Google Shuts Off TV Ads Business

From my Forbes.com blog The New Persuaders:

After five years of trying to sell ads on television using the automated buying system that works so well for its signature search ads, Google has finally given up. In a blog post this afternoon from Shishir Mehrotra, VP of YouTube and video, the ad giant said it will shunt the group’s staff to other projects:

Video is increasingly going digital and users are now watching across numerous devices. So we’ve made the hard decision to close our TV Ads product over the next few months and move the team to other areas at Google. We’ll be doubling down on video solutions for our clients (like YouTube, AdWords for Video, and ad serving tools for web video publishers). We also see opportunities to help users access web content on their TV screens, through products like Google TV.

The shutdown is clearly a disappointment for Google, yet another sign that its math-driven advertising systems don’t readily translate to traditional advertising. Back in 2009, the company shut down radio and print ad efforts for lack of interest.

Mehrotra’s not being entirely disingenuous when he says that Google’s efforts are better spent on online video advertising. After all, more and more TVs get connected to the Internet and more and more people watch TV shows on their laptops, smartphones, and tablets. With its Google TV project and its fast-growing YouTube video service, Google remains in a prime position to vacuum up ad revenues as big advertisers start to follow their audience onto the Web.

Indeed, YouTube especially has shown considerable traction in attracting new ad spending–$3.6 billion this year, by the reckoning of Citigroup analyst Mark Mahaney. As I wrote in a recent story, YouTube is where Google is placing its television-scale bets:

Now Mehrotra’s goal is to try to grab a big chunk of the $60 billion U.S. television business. But to do that, and fend off TV-content-oriented online rivals such as Hulu, YouTube has to become a bit more like conventional TV. To that end, it organized itself last year into TV-like channels, investing $100 million in cable-quality launches from Ashton Kutcher, Madonna, the Wall Street Journal, and dozens of others. More and more TV advertisers are being won over, says David Cohen, chief media officer at the media buying agency Universal McCann. “They’re getting marketers to think about YouTube as a viable outlet,” he says. 

Mehrotra, who last year became ­YouTube’s vice president of product, envisions millions of online channels disrupting TV, just as cable’s 400 channels disrupted the four broadcast networks. “We want to be the host of that next generation of channels,” he says.

In other words, Google’s strategy is to attack the TV ad business from where it’s strong instead of from where it’s not.

About these ads

YouTube’s Skippable Ads Go Mobile–Will People Watch Them?

From my Forbes.com blog The New Persuaders:

As uncertainty builds over whether advertising on mobile devices will work anything like their desktop Web counterparts, YouTube today tossed out its bet that they will. In a blog post, Google’s video service said it’s now launching its most successful ad format, skippable ads called TrueView that it has offered since late 2010, on mobile devices.

YouTube credits these ads with juicing its revenues, which Citi analyst Mark Mahaney reckons could reach $3.6 billion this year, or $2.4 billion after YouTube pays its video content partners. On desktop and laptop computers, some 65% of YouTube ads run inside videos are now skippable, but YouTube says only 10% of people always skip them.

They also command 40% higher viewership than ads people can’t skip, which makes advertisers more willing to pay a higher price, knowing they’re getting watched. As a result, says Shishir Mehrotra, YouTube’s vice president of product, YouTube video now produces more ad revenue per hour than cable TV.

These aren’t YouTube’s first mobile ads. It has offered “promoted video” ads as well as so-called “roadblock” video ads that appear an entire day on YouTube home and search pages since last November. But these ads clearly hold the potential to become the most popular format on mobile devices.

At first, the ads will be available only on devices using Google’s Android software. Why? Because Apple’s current YouTube app, the one it developed at the time it released the first iPhone in 2007, doesn’t allow ads to be run on it. Apple and Google recently said that app won’t be in the next version of Apple’s iOS mobile software, which will debut on the upcoming new iPhone, expected now around Sept. 21.

Instead, Google is working to get its new YouTube app, which will be able to run ads, approved for the new iOS. When it’s out, no doubt in coming months, we’ll get a much better idea of how YouTube’s skippable ads fare on mobile devices–and a better sense of whether mobile advertising overall will work.

How YouTube Turned Into a Real Business By Making Ads Optional

From my story in MIT Technology Review:

In 2008, when Shishir Mehrotra joined YouTube to take charge of advertising, the booming video-sharing service was getting hundreds of millions of views a day. ­YouTube, which had been acquired by Google in 2006, was also spending as much as $700 million on Internet bandwidth, content licensing, and other costs. With revenue of only $200 million, YouTube was widely viewed as Google’s folly.

Mehrotra, an MIT math and computer science alum who had never worked in advertising, thought he had a solution: skippable ads that advertisers would pay for only when people watched them. That would be a radical change from the conventional media model of paying for ad “impressions” regardless of whether the ads are actually viewed, and even from Google’s own pay-per-click model. He reckoned his plan would provide an incentive to create better advertising and increase the value for advertisers of those ads people chose to watch. But the risk was huge: people might not watch the ads at all.

Mehrotra’s gamble paid off. YouTube will gross $3.6 billion this year, estimates Citi analyst Mark Mahaney. The $2.4 billion that YouTube will keep after sharing ad revenue with video content partners is nearly six times the revenue the streaming video service Hulu raked in last year from ads and subscriptions. And that suggests Mehrotra has helped Google solve a problem many fast-growing Web companies continue to struggle with: how to make money off the huge audience that uses its service free.

In 2008, Mehrotra was working for Microsoft and hankered to have his own startup, but he agreed to talk to a Google executive he knew about working there instead. He decided against it—but that evening he kept thinking about how the exec was frustrated that most ad dollars go to TV, even though nobody watches TV ads. Yet at his Super Bowl party two weeks earlier, Mehrotra recalled, guests kept asking him to replay the ads. Was there a way, he wondered, to make TV ads as captivating as Super Bowl ads, every day?

The answer came to him in a flash. …

Read the complete story in MIT Technology Review.

Why Google May Be Secretly Happy That Apple’s Dropping Its YouTube App From Next iPhone

From my Forbes.com blog The New Persuaders:

OK, so Apple will drop its YouTube app from iOS 6, the new version of its iPhone operating system due out this fall. Cue loud and histrionic coverage about Apple’s thermonuclear war, as the late Apple cofounder Steve Jobs put it, vs. Google and its Android mobile software.

Except it seems likely that script is off the mark. Here’s why: Most people may not realize it, but that YouTube app on their iPhones is actually designed by Apple, a holdover from the iPhone’s introduction in 2007, when all the apps were Apple’s and YouTube was a big draw. (So big that one of Apple’s original iPhone ads highlighted YouTube, as in the video above.) Problem is, since then, Apple has appeared to do relatively little to advance the app, which now looks old (almost as old as that TV used in the app’s icon, at least on my impossibly old iPhone).

Even more important from the point of view of Google and the pro content producers on YouTube, the Apple YouTube app doesn’t allow ads to be run against all those billions of videos views a month that YouTube draws on mobile devices. So search for “Lady Gaga” on your iPhone and what do you see? Well, Lady Gaga, but very little from official channels such as ladygagaofficial, which means very few official videos. Contrast that to a search on “Lady Gaga” on YouTube.com, and official videos are there, along with ads all over the place.

Why the huge difference? Because she can’t run ads on the iPhone YouTube app, and no ads means no money generated. Multiply that by thousands of artists, movies, and all kinds of content that advertisers want to run ads against–ads that will bring in up to $3.6 billion in revenues this year, by Citigroup analyst Mark Mahaney’s recent estimate for YouTube. Now you realize why Google may not mind much that the creaky old adless Apple app is heading for the trash can icon.

Read the complete post at The New Persuaders.

Facebook Social Ads: What’s Working, What’s Not

From my Forbes.com blog The New Persuaders:

One of the biggest uncertainties about Facebook is how well its social ads work. The social network and its partners have trotted out study after study showing that people more often click on Sponsored Stories and related ads that contain a friend’s name, but advertisers and especially investors are not yet universally convinced.

Today at TechCrunch’s Crunchup conference in Silicon Valley, we got the skinny from two people who know as much about Facebook advertising as anyone: Greg Badros, Facebook’s vice president of engineering and products and the guy in charge of advertising engineering; and longtime adman Tom Bedecarre, chairman of digital agency AKQA, now a unit of ad giant WPP. Here’s what they had to say in conversation with TechCrunch’s Josh Constine.

The bottom line: Both men indicated that Facebook is just at the start of the opportunity. But the guy with the checkbook really wants more kinds of ads than Facebook currently provides–and implied that the size of those checks in the future depends on getting them. …

Read the rest of the post at The New Persuaders.

Why Google’s Nexus 7 Tablet Is Hotter Than Apple’s iPad

Cross-posted with some changes from my Forbes.com blog The New Persuaders:

For once, an Apple product isn’t the hottest piece of hardware on the scene. This week, at least, that highly enviable status goes to Google’s new Nexus 7 tablet.  According to reports, several retailers are sold out of the 7-inch tablet, and even Google’s own online store only has the cheaper, $199 8-GB version. The $249 16-GB version is no longer available anywhere except on eBay for a steep premium.

Of course, you have to remember that selling out doesn’t mean much without knowing how many sold out. This is a classic Apple ploy, though to give Apple credit, it usually turns out later that it sold a ton of whatever sold out. No matter, selling out a product shortly after its release still works great as a marketing tool, as you can see from the coverage gushing about “incredible demand.”

But Google deserves credit for more than just marketing. Now that I’ve tried it for several weeks, with a model provided temporarily by Google at its I/O developer conference, I can tell you why the Nexus 7 is the latest hot gadget:

* It looks and feels, to use the technical term, slick. The fact is, Apple’s products have a look and feel that few can match, and even the Nexus 7 doesn’t quite get there. But it’s pretty damn close. It feels substantial, while substantially lighter, of course, than the iPad. The swiping is very smooth as well.

* The 7-inch size is appealing and convenient. It’s easy to hold it in one hand, while swiping with the other. It also fits in a pants or shorts pocket (or purse, I’m guessing) surprisingly well for temporary transport. So I end up taking it more places than my larger tablet.

* The screen is no Retina like the latest iPad, but it still looks sharp and bright.

* It may not have all the apps, or some of the latest and greatest, that Apple has, but it’s got plenty. And some very nice ones, too, such as Flipboard and my current favorite, The Night Sky.

* Almost forgot–it’s cheap! For $199, it’s less than half the current $399 minimum for an iPad. That makes the Nexus 7 close to an impulse item, or at least a gift that won’t break the bank.

* Uber-reviewers Walt Mossberg of the Wall Street Journal, David Pogue of the New York Times, and even Apple fanboy/Google hater MG Siegler, himself, all like it. So does almost everyone else.

For all that, I can’t help mentioning the downsides. The default screens are a mess of apps, My Library (which features an Esquire cover of Bruce Willis that I really don’t want to see anymore), and recommended apps and magazines I couldn’t care less about (Country Weekly magazine? Really?). You can change the app organization, but at the outset, it’s haphazard, making it hard to find some basic ones at first. In particular, the nondescript icon for Google Play, which seems really key to Google’s ultimate success at mobile devices and apps, doesn’t suggest an app store. And who besides us Google watchers know that “Google Play” is an app store anyway?

As many have noted, there’s not much content in its Google Play store. But that means little to me because I’m a Netflix subscriber and can watch using the Android App. There’s also a Hulu Plus app. (But not Amazon Instant Videos via my Prime subscription, at least not without browser tweaks few will want to bother with; that may be a deal-killer for big Amazon video fans.) The device doesn’t have a rear-facing camera. Since I’m not using a tablet to take photos (partly because, in what is a weird omission, there is no built-in camera app), and since Skype is one of the killer apps as far as I’m concerned, the single front-facing one works fine for me. It’s WiFi only, though again, I wouldn’t pay for another monthly data plan anyway. And with only 8 or 16 GB of storage, you better be comfortable storing most of your stuff in the cloud (I am).

Finally, there’s apparently a problem with the touchscreen, though I haven’t run across it yet, that’s especially a problem for playing games. My own minor complaint about the screen, which I haven’t seen mentioned in reviews I’ve read, is that it’s just a tad too small, or at least the border around the screen is. It’s hard to pick up along the side, because too often I end up touching an icon and launching an app or stopping a video when I don’t want to. The recessed side buttons are a little hard to reach sometimes, too. These are quibbles, though.

Meanwhile, it looks like Apple is readying its own smaller iPad for under $300. That could well steal the Nexus 7’s thunder–especially since it almost certainly will do two or three things better than the Nexus 7 because it’s Apple and because it will be newer.

But for the next few months, at least, Google has a bona fide hit on its hands. And for all the right reasons, not just manufactured scarcity.

Read the original post at The New Persuaders.

No Larry Page, But Google Q2 Profits Beat Forecast on Light Sales

Image representing Google as depicted in Crunc...

Image via CrunchBase

From my Forbes.com blog The New Persuaders:

Providing a sign that online advertising continues to shine in a tough economy, Google reported a second-quarter net profit today of $2.79 billion, or $8.42 a share, up 11%, on a 35% jump in sales to $12.21 billion. Non-GAAP profit per share, the one analysts track, came in at $10.12, a little above the Street’s $10.04.

Those revenues included six weeks of its recent acquisition of Motorola Mobility. Google revenues alone were $10.96 billion, up 21%. Either way, revenues after payments to website partners were $8.36 billion, a bit lighter than analysts’ forecast of $8.41 billion.

In trading immediately after the close, shares rose about 5%, then eased back to a steady 3% gain. Google’s shares closed up today about 2%, to $593.06.

Although Street estimates were iffy given the addition of Motorola Mobility to Google’s results for the first time, Citi analyst Mark Mahaney was expecting a $9.99 non-GAAP profit per share on $12.45 billion in gross revenue. Without Motorola, he was expecting $10.76 billion in gross revenues, $8.23 billion in net revenues after payments to website partners. You can listen to the archived analyst call on Google’s YouTube channel.

The upshot after the call: Google executives sounded a confident tone about the business, though insight about Motorola was almost non-existent. In particular, Google appears committed to making mobile advertising pay off, shrugging off concerns about low mobile ad prices.

Google partners don’t seem worried about that either. Jared Belsky, executive VP at digital ad agency 360i, said in an interview that he thinks the rapid rise in mobile computing should be a net positive for Google simply because people are searching more hours of the day now. “This is a strategy for the long term,” says Belsky, who notes that its clients’ mobile ad search spending is now 14% of the total–an increase of 300% from a year ago. “Increasingly they’ll be able to monetize it.” Even more important, he says clicks on mobile ads have risen 300% as well as marketers provide better landing pages and people get more comfortable clicking on the ads as a result.

And the call begins.

Read the complete post at The New Persuaders.

Is the Online Ad Industry Too Obsessed With Technology?

From my Forbes.com blog The New Persuaders:

When two data collection companies you’ve barely heard of, Epsilon and Acxiom, are named by the trade magazine Advertising Age as the top ad agencies in the country, you know technology has arrived as the key driver of advertising innovation. But not everyone thinks that’s such a great thing for a business whose purpose, at some level, is still to elicit in human beings an emotional connection with brands.

The issue was explored in some depth at two panels at a recent Google online advertising event for advertisers, agencies, and publishers. The discussions, lively at times, shed some light on when technology is the answer and when it’s the problem for marketers as they try to reach consumers in new ways.

On the first panel, which looked at what’s needed for the rapidly emerging ad tech ecosystem to serve advertisers, agencies, publishers and ultimately consumers, were moderator Terry Kawaja, CEO of boutique investment bank Luma Partners; Omar Tawokol, CEO of ad data firm BlueKai; ex-agency exec Greg Stuart, global CEO of the Mobile Marketing Association; Kurt Unkel, president of the digital ad buying unit of Publicis Groupe’s VivaKi; and Shishir Mehrotra, VP of product management at Google’s YouTube. Here (paraphrased in some cases, with a few comments of my own in italics) is what they had to say:

Q: How do we get to $300 billion to $400 billion in display ad revenues? Is the fragmentation of media that media people worry about actually a way we might get there? …

Read the complete post at The New Persuaders.

Marketers, Get Ready: ‘All Advertising Soon Will Be Digital’

From my Forbes.com blog The New Persuaders:

The constant battle between TV viewers who want to watch their favorite shows when and where they want broadcast and cable networks that want to maintain their lucrative linear-TV business model is just the tip of a digital media iceberg. Fact is, people want to view all kinds of content, whether it’s TV shows, movies, games, or blogs and magazine stories, wherever they want. Inconveniently, that’s not necessarily on media companies’ own websites, where they make most of their money from advertising.

As a result, marketers and publishers alike are gradually realizing they need to reach people through their advertising on whatever site, app, or device they’re using, not just where they’d like them to be. At a recent event held by Google’s DoubleClick display-ad business, a couple of prominent online media executives said they’re well on the way to doing just that.

On the stage at the Google event were moderator Terry Kawaja, CEO of boutique investment bank Luma Partners; Neal Mohan, Google’s vice president of display advertising; Weather Channel (and former adman) CEO David Kenny; and Disney Interactive Media Group Co-President Jimmy Pitaro. Here’s what they had to say about how they’re dealing with the challenge.

Q: Is a $200 billion display ad prediction [made by Mohan last year] just wishful thinking?

Kenny: It’s not wishful thinking at all. The mistake is in assuming it’s in advertising units that exist today. The $200 billion could be $300 billion or $400 billion if it’s more of service to the consumer.

Q: It feels like the digital channel is still an adolescent. Isn’t a lack of new formats the problem? …

Read the rest of the post at The New Persuaders.

What’s Coming in Internet Advertising: 12 Predictions for 2012

I did my annual predictions first on my Forbes blog, The New Persuaders, since they’re focused largely on the Internet media and advertising I cover there. On that blog, they’re done as separate posts, but I wanted to gather them up in one place here, as I’ve done in previous years. So here’s what I think will happen (or in some cases, not happen) this year in my corner of the technology and startup world:

Facebook goes public, but won’t start an IPO landslide: Facebook will make the signature stock offering of the decade, one that reportedly will value the social network at up to $100 billion. But it won’t launch a thousand IPOs as a gazillion venture capitalists and angel investors hope.

Of course, the first part of that prediction is a gimme. But I can’t go without mentioning it because the Facebook IPO will be one of the biggest stories of 2012. Assuming Goldman Sachs or Morgan Stanley don’t stumble in pricing and selling the offering, Facebook’s IPO will be every bit as important as Google’s in 2004. It will be a sign that Facebook is a real, sustainable company (if there was any doubt left by now), but also a sign that social networking is getting woven into the fabric of our entire online experience.

The second part of the prediction depends less on how the Facebook IPO goes than on how (or whether) the economy recovers. If the recover remains slow to nonexistent and the stock market reflects that, IPOs will be sparse. If we get the slow but growing economic improvement we seem to be seeing now, more companies will go public but not a gusher. But the point is that Facebook is such a singular success that it’s not going to set the tone for lesser (often far lesser) Internet companies.

Facebook’s ad business booms–but not at Google’s expense: Facebook’s social advertising looks promising, but won’t come close to challenging Google’s huge success in search ads this year–maybe ever.

Obviously, Facebook is having no problem raking in the bucks from advertisers eager to reach its 800 million-plus audience–or more specifically, the millions of people in whatever target markets they choose. EMarketer reckons the company will gross nearly $6 billion in ad revenues this year, up from $4 billion in 2011. And that’s before we know anything about Facebook’s likely plans for mobile ads or an ad network a la Google’s AdSense that would spread its ads around the Web.

From reading a lot of articlesyou’d think Facebook is stealing all that money directly from Google. That’s not mainly the case, given Google’s own considerable growth in display advertising, though Facebook’s success may well blunt that growth in the future. Instead, Facebook currently is eating Yahoo’s and AOL’s lunches, and those of many ad networks that, until Facebook ramped up its ad business, were the main alternative for advertisers looking to target sizable audiences.

What would make Facebook a huge Google-scale company is the theft of an entirely different meal: television advertising. After all, Facebook shows much more promise as a brand advertising medium than a direct-marketing medium like Google. It needs only to draw a small fraction of the $60 billion or so spent on television advertising, the biggest brand medium, to be enormously successful. But even then, it’s not mainly a Facebook vs. Google contest.

Facebook still needs to answer a big question, however. That’s whether its “social ads,” which incorporate people’s friends in ads in a 21st century version of word-of-mouth marketing, will have nearly the effectiveness in driving attention and ultimately sales as search ads, which appear in direct response to related queries, often involving products people are looking to buy. The potential is intriguing, and there are some nice examples of how well social advertising can work.

But despite Facebook’s considerable work in providing new kinds of metrics on marketing and advertising impact on its users, marketers and agencies aren’t yet universally convinced they need to spend a lot of money on Facebook ads. After all, they can get a lot of mileage out of their free Facebook Pages and Like buttons around the Web. (Not to mention, it remains to be seen whether these ultra-personal ads will cross what blogger Robert Scoble calls the Facebook freaky line.)

Bottom line: If Facebook is to be the Google of the this decade, its advertising has to at least approach the engagement of search ads, especially as Google itself moves to become more of a brand advertising platform with YouTube and continues its push into display ads. While Facebook is building what seems likely to become a great business on anew vision of advertising that could change many decades of tradition,2012 won’t be the year it closes that deal.

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