Google’s System to Control Advertising Inventory on Multiple Platforms

Examples of Company Practices with Supporting Facts and Data

PART 2: DESKTOP INTERNET

18th April 2010

Simon Buckingham

PRIVATE AND CONFIDENTIAL

2

Background

- Simon Buckingham is a New York based Internet and Mobile Entrepreneur- Founder and

CEO of 3 companies

- Simon has spent nearly 20 years in the mobile industry since starting at the carrier group

Vodafone in 1991 where he launched SMS text messaging and its business partner

programs

- Perspective is as an advertiser and customer of Google in the US and globally spending

significant sums on digital marketing to raise awareness and drive sales of our products and

services

- Google has been not just a tool and a supplier with keyword search (AdWords) but also

our ad agency for digital, TV and print inventory buying

- Have been generally happy working with them until I read a blog post in December 2009

which mentioned they had extended ad campaigns to run on smartphones which I wasn’t

aware of. This led me to research Google’s mobile extensions and led ultimately to the

production of this presentation

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Google’s Strategic Direction and System

We believe that Google has developed a system of automatic program and platform linkages, opt-

ins and extensions that are opaque and costly for their advertisers. These systems are designed to

extend Google’s Internet search dominance into commerce, advertising and apps on the Internet

and mobile platforms, giving them disproportionate control of advertising inventory on multiple

platforms:

Mobile Internet Advertising,

commerce and Apps

Together Google and AdMob would have an estimated 75% of the in-app mobile advertising market (whilst Google’s program is still in beta and with no ads in most of its own apps.

Unlike the Internet, Yahoo and Microsoft have no presence in the in-app ads space

Internet Advertising System

Google’s Product Set allows for complete coverage and control of Internet advertising. Products include AdSense, AdWords, DoubleClick, Mobile, Checkout, Search,

Nexus One, Android, YouTube, Gmail, Affiliate Network, New separately auctioned Search Products (Sitelinks, Product Ads, Local/ Map Ads, Comparison Ads)

Largest single provider of Advertising and Audience on the Internet

Desktop Search

and Keywords

Estimated 75%

Market Share

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Automatic Opt-In and Linkage of Services

Google repeatedly links separate programs to one another, leveraging its audience and

reach and strengths in one service to extend its dominant position on the Internet. By

migrating users (consumers and enterprises) from one Google product to another, Google

builds its total audience which creates new advertising inventory for it to sell. It then migrates

these products from platform to platform such as from Internet to Mobile.

Automatic opt-ins are something Google regularly uses as part of its control system for

important company initiatives like mobile and social networking

When Google introduced

Buzz it automatically

linked it with Gmail and

opted everyone’s Gmail

contacts into the

program. Following

consumer outrage about

privacy, Google

retreated on the auto

opt-in but Google still links

them and leverages a

popular existing consumer

product- Gmail- to build

usage of a new one- Buzz

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Linkage of Consumer Services- ChromeLinkage of Consumer Services- Chrome

“New! Find more Checkout deals while shopping at stores across the web by installing our

Chrome extension” when you click on the link, you are told that:

“Google Chrome Extensions are not supported by your browser. Please download Google

Chrome to install extensions.”

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Linkage of Advertiser Programs- DoubleClick

– “The Ad Exchange is also gaining great traction as we move all buyers and sellers into the

latest version of the platform.” (Google Q110 Earnings Call)

– “DoubleClick Ad Exchange 2.0 offers all the best features from 1.0 plus access to even more

buyers and sellers through integration with Google AdWords and AdSense, a new easy to use

streamlined UI, enhanced reporting capabilities and more”

“Google Ad

Manager is

upgrading to

DFP Small

Business”

Google Affiliate

Network plus

AdSense = 1m

plus AdSense

publishers can

instantly be

affiliates

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Linkage of Advertiser Programs- AdWords

“Upgrade your browser for faster account navigation. We suggest that you upgrade to a recommended browser for optimal performance with AdWords”

It is not clear

why installing

Google Chrome

enables faster

account

navigation and

optional

performance for

AdWords

advertisers

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Linkage of Advertiser Programs- AdSense

Google mandated that all Google Affiliate Network members must have an AdSense account by October 31st 2009 to remain as affiliates. This allowed Google to turn all ad affiliates into ad publishers too:

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Linkage of Checkout fees to AdWords spend

When Google extended its Checkout commerce solution to mobile devices, it

linked the mobile transaction fees it charged to the amount of AdWords

advertising spend:

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Linkage of AdWords to Chrome

“Upgrade your

browser for faster

account navigation.

We suggest that you

upgrade to a

recommended

browser for optimal

performance with

AdWords”

As you use Google’s products, you are constantly encouraged to to use other

products:

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Extension and Automatic Opt-In of YouTube Ads Extension and Automatic Opt-In of YouTube Ads

“Beginning on November 4th, 2009, all new and existing Promoted Videos may begin running

on search partner sites. Your existing bid for Search placements will be automatically

applied and your budget will remain unchanged (but keep in mind that expanding your

placements beyond YouTube may cause your budget to be consumed more quickly.”

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Use of Beta Programs- Analytics for Mobile

Google uses Beta Programs for new solutions stating that “Please also remember that this

product is confidential, and not be shared with anyone outside of your companies under

the terms of the Non Disclosure Agreement you signed with us.” Here is an example of us

being invited to trial Google Analytics for Mobile:

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Linkage of Live and Beta Programs

Google’s Advertising Program Terms communicate that "Some Program features are

identified as "Beta," "Ad Experiment," or otherwise unsupported ("Beta Features"). To the

fullest extent permitted by law, Beta Features are provided "as is" and at Customer's option

and risk. Customer shall not disclose to any third party any information from Beta Features,

existence of non-public Beta Features or access to Beta Features."

Google's Product Search program remains a beta program despite having been launched nearly a decade ago in 2002 under the Frooglebrand

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Linkage of Live and Beta Programs

-Google advertisers have told Appitalism that Google has “compelled” them to sign up for the Google Affiliate Network and appoint Google as an affiliate selling their products by covertly linking the Google Affiliate Network program to the appearance of those advertiser’s products in Google’s Product Listings on its search results page

-Google appears to shop the most popular product categories amongst competitors who can’t afford to let their competitors occupy that prime real estate above the fold on the Google search results page

-Instead of paying Google a Cost Per Click (CPC) through the AdWords paid search program as before, advertisers seem now to be induced to pay Google on a Cost Per Acquisition (CPA) percentage of revenue fee for completed purchases made on the advertiser’s website that originate from Google

- Other successful specialist companies on the Internet such as affiliate networks like LinkShare and Commission Junction aren’t able to compete with Google’s search volumes and home page traffic and end up losing affiliate business to Google

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Linkage of Live and Beta Programs

In Google’s Q1 2010 earnings call, a Google executive commented:

“One additional thing I would like to add is we definitely see an opportunity to move to

taking a percentage of the conversions. In fact we call this CPA, cost per acquisition. One

of the products that was developed in this area that are optimistic about is the product ad

product. The way that works is the way the retailer just gives us all of the information about

their product; price, listing, description, etc. and then Google actually does the targeting

to decide where to show those ads. Then we take a percentage when the product is

actually purchased when the user actually converts. We do see that as an opportunity to

really simplify the process for advertisers over time and it is something we are investing in.”

Google has now taken on the role of deciding when to show ads, which has real risk of a

conflict of interest issues as it relates to Google’s impartiality towards consumers and other

advertisers who are using the traditional forms of CPC advertising. Consumers may not be

getting the best recommendations and are unlikely to know that Google has changed its

business model in this way. Advertisers who want their products to be listed in Google’s

search results have no choice but pay Google on a CPA basis for the best positions in the

search results. Google now appears to think it can target goods more effectively than the

retailers of those products can

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Increasing Monetization of Home PageIncreasing Monetization of Home Page

- Over time, Google seems to have gradually given into the temptation of selling

off more and more of its search results and home page real estate through the

introduction of new types of paid search ads programs, following a path that the

likes of AOL and Yahoo have taken in the past

- This is despite Google’s corporate principle that: “Advertising on Google is

always clearly identified as a "Sponsored Link," so it does not compromise the

integrity of our search results. We never manipulate rankings to put our partners

higher in our search results and no one can buy better PageRank. Our users trust

our objectivity and no short-term gain could ever justify breaching that trust.”

- On Google’s Q12010 earnings call, they commented that: “Starting about a year

ago we asked ourselves why do search ads just have to be text links. In organic

search the right results might be a video, a book or an update from a social

network. We call this universal search. But ads are also information. They are

commercial information and in many cases it may be more useful to the users and

the advertiser if we show a video or picture or product in the ad.”

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Linkage of Search Results to Use of Google ServicesLinkage of Search Results to Use of Google Services

Paid ads dominate the search results page. Additionally, use of Google Checkout

as a payment mechanism appears to result in preferred advertiser placement in

Google’s paid search results:

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New Search Products- Products in Search ResultsNew Search Products- Products in Search Results

All of the product listings on the search results page here are paid ads, although

they aren’t clearly shown as product listings using a pink background:

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New Search Products- Site Links New Search Products- Site Links

Both the title of the advertiser link and the individual sub links below it are paid for:

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New Search Products- Product PicturesNew Search Products- Product Pictures

Advertisers can feature pictures as well as words in search ad results allowing

them to get premium placement at the top of the sponsored links and shopping

results:

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Integration of Ads with Google MapsIntegration of Ads with Google Maps

A search for this store results in one giant ad unit including a map, product offer links and a built in location search:

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Integration of Ads with Google MapsIntegration of Ads with Google Maps

Sponsored Links are prominently featured at the top and side of the search results page:

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New Search Ads- Comparison AdsNew Search Ads- Comparison Ads

A Google UK test shows Comparison Ads between credit cards resulting in more

sponsored results, which don’t have the usual pink colored distinction:

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Google News: How Search Used To WorkGoogle News: How Search Used To Work

Google’s Search Results page may have become polluted by commercial intentions over

the years but at least on Google News, the search results are determined impartially: “The

selection and placement of stories on this page were determined automatically by a

computer program.”

It is however a computer

program has been

programmed by and is

controlled by Google and

whose algorithm is

completely proprietary

and resides within the

Company’s black box of

search algorithms- and

algorithm that appears to

routinely return YouTube

video links on the search

results page

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Google’s Leverage of its Market Power

– Google has a dominant market share in Internet search which it seems intent upon

leveraging to move into other areas of Internet commerce such as affiliate networks and

enforce participation in new advertising programs as well as extend across Internet platforms

– Because these advertisers have traditionally relied on Google AdWords for generation of

much of the traffic to their websites, as the prominent positions on the home page have

become more expensive, if advertisers want to maintain a visible presence above the fold on

Google’s search results page, they appear increasingly to have no choice but to accept

paying Google a percentage of the revenue generated from sales their search results

generates

– Since its advertising customers face competition within their business categories, Google is

likely in a position to play advertisers off against each other for popular search terms on its

homepage and significantly increase the advertiser fees it levies and change the economics

from Cost Per Click (CPC) to Cost Per Acquisition (CPA)

– It is not the new ad programs that are concerning here, as much as the new economics that

Google seems because of its market power to be able to attach to them

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Google’s Leverage of its Market Power

– By keeping programs such as product listings in beta, and having non-public beta features such as the linkage between the affiliate network and product listings, Google appears to have been able to keep the details of the economics and the program linkages and non-public beta features confidential

– Google appears to use beta programs to reward compliant uncomplaining advertisers with participation in new product beta programs before their competitors do or at least at the same time

– Advertisers seem to have been unwilling to complain publicly about Google’s underhanded practices and constant new schemes to extract more ad dollars out of their budgets and deliver less value because of the lack of viable alternatives. Intelligent digital marketers appear to be frustrated but feel like they have no choice other than to accept that Google controls the vast majority of advertising on the Internet and will continue to leverage that strength with more and more costly programs

– It is highly likely that Google will continue to dominate the monetization of the Internet as long as its able to leverage and extend its market power

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Contact Details

Simon Buckingham

Appitalism, Inc.

909 Third Avenue

28th Floor

New York

NY 10022

o: 212-451-9854

m: 917.573.6067

e: simon.buckingham@appitalism.com

w: http://www.appitalism.com

Feel free to contact me with any Questions or Comments on this presentation: