Wants to Be a Millionaire,
to produce an entertainment-news show called
Poptub,
to be distributed on YouTube and the Google Content Network.
David Calhoun of Nielsen said Google could no longer claim to be a digital Switzerland. “YouTube crossed the line by a mile. YouTube’s audience competes with other content.” If Google hopes to sell display advertising, as it does on YouTube, Terry Semel believes it will have to own content. User-generated content on YouTube “does not feel safe” to advertisers, he reasoned, and to lure ads Google will need to own attractive content in order to attract advertisers.
Eric Schmidt, when asked if Google had gone into the content business, split hairs, saying that YouTube and the Google Content Network were merely “hosts” of the content, “not authors.” This is akin to saying that ABC merely “hosts” the programs it chooses to pay for and air. Schmidt’s distinction ignores another salient fact: the more traffic his sites generate, the more data Google gets, and the more dollars it receives for its ads.
And what about Knol?
“Knol is an example of something right on the edge,” he conceded. (Not that Knol, which debuted in July 2008, posed a serious threat to Wikipedia. By the following January, it had just a hundred thousand entries and had relatively few page views.)
With all these new initiatives, the opportunity Schmidt was most excited about in late 2008 was cloud computing. It was an idea that had animated him since his days at Sun, when he promoted what was called “the network is the computer.” Now, he said, the shift from the PC to the Web was “the defining technological shift of our generation.” The excess capacity of Google’s data centers, and the variety of applications the company had developed—Gmail; Google Earth; Google Maps; Google Scholar; Google Finance; Google Product Search; Google Calendar; Google Desktop to search all text on a personal computer; Google Docs to do all word processing, spreadsheets, and presentations—offered Google enormous growth opportunities. “Eventually, this will be a very large source of revenue for our company,” he said, citing a professor in Africa who had told him his schools had no textbooks but as a substitute they used Google search. He was aware that South Korea, which has the world’s highest broadband penetration, was already eliminating textbooks and downloading books to laptops.
A Google-invented browser, dubbed Chrome, would provide access to all the applications. Because Google is not in the packaged software business, all of its applications live in the browser. With billions of people around the world on the Internet, increasingly a browser will become their operating system, the host for all applications. “Everything we do is running on the Web platform,” Page told reporters on the day Chrome was announced. “It’s very important to us that that works well.” When Brin, who arrived at the press conference wearing bright red Crocs, was asked whether Chrome was aimed at Microsoft, he said: “We don’t spend our time thinking about Microsoft.” In truth, Google couldn’t abide being dependent on Microsoft’s Internet Explorer, which then had a 72 percent browser market share. Schmidt described Chrome as “the most important product” Google launched in 2008. “The reason is that the browser, like our proposed Yahoo deal, has a defensive as well as an offensive component.” Defensively, he said Internet Explorer’s dominant position “allows Microsoft to make arbitrary extensions to the browser and close off the Internet”; Chrome would help Google defend against such a move. The offense comes from speed and flexibility. Schmidt maintains that Chrome is faster and, as an open-source browser, will encourage developers to compete to produce innovative applications. Chrome also grants Google “a platform on which to build better apps” and “to collect more data.” The data is important, for browsers produce the cookies that track what users do online. Despite its importance to Schmidt, by mid- 2009, the Chrome browser was still not available to Mac or Linux users.
Google introduced another major product—Android—in 2008. First announced in late 2007, Android was Google’s free, open-source operating system for smart phones. It promised new profits, and new conflicts. With three times as many mobile devices in the world as PCs, Google had ample incentive to jump into this market. They did not fail to notice when Steve Jobs stood up at Macworld in January 2008 and said that four million iPhones had been sold in the United States in the first six months, giving Apple a market share of 19 percent. Since the first 3G phones were sold in July 2008, over the next five months a total of nearly ten thousand applications—among them games and travel and book and finance and social network sites—had appeared for the phone, three quarters of them available to users only for a fee. Every day, Americans send 1.6 billion text messages on their mobile phones, and 10 percent of Verizon’s customers have replaced their wired telephone with a mobile phone, a number that CEO Ivan Seidenberg predicted would soon double. Because his customers use so many more services on a mobile device, including text messages and Internet access, the average monthly Verizon wireless bill is fifty-two dollars, about fifteen dollars more than the average landline bill. In the United States, AT&T and Verizon were each ringing up revenues of more than a hundred billion dollars in 2008.
If the Android phone (as with Microsoft’s Cashback, geeks are not always deft with names) sells well, Google will have some leverage over the telephone companies that sell the hardware and control distribution. And it would ensure that Google’s applications, including text and voice search, would be featured. The Android also opens up new frontiers for search; as Brin noted in the spring of 2009, “almost a third of all Google searches in Japan are coming from mobile devices.” Smart phones will yield more data for Google. And they will allow Google to explore ads or services on these devices to generate revenues.
Schmidt, however, was dubious about how Google would monetize Android: “I would love to argue that mobile is the next business for us. I’m not sure it is.” Among the reasons for his caution were that neither of the dominant phone companies was eager to jump into bed with Google. AT&T already had a deal with Apple, and Verizon was standoffish. “We’re watching it,” said Verizon’s Ivan Seidenberg, who added, “We said we’d be willing to consider something like that”—an open-source Android—but he said he was worried more about maintaining the quality of the Verizon system. “We want an open network where we can ensure quality,” he said.
“Google’s vision of Android is Microsoft’s vision of owning the operating system in every PC,” Seidenberg said. “Guys like me want to make sure that there is a distribution of platforms and devices. Is it in Google’s interest to disintermediate us? Yeah.” He let his voice trail off, not wanting to engage in verbal warfare. But he said his job is to “make sure we are never out-positioned,” never a “captive.” Neither Seidenberg’s power nor Schmidt’s skepticism deterred Google from plunging ahead. (In late 2008, T-Mobile ordered two million units in the hope that its Google-powered smart phone could rival iPhone.)
If mobile’s growth prospects are clear, the data questions are not. Do companies have the right to own, or share, data about their users? Who would own the data, the phone company or Google? Is there a privacy line they cannot cross? Many digital companies and advertisers agree with IAC/ InterActiveCorp CEO Barry Diller that privacy is overrated. “Privacy is a much noisier issue than it is for people,” he said. Of course, when it suited Diller’s interests to position his
Ask.com
search engine as superior to Google‘s, his company took out full-page advertisements declaring that its AskEraser would purge cookies of data and Google would not. But surveys suggest that the public disagrees with Diller. A March 2008 poll of one thousand Americans by TRUSTe, an organization that monitors privacy practices on the Web, found that 90 percent thought online privacy was a “really” or “somewhat” important issue, and only 28 percent said they were comfortable with behavioral targeting techniques. Even if the survey was flawed—surely the organization that conducted it had a rooting interest in the outcome—in this instance, Google seemed more attuned to the public’s feelings; in March 2009 the company announced that it would allow users to preview and edit the data it had gathered on them and would, as Yahoo has done, allow them to opt out. Because users are automatically opted in, and opting out requires that the user go through an esoteric process of clicks, Google’s announcement did not represent a major policy switch. Google demonstrated this when it was among the first major companies to announce that it would employ behavioral targeting, showing ads to users based on their prior activities online. The fact that Google would couple such a new transparency policy with its new behavioral targeting efforts is another reminder that privacy questions will continue to hover like a Predator drone, capable of firing a missile that can destroy the trust companies require to serve as trustees for personal data.
Ask.com
search engine as superior to Google‘s, his company took out full-page advertisements declaring that its AskEraser would purge cookies of data and Google would not. But surveys suggest that the public disagrees with Diller. A March 2008 poll of one thousand Americans by TRUSTe, an organization that monitors privacy practices on the Web, found that 90 percent thought online privacy was a “really” or “somewhat” important issue, and only 28 percent said they were comfortable with behavioral targeting techniques. Even if the survey was flawed—surely the organization that conducted it had a rooting interest in the outcome—in this instance, Google seemed more attuned to the public’s feelings; in March 2009 the company announced that it would allow users to preview and edit the data it had gathered on them and would, as Yahoo has done, allow them to opt out. Because users are automatically opted in, and opting out requires that the user go through an esoteric process of clicks, Google’s announcement did not represent a major policy switch. Google demonstrated this when it was among the first major companies to announce that it would employ behavioral targeting, showing ads to users based on their prior activities online. The fact that Google would couple such a new transparency policy with its new behavioral targeting efforts is another reminder that privacy questions will continue to hover like a Predator drone, capable of firing a missile that can destroy the trust companies require to serve as trustees for personal data.
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