Google does it again

[SpencerH]

The CEO of CBS was on Cramer yesterday and mentioned being able to download CBS shows from google for $1.99. I just about ****. Do they really think someone will pay 2 dollars for a show they can watch for free or record on a DVR? Great idea - poor execution!!

[DanS]

For that $1.99, the quality is bad and you only get to watch the episode for a day!

But to be fair to Google, the $1.99 price was chosen entirely by CBS. Charlie Rose is putting his whole library going back over a decade up for $1/hour (and you own the program after you pay the $1). That seems more like it.

[Verto]

Google Video is a lame, half-assed service, and should certainly dismiss this idea that Google can do no wrong.

[Asher]

Originally posted by DanS
I've been looking through the Google Video store and am rather disappointed so far. The quality of the video is poor. I figured that Google would press its cost advantage on infrastructure by offering high quality video on demand that Apple, Yahoo! and Microsoft couldn't match without breaking their banks.

I realize that high definition video requires probably about 15x the bandwidth of what Google is currently offering. But many of the shows being offered for sale on Google Video are originally broadcast in high definition: NBA games, CSI, HDNet, etc.

Google's stance is they make no limits (max or min) on quality. The quality is purely determined by the submitter.

[Asher]

Originally posted by DanS
The internet market of consoles is small -- indeed artificially constrained by MSFT -- and of course MSFT dominates it.

People buy MSFT's console and then have to pay money for Live. Why are they charging people, when the game is to get as many people as possible to use Live so that you can advertise to them?

Is this a trick question?

People only have to pay to play games on Live. Anyone can access the downloadable content, media, demos, etc.

Why doesn't MSFT have all of its internet stuff already on their console? It's merely a function of them spending some of their mountain of cash sometime in the past to recompile all of it. But they didn't.

You mean put Hotmail on the Xbox 360?

Because that would be strategically stupid. The idea is to slip a computer into consumer's living rooms without them realizing it until they can't do without it. If you just start throwing **** like web browsers on it, that detracts from it.

Why is MSFT charging extra for a keyboard, when the game is to enable as many people as possible to use Live search so that you can advertise to them?

As far as I know, there isn't a keyboard for the Xbox 360?

And I have no idea what "Live search" is, unless you're referring to www.live.com, which is completely different than Xbox Live.

Why is MSFT charging extra for hard disk space, when the game is to enable as many people as possible to download content from Live to their console so that you can advertise to them?

Sticker shock, price issues. I expect the HD to become standard next year.

MSFT has the "let's charge for extra storage on Hotmail" attitude. What a bunch of (very rich) retards!

With this single post you've shown you've no idea what Xbox Live is, how it works, or even what MS' "Live" strategy is.

I reckon you do some more research, then come back.

[SpencerH]

Originally posted by DanS
For that $1.99, the quality is bad and you only get to watch the episode for a day!

But to be fair to Google, the $1.99 price was chosen entirely by CBS. Charlie Rose is putting his whole library going back over a decade up for $1/hour (and you own the program after you pay the $1). That seems more like it.

I agree. $1.99 is outrageous to me but then again people pay 0.99 for a song and ringtones are just plain crazy.

[DanS]

Originally posted by Asher
Google's stance is they make no limits (max or min) on quality. The quality is purely determined by the submitter.

No, I think they've set a max at 640x480.

[DanS]

Originally posted by Asher
People only have to pay to play games on Live. Anyone can access the downloadable content, media, demos, etc.

I did not know that.

You mean put Hotmail on the Xbox 360?

Because that would be strategically stupid. The idea is to slip a computer into consumer's living rooms without them realizing it until they can't do without it. If you just start throwing **** like web browsers on it, that detracts from it.

Yes, this is the way MSFT looks at it. Indeed, you wouldn't want to give it too much computer functionality, because that would eat into operating system profits, if you kept MSFT's current business model. But the internet business doesn't work the same way as the operating system business. For the internet business, the silliest thing you can do is limit your scale. GOOG is falling over itself trying to get its internet properties everywhere (blackberrys, motorolla phones, Dell computers, Current Communications, AOL, etc.).

As far as I know, there isn't a keyboard for the Xbox 360?

That's right. But there should be, since that would increase the scale on MSFT's internet properties at a low marginal cost.

And I have no idea what "Live search" is, unless you're referring to www.live.com, which is completely different than Xbox Live.

There's no such thing, but there should be. It would increase the scale on MSFT's internet properties.

Sticker shock, price issues. I expect the HD to become standard next year.

MSFT has cash and should have used it to subsidize XBox 360 more. That's what an internet company would do.

[pchang]

The BBC has put a lot of its video library on-line and it is free (but only if you have a UK based IP address). However, this is not a problem for me.....

[DanS]

I wonder when Google is going to be introducing its universal translator. Should be this year. I think that will create quite a splash...

[DanS]

Damn. YHOO's revenue growth is short by 1% and the stock gets pounded in after-hours trading. Down 12.5% so far.

Oh, yeh, there's more than a little froth in this market.

[DanS]

An enlightening WSJ article about Google's ad business...

Revenue Search
In Latest Deal, Google Steps
Further Into World of Old Media
Internet Giant Expands Role
As an Advertising Broker;
Automating Radio Sales
Next Target May Be Television
By KEVIN J. DELANEY
Staff Reporter of THE WALL STREET JOURNAL
January 18, 2006; Page A1

Google Inc. has brought in billions of dollars in revenue by brokering advertisements that appear on Web sites. Now it is taking its ad machine beyond the Internet in an ambitious quest to place ads in traditional media such as newspapers and radio.

The move could open enormous new markets to the search company. But it could also test the limits of Google's automated ad-placement technology that brought it more than $3 billion in online ad revenue in 2004.

The Mountain View, Calif., company yesterday announced the latest prong of its offline-ad efforts, the acquisition of closely held dMarc Broadcasting Inc. of Newport Beach, Calif. DMarc runs an online system for advertisers to buy radio airtime. It then automatically slots the advertisers' commercials into radio stations' computers for broadcast. The deal calls for Google to pay $102 million in cash and up to an additional more than $1.1 billion over three years if dMarc meets certain targets.
[Tim Armstrong]

Most people think of Google as a place to go to gather information. But in a business sense, Google operates as a huge clearinghouse for advertisers. At the heart of Google's advertising operation is an automated system that auctions off the right to place advertisements on its search-results pages when an Internet user types in certain key words. Most of its advertisers simply log into the system to place their ads and make their bids. They pay only when someone clicks on the ad. Google also brokers the sale of ads that appear on other Web sites -- sometimes tied into key words and sometimes not.

The radio deal is the latest of a series of recent moves by Google in which it aims to bring its Internet advertising expertise to bear on old-media markets. Since last year, Google says it has been placing ads on behalf of advertisers in three magazines and the Chicago Sun-Times newspaper. And Chief Executive Eric Schmidt late last year acknowledged in an interview that the company is considering extending its ad system to TV advertising as well.

At the core of Google's foray into offline-media advertising is its realization that traditional media such as newspapers, TV and radio remain vastly larger ad markets than the Internet, despite shifts to the Web in recent years. Online advertising was a roughly $10 billion market in the U.S. last year, a small fraction of the more-than-$250 billion total ad market, according to estimates by ZenithOptimedia, a media services unit of Publicis Groupe SA, the big advertising-holding company.

As it moves onto new turf, Google will rely on a potentially powerful advantage: its huge base of advertising customers. The search company had more than 400,000 advertisers who bought Google-brokered online ads or ads on Google's own sites as of last year, according to internal company documents released as part of a recent lawsuit. The advertisers range from Ford Motor Co. to bird-diaper seller Avian Fashions in Stafford, Va.

Google hopes to use its automated system to link these advertisers, particularly the smaller ones, with ad opportunities in traditional media they might not have otherwise bothered with. The Web-search company believes its systems can help advertisers target their ads at susceptible audiences and then track data on any increases in sales that result -- and do it all through a simple Web site.

Google won't say whether it hopes to apply the auction model it uses online to radio or print ads, but some industry executives think it will try to do so eventually. They also speculate that Google will try to present smaller, local advertisers with a broad package of ad possibilities, ranging from Web-search ads to TV commercials in their local market. Such a move could allow Google to tap into a large but fragmented market many national ad companies have largely neglected to date.

"We are always considering new ways to extend Google's advertising program to benefit our users, advertisers and publishers," says a Google spokesman. "We do not have any specific product plans in this area or additional details to share at this time."

Some ad-industry executives and analysts are convinced that Google's next stop will be attempting to broker TV advertising. "They have to go where the money is. And the money definitely is in television," says Rishad Tobaccowala, chief innovation officer at Publicis Groupe Media, a division of Publicis that seeks out advertising opportunities in new media.

Advertising executives played down the idea that Google's moves so far could have a big impact on the media-buying business. They say large advertisers will still rely on the big national firms for ad content and strategy advice, and that Google is generally targeting smaller fry who don't use those firms' services. For its part, Google says it aims to work with ad agencies, who it says are some of its largest customers. But the company could offer a much-desired revenue boost to traditional media looking for more-efficient ways to sell off excess airtime or white space in newspapers.

"Today in the traditional media world, it's a very relationship-driven marketplace," says Jeff Lanctot, general manager of Avenue A | Razorfish, the interactive marketing unit of Seattle digital marketing company aQuantive Inc. With Google's planned effort to broker radio ads, "you're supplanting personal relationships and replacing them with technology and that's a pretty daunting task."

Google's effort also raises questions about the company's ability to meld traditional media -- some of which still require that humans be involved in the placement of ads -- into its streamlined online advertising system. It could also be harder to measure the impact of a TV commercial or radio spot than a Web ad evaluated by how many clicks it generates.

Pay per Click

Google has risen to national prominence by selling ads on its own and others' Web sites -- often triggered by key words. Entering the word "stork" in the Google search engine, for instance, brings up an advertisement on the right side of the search-results page for Fun Sign Surprise, a company in Philadelphia that makes yard signs to announce special occasions.
[Following the Money]

Many advertisers like the system because they pay only when a consumer clicks on their ads -- roughly 50 cents per click on average, according to analyst estimates. The advertisers can easily track the effectiveness of their ads and quickly make changes or updates through Google's Web site. Google deploys a sales staff to target the largest advertisers, but it otherwise relies on a Web-based automated system for selling and generating the ads, which keeps its costs low.

The company keeps a commission, averaging around 20%, when it places the ad on another site. Analysts surveyed by Thomson First Call estimate Google generated about $4 billion in revenue last year, nearly all from online ads, when certain expenses are factored out.

In announcing the dMarc acquisition yesterday, Google offered some outlines of how it planned to apply a similar model to radio advertising. Since last February, dMarc has provided an automated online system for advertisers to buy spots on radio stations and upload their commercials digitally to the broadcaster. The company currently has agreements with more than 500 U.S. radio stations. It also sells some of the computer equipment and software that radio broadcasters use to manage and play their programming and ads. When an advertiser buys a spot, it is automatically slotted into those systems.

DMarc says it has more than 100 advertisers who buy radio spots this way. On its Web site, dMarc presents them with various options for selecting radio outlets such as by format, geographic market, time slot and audience demographics. Advertisers pay based on the number of estimated listeners their commercials reach, or a fee for each customer call or transaction the commercials generate under a system similar to Google's pay-per-click model for the Web. DMarc provides them with a system to manage their radio advertising. They can also track when their ads were played.

Carey Dixon, a buyer at Aegis Group's Carat, says the media planning and buying agency bought airtime through dMarc on about 150 stations for commercials from RadioShack Corp. that began running last week. She says she placed the commercials through a dMarc employee, though she plans to use the online system to track them. "So far, so good," Ms. Dixon says.

Google says many of its Web advertisers are small businesses that would not otherwise advertise in traditional media such as radio. "There is a set of advertisers we have that are typically undiscoverable," says Tim Armstrong, Google's vice president of advertising sales. "They may not typically be called on by the publishers' sales forces."

"They have clearly demonstrated an ability to bring many new advertisers to the search business, so I think it's a good thing for the radio business," says David Goodman, president of marketing at CBS Corp.'s CBS Radio division, which owns 179 radio stations. He says CBS Radio doesn't currently use radio ads from dMarc or Google, but would consider working with them in the future.

The Web-search company separately last year began brokering advertisements in three magazines: Ziff Davis Media's PC Magazine, Future PLC's Maximum PC and Budget Living LLC's Budget Living. In PC Magazine, for instance, Google placed seven ads on a single page, with small graphics and logos from each advertiser. The ads contained short text descriptions of the businesses and toll-free telephone numbers and Web-site addresses for the advertisers.

Google's Mr. Armstrong declines to provide financial or logistical details, saying he still considers the print ad brokering a "research and development project."

But it is likely that the Google print-ad system provides online tools for advertisers to target a given audience and track the ads' performance, as Google's online ads have done. One possibility is a system of counting the phone calls to the numbers featured in the Google-placed ads and billing the advertisers only for each call it received, much as Google charges per click online.

In December, it expanded the program to place ads in the Chicago Sun-Times newspaper. Google says it fills locations in the sports and business sections of the newspaper with small text ads that appear similar to its online search ads.

Move to TV?

While Google declines to provide any details, it also is considering a move to broker TV ads. Representing a $55 billion ad market in the U.S. last year, TV would greatly expand the potential for Google revenue growth. Company executives said earlier this month they were also discussing with content owners how to possibly place ads with the TV shows and other video clips Google serves up to consumers on its Web site. The Google Video service -- which offers fee-based downloads ranging from old "Brady Bunch" episodes to National Basketball Association games -- currently does not carry ads, but other Internet companies run video commercials before videos they display.

Spot Runner Inc., a closely-held Los Angeles company, last week unveiled a system that offers a glimpse at how Google might approach the television market, though the companies say there are no current ties between the two. Advertisers can buy commercial airtime in local television markets directly through Spot Runner's Web site. For less than $500 Spot Runner will customize one of several thousands of commercials it has created for specific industry segments, such as pizza restaurants. The advertiser can then book time in local TV markets through the site and Spot Runner will deliver the commercial electronically to the TV broadcaster or cable company for insertion into the programming.

Spot Runner, which takes a commission on the sale of the ad, says it can provide 30-second commercial slots during prime-time in most local markets for under $100. Advertisers can pay by credit card. "Every step of the way, we've tried to automate the process," says Nick Grouf, Spot Runner's chairman and chief executive.

[DanS]

GOOG hit Wall Street's revenue target of $1.2 billion, exclusive of traffic acquisition costs, but fumbled on per share earnings. Wall Street expected $1.76/share, while GOOG delivered $1.22/share.

In after-hours trading, the stock is down about 16%.

My June '06 GOOG puts with a $200 strike price might be worth a lot more tomorrow than they are today.

Edit: I mean, the stock is down about 20% in after-hours trading.

[Colon™]

An article by the Economist that puts Google's recent China brouhaha a bit into perspective.

Search engines

Here be dragons
Jan 26th 2006
From The Economist print edition


Google enters the Chinese market, practising enlightened self-censorship

IN 2001 human-rights activists in China crowed that a little-known search engine called Google was the most important tool ever created to skirt state censors. Users could retrieve content that Beijing banned by clicking to call up a “cached” copy of the web page, stored by Google. Soon, however, Google itself was being sporadically blocked. The firm was instructed to deactivate that particular feature, and for a short time its web address was even re-routed by Chinese network operators to the website of a local rival.

The continual cat-and-mouse game ended this week when Google, now a corporate giant, entered the dragon's den. On January 25th the search engine “Google.cn” began operations. It is a first step towards beefing up the company's local presence, which will also mean placing computer-servers in the country. This will speed up service for mainland users, who otherwise must penetrate the great firewall of China, which dramatically slows down access to Google.com.

Having local infrastructure gives an advantage to Google's search-engine rivals, such as China's Baidu.com (which enjoys around 40% of the Chinese search market, compared with Google's 30%), and Yahoo! and Microsoft's MSN, which have local Chinese operations. China's internet market, with more than 100m users, is one of the fastest-growing and most lucrative in the world. Can Google—with its motto “don't be evil”—do business in China without betraying its soul?

The company is making a concerted effort to do just that. It has reached an agreement with the Chinese authorities that allows it to disclose to users, at the bottom of a list of search results, whether information has been withheld. This is similar to what the company does in other countries where it faces content restrictions, such as France and Germany (where Nazi sites are banned), and America (where it removes material that is suspected of copyright infringement). Although the disclosure is more prominent on these western sites, putting such a message on its Chinese site is an important step towards transparency and, furthermore, is something its rivals do not do.

Moreover, Google is tiptoeing into the country with only a handful of services. It is not offering e-mail, blogging or social-networking services, because it worries that it will not be able to ensure users' privacy. It wishes to avoid the situation in which MSN and Yahoo! find themselves, whereby they are forced to obey the Chinese government's orders in censoring content and revealing users' identities. Rather than be placed in a position where it may have to compromise its values, Google instead is narrowing what it offers (although its news service will contain only government-approved media sources).

Google believes that entering China, even with restraints on content, lets it offer more information than if it remained outside. Yet the decision comes as American internet firms such as Yahoo! and MSN duck criticism that they are complicit with the Chinese authorities.

For Google, taking the higher road happens to also be a way to differentiate its service. This month America's Department of Justice went to court to force Google to comply with a subpoena seeking more than 1m web addresses and a weeks' worth of all users' searches (down from an original demand of every web address it holds and two months of searches), albeit without any information that would identify individual users. The government wants the data in order to examine the effectiveness of software filters to block pornography, for a case involving a law prohibiting the content, which the Supreme Court ruled unconstitutional.

The government requested, and received, information from Yahoo!, MSN and AOL—all of which initially stonewalled publicly about whether they disclosed the data. Yet Google resisted, arguing that “acceding to the request would suggest it is willing to reveal information about those who use its services. This is not a perception that Google can accept.” The day the subpoena was made public, Google's shares dropped almost 9%, its largest single-day decline since it began trading in 2004.

Google's stance could put commercial pressure on its rivals to adopt more customer-friendly policies, and may serve as a warning to other internet firms to treat customers' data with more care. Yet such high-mindedness will be tested as Google enters China. Keeping its options open, the company is continuing to develop the Chinese-language version of Google.com. It will remain available, for those willing to wait a bit longer for their less censored search results.

[DanS]

A nice article to explain away lying to the SEC in its IPO filing documents. Bravo.