washingtonpost.com
Google Takes to the Airwaves

David A. Vise
Washington Post Staff Writer
Wednesday, January 18, 2006 1:00 PM

Washington Post staff writer David A. Vise , author of "The Google Story," was online to discuss Google's latest acquisition -- a company that automatically connects advertisers with radio stations. The deal, which may top more than $1 billion, comes on the heels of Google's $1 billion investment in America Online

A transcript follows .

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David A. Vise: Hi everybody and welcome to a chat about a seminal moment in evolution of Google and advertising online and in traditional media, in this case, radio. By spending big money, as much as $1 billion or more over several years, to acquire a company that automates the placement of radio ads, Google is taking its robust platform for Internet advertising and giving it greater growth potential. Why? Because Internet ads account today for $10 billion in revenue, while radio is a $20.6 billion market. Radio resembles the Internet, in terms of not having a great way for small and medium size businesses to place ads. Google is looking to solve that problem and expand that market by buying dMarc, which has refined a system that automatically places ads in the desired demographic and let's people pay for ads based on measurable results.

The key here is that advertising is the heart of Google's revenue stream and targeted advertising with measurable effectiveness is what makes it run. Add to that opening the possibility for small and medium size firms to buy radio and Internet ads together and you have a major, major turning point.

What Google's acquisition signals is that it does not believe old media is dying at all. It just believes old media, from radio to newspapers to tv, needs a new ad model to automate the process, open up ads for smaller firms to buy and make ad costs line up with results.

This could revolutionize radio advertising. And Google could move into tv advertising too. And Google is doing an experiment with the Chicago Sun

Times and placing ads in the newspaper as well. This offers enormous growth potential for Google and may breathe new life into radio first, and perhaps later, magazines, newspapers and television ad revenue stream.

Sergey Brin, Larry Page and Eric Schmidt who run Google do not spend money easily or frivolously. Their willingness to put down $100 million now and, if targets are met, more than $1 billion over the next several years, shows that while Google is best known for search, they are savvy businessmen with confidence that they can profit by improving ad systems across media.

This is by far the biggest signal yet that Google, synonmyous with search, understands that its business model for growth is all about targeted advertsing, on the Internet and elsewhere. Havng spent a great deal of time reporting and writing The Google Story, this is consistent with my observation that Sergey, Larry and Eric are not merely technology guys; they are ambitious business people who care deeply about making money and growing. That way, they invest more in their vision of organizing all of the wod's information and making it useful and accessible.

Now, let's get to your excellent questions.

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Washington, D.C.: With Google's stock starting to slide, do you think the company is trying to do too much at once?

David A. Vise: No. Google's stock today is reacting to a sell-off in Yahoo because Yahoo, its closest competitor, missed earnings expectations by a penny yesterday. Also, there was a massive sell-off overnight in the Japanese stock market, so far-reaching that they had to close that market early. So Google's stock, which has had quite an impressive run, is down today in part because of these other items, and in part because after soaring, some investors are taking profits off the table. They wonder if Yahoo's spectactular earnings can lead to a sell-off, whether Google stock may suffer a similar fate.

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Winston-Salem, N.C.: With the acquisition of dMarc Broadcasting, do you see Google splitting by the end of the fiscal year?

David A. Vise: No. Google wants to follow the Berkshire Hathaway model of letting its stock price rise to whatever price and avoiding gimmicks by splitting its shares. This leads to a more stable long-term shareholder base. Spllitting the stock and making it cheaper on a per share basis invites more fun and games and mischief by Wall Street traders than Google wants to see in its stock.

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Washington, D.C.: A while back, I read that Google was considering making a run at eBay by starting an auction site. Have you heard anything about it?

David A. Vise: The press reports about Google being interested in creating another ebay were greatly exaggerated. Google likes to do things its own way. The rumors about his were sparked initially by Google registering the name for, and developing, a way for people to buy things online. Google is using that in connection with the launch of its video and movie download service.

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Ft. Meade, Md.: For Google, internet search is the core business. But these days, it looks like Google will extend their business, they bought map image company, radio company and other media company. Do you think this is a right thing for Google? Is this a good thing for Google share holder?

David A. Vise: Google has not made a major blunder yet. And it has remained focused on its core missio nof search and organizing all of the world's information and making it accessible. To do that, it will need lots of money. So these moves that are related to search in various ways, or advertising in other ways, offer new search-related applications in a subtle way, or offer ways to make money. That money can then be used to continue to pursue the company's long-term vision, stated by co-foudners Sergey Brin and Larry Page. They want rising profits so they can pursue the Google Library digitization project and much, much more.

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Washington, D.C.: This may not be related but what I would like to know is what is Google doing in Washington, D.C. and the region in terms of building data centers? What plans do they have to expand in to Washington? Assuming one can decipher them. Thanks.

David A. Vise: Google, recognizing that its growth and size will pose regulatory issues, recently opened a Washington office. Alan Davidson, who has great education and experience in the fields of technology and media and law and lobbying and legislation, is running that office. Google will need it, for as it grows, competitors will run to Washington and seei restrictions on the company's increasing power. Google also hired, in the Washington region, Vin Cerf, to be its Internet evangelist. That gives them a senior respected man associated with the launch of the Internet itself and who remains in a position of power as it relates to the Internet and standards globally.

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Nashville, Tenn.: With Google entering the technology market, per the recent investment in broadband over powerline, do you see a "network play" someday where Google will deliver its own content over its own network or networks?

David A. Vise: Google is mainly looking to slash its costs, not replicate the Internet. It must pay intermediaries fees to access the Internet. Given its global presence and billions of users, even a modest reduction in those fees by having new ways to reach users, can lead to major savings and increases in profit. Larry Page is working on this himself. Also, it is consistent with Google's mission to deliver information, online and offline, and make it universally accessible. Everyone doesnt have a pc or a high speed line into their home. So making the Internet more available through powerlines will increase online participation by millions and, Google believes, increase the number of people who use Google. Google also may be able to target ads effecively to specific areas of geography by serving up the Internet to users through powerlines and through free wireless access in specific cities now and perhaps countries and regions later.

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St. Paul, Minn.: Most direct response radio ads that I hear send responses to a non-specific web address (e.g. "match.com" as opposed to "heardmatchontheradio.com") or to very trackable toll-free telephone numbers. Does Google intend to move into the call center business to provide tracking, or can they monetize non-specifically trackable web hits (as opposed to AdWords which are VERY specifically trackable)?

David A. Vise: Google;s acquisition of DMarc effectively answers this question, at least for now. DMarc already has a way of connecting advertisers who want to reach a specific audience with radio stations that have the right demographics. DMarc already has a proven system that is, like Google's, highly scaleable and easy to use for small and medium size advertisers. And it tracks results too. Advertsiers pay b ased on the number of listeners to the radio station or they pay, on a fee-basis, for each call to an 800 number or other measurable action by listeners who respond online. This is similar to Google's highly successful pay-per-click ad model which it uses on the Internet. So yes, this is trackable.

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Florida: When will Google provide a better, cheaper (practically free?) online auction site that allows sellers to post items for longer periods of time -- i.e. until something sells -- or at the very least which has a series of automatic rollovers/re-listings where sellers aren't charged such ridiculously high fees?

And did I mention that if not free, it should be much cheaper than ebay and certainly anything by Google would be exponentially more efficient/fair/effective than stupid bumbling worthless Yahoo!

The marketplace is ready for Google Auctions - when will it be ready?

David A. Vise: Google has already begun this process. Check out GoogleBase. It offers free listing and no transaction fees. It is a place where buyers and sellers can meet online without paying the transaction costs and fees demanded by most such sites. You may also wish to check out CraigsList, which provides a similar service and has achieved amazing success doing exactly what you suggest.

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Bangkok, Thailand: I would like to approach Google with a proposal for a travel adventure that utilizes all of its assets to exucute it. Knowing what you know about Google, can you suggest the best way/person to approach them with the idea?

David A. Vise: I love adventure and travel so your idea is intruiging. The email address of the corporate contact for media, which is on the Google web site, is for David Krane. You might contact him since Google is a place where, internally, people do multiple things and share information. His email address is David@Google.com. Good luck with whatever your idea may be. And if you want to share your concept more fully here with washingtonpost.com and our readers, feel free to do so, and I, and they, will give you with feedback. In any event, good luck with your idea.

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Washington, D.C.: I assume that in respect to your answer posed by 'Ft. Meade, Md.', Google's recent expansion to China is again an attempt to tap that country's economic potential. What other changes do you see coming as a result of this expansion?

David A. Vise: Google, synonymous with search, will become synonymous with the Internet globally if its strategy works. It is rapidly gaining ground in China. A new study released today shows Google ranking higher than other search engines in China, based on a survey of users. Google is aggressively ramping up a research and development arm in China, which has the second biggest number of Internet users of any country in the world, trailing only the USA. China has over 100 million Internet users. And while Internet commerce is not as developed there yet, Google is positioning itself to go after growth.

To jump start the process, Google hired Kai Fu Lee from Microsoft. Dr. Lee is one of the most respected Internet and technology mavens in China, with tens of thousands of readers of his Web postings every day. He is now in China overseeing the launch of Google's R&D effort and tapping into his vast network of contacts at universities to hire the best and brightest.

Baidu.com, in which Google owns a small stake, has been the home-grown leader in China for Internet search. Yahoo has aggressively gone into this market in partnership with Alibaba.com. So I anticipate this market will grow very dramatically over a period of years, and that all of these firms are likely to profit from that expansion.

The other thing Google is doing to expand its business is building some free wireless Internet access for users. By doing this, Google can give away Internet access in a specific location or city, and then target ads precisely based on geography. This is one part of Google's answer to how to make local advertising online work in a robust way.

Stay tuned.

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Washington, D.C.: If internet can be accessed through an existing wall outlet that the alarm clock plugs into, then why have people spent so much on upgrading phone systems and expanding cable systems?

And why is it that Google is getting into broadcast radio when everyone else is getting out of broadcast radio? Viacom just dumped their slow growth divisions back into CBS and satellite radio is expanding very fast also. Who will be listening to broadcast radio when we can pay to hear Howard Stern be filthy in our nice cars?

David A. Vise: Google likes to zig when everybody else is zagging. In other words, opportunity often lies in overlooked places. Also, importantly, Google's move in the direction of radio advertising can work on free radio and on satellite radio. Radio is a proven ad medium and it is growing, rather than shrinking, in contrast to some other traditional media. Radio advertising spending last year was more than $20 billion, or double the spending on Internet ads. TV ad spending was just over $55.4 billion. With satellite radio growing, ad revenue opportunities on radio will grow too. Google wants to be there ahead of the curve before the opportunity becomes obvious to others.

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Pembroke Pines, Fla.: To clarify your Radio Ad plans, I now will have radio ads on my local radio station that might be from a company located on the otherside of the planet? That is if the market I live in has the demographics that advertiser requires.

Monster.com was one of the original internet companies which first advertised on national television, during a past Superbowl. Is this synergy of the 2 mediums, what Google is trying to achieve with radio?

With the gazillions of advertisers out there, how will Google prevent false advertising when working with radio, what standards will you enable?

David A. Vise: The good news for Google is that the company it is buying, DMarc, has worked out many of the kinks already. What Google can do, given its vast presence, is expand this business across a much bigger platform of radio advertising. And yes, you may have ads on your local radio station from anywhere in the world. After all, radio ads are sold in what remains largely a mom and pop style. With the Internet, why not enable a small or medium size business to run an ad, if that ad reaches the desired group of listeners?

The reason this is viable now is the Internet. Listeners could dial a 1-8000 or 1-888 toll free number or visit a web site online, no matter where a company is based. The Internet certainly eliminates the geographic barriers to this type of radio advertising, and Google hopes to exploit this in a big way.

Finally, Google can readily sell ads on the Internet on and radio siumultaneously through an entirely automated process to reach small and medium size businesses that otherwise would not have access to these markets. And Google, with the addition of DMarc, can provide measurable results. That way, advertisers can make sure their ad dollars are well spent and if they are not, they can change their campaigns to make them more effective, or, in the alternative, they may seek to market their business in other ways.

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Weaverville, N.C.: Is there any chance that Google would start a calendar function to be part of GMAIL much in the same way that Yahoo has calendaring?

Ted

David A. Vise: The answer is yes and no. Google is definitely looking at developing calendars that can help people with various tasks, but it may not do this in the way Yahoo has done it before. Google likes to put its own touch on items it rolls out. Already, internally and/or in beta, Google has experimented with calendar functions. And GMail is one way, but not the only way, to offer an online calendar that meets the needs of millions of users. A calendar also maeks sense because Google has the strongest brand name on the Internet, and people return to calendars over and over. Google's branding strategy would be augmented by a calendar that has the Google logo and more.

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Dallas, Texas: There seems to be a question as to whether Google can create one media buying/selling system that will become universally accepted and the standard for electronic media purchases. The 4A'a just announced their launch of "ebiz for media lab". I would think a trade org and media companies would need to endorse Google's system before it can become widely accepted. Until then it would appear to be a great idea but nothing more....

Can anyone describe in detail how dMarc's media buying & selling platform works? How sophisticated is their media purchasing system? Have they successfully made electronic transactions for radio ad purchases in the past? A small to mid size business would need to have a greater level of understanding of how to evaluate radio schedules in order to purchase electronically. Where will they get this industry specific knowledge for radio media evaluation?

David A. Vise: This is a very astute question. First, Google is big enough and successful enough and ubiquitous enough that it can create a platform and it can become a de facto standard. It does not necessarily need to buy into "ebiz for media lab," but it also does not ignore those kinds of issues because it wants to emphasize ease of use for everyone, from Internet searchers to advertisers.

Having said that, making the purchase of radio ads and Internet ads easy for small and medium size businesses, using only a credit card and taking a few minutes to write ad copy and have it delivered, is a success online and DMarc has found success with this on radio. So remember that a lot of businesses have been shut out of advertising because they are not giants or lack the ability or resources to launch ad campaigns globally on their own. Now, without spending more than they wish, Google has made it easy for them to do so on the Internet, and DMarc has made it easy for them to do so on radio. Together, this has an interesting potential, particuarly given the focus of the major ad agencies on the biggest corporate accounts. Google and DMarc's ad services would appeal first to the small and medium size business, as it did for Google in attracting online ads initially, and then later, after it is further refined, there may be major corporate advertisers too. That is what has happened on the Internet through Google's AdWords and AdSense offerings, and its recent decision to let advertisers choose where they want ads to run.

The key to all of this for Google is scaleability. Making big things possible with relatively little human involvement through technology. And letting advertisers then measure results.

To your second question, here is how dMarc works: The company has an Intenet site where advertisers of any size can buy ads on a group of radio stations. The radio stations love it because it means more ad dollars without increased expenses. So far, the number of radio stations involved is in the hundreds, but the potential is for thousands of radio stations to fill up their empty slots with ads delivered by dMarc/Google.

Advertisers pick where they want their ads to run on radio, through dMarc, based on geography, time slot, demographics and format, ranging from Talk Radio to Hard Rock to u-name it.

Advertisers pay for the automated placement of their radio spots based on the estimated size of the audience or they pay a fee based on the number of responses they get. DMarc, like Google, also provides fairly easy to use tools so people sitting at PCs anywhere in the world can, on their own, devise a media strategy through radio ads. Then, importantly, DMarc enables the advertisers to measure the effectiveness of the ads and track where they have run.

Sounds familiar, no? This is what Google does on the Internet. And that is why Google bought dMarc now, rather than once it was a giant in a bidding war. Google can take the dMarc program and put it on a vast platform to grow the business. That is why Google paid $100 million up-font and may pay more than $1 billion if certain performance targets are reached over the next several years.

This is the biggest acquisition, dollar-wise, Google has made. Most of its grwoth has been internal. And when it does spend its dollars, it likes to buy companies with potential that it can introduce to a much larger audience. The difference in this case, which explains the price, is that dMarc already has a proven business model that works. In other cases, Google has bought Picassa and other companies with great and useful technologies but that do not have a clear revenue stream, or at least they did not have such a revenue stream at the time they were purchased.

This acquisition marks a major moment in the evolution of Google. Sergey Brin says Google just finished the first trade, since it is only seven years old. Now in second grade, Google is going shopping. Who knows what third grade may hold?

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David A. Vise: I want to thank everybody for participating in today's discussion about Google. I finished writing The Google Story several months ago, and already, as the book notes, Google is proving to be among the most transformational enterprises to come along in business and technology. This is due, in part, to its ambitious approach, captured in Larry Page's comment that he believes in having, "a healthy disregard for the impossible."

I look forward to talking with you again soon. The questions were great, and I anticipate further steps by Google that will prompt all of us to watch the company closely.

Sergey Brin says Google, at age 7, just finished the first grade. So now it is in second grade, and Google has gone shopping. Any predictions about life at the Googleplex in third grade?

Feel free to contact me with any further questions at DavidVise@Gmail.com and to visit www.thegooglestory.com if you want to have some fun and take the Google Labs Aptitude Test. The GLAT will not determine where you go to college, but I promise you will have fun with it and that it will give you inisght into the company's uique mix of brainpower and sense of humor.

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