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Hard Questions from Google.

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Author: Fine, Jon jon_fine@businessweek.com

Section: Media Centric

Media, Marketing, and Advertising in the 21st Century

Hard Questions from Google

Asking advertisers: What's the right amount to spend?

If there's one image to remember from early October's Association of National Advertisers conference, it features the bespectacled gentleman with an accountant's charisma who quietly posed simple queries. Thing is, the questions held enough tonnage to crush virtually all assumptions underpinning advertising and media. He might have been dismissible, were he not the chief executive of Google Inc..

"How do we get the numbers right?" wondered Eric E. Schmidt during his presentation to a room of top marketing executives. If broadcast TV takes in around $46 billion in yearly ad revenue, he posited, "how do we prove" that's the right amount to spend? And, asked Schmidt, "given [that] advertising is a fundamental aspect of commerce, why not do it right? Why not target it?"

Coincidentally, Google is a $3 billion player in hyper-targeted ads via its business selling AdWords and AdSense. Also coincidentally, Schmidt's stirring vision of the future in which technology drives economic liberation places Google more or less at the center of everything.

It's tempting to overstate the significance of all things Google, and it has been overstated, many times. We have seen much of this movie before -- the nearsighted geek outlining the technology-enabled, blue-skied future that's ineradicably linked with that geek's business. (Although it most plausibly starred Bill Gates, many other actors auditioned during the dot-com boom.) The thing about Schmidt and Google, though, is that Google's offerings actually -- how do you say this? -- work well. Old Media executives who didn't profess boredom at Schmidt's speech -- he's not the most dynamic performer, but this is a crucial part of the act -- expressed something like quiet terror.

Of course, entire established media and marketing forms don't disappear overnight. And there is a pretty big boneyard of once-dominant tech names ranging from Atari to Wang Laboratories. Google is a product with zero switching costs; if a different and better search site comes up tomorrow, there's nothing stopping a mass consumer migration.

So Google isn't invincible, and the realistic fear isn't that TV and newspapers will vanish. The realistic fear is that ad dollars will shrink an additional 10% or 20% as their long-held value is assaulted by a worthy adversary. Google provides an automatic return-on-investment measure for a marketing world increasingly obsessed with ROI. If someone clicks on a company's link, it pays; if someone doesn't, the company doesn't. This comes as corporations are demanding better accountability for their massive ad spending.

At the conference, execs from some of the most traditional companies (who control some of the biggest marketing budgets) described big shifts away from traditional media. Wachovia Chief Marketing Officer Jim Garrity said his research on ad effectiveness would sadden broadcast TV execs but gladden employees of Yahoo! and -- yup -- Google. Joseph V. Tripodi, a good-humored old-school salesman, is Allstate's chief marketing officer. He told me Allstate's spending on "nontraditional media" -- from the Internet to sponsorships -- increased from 5% to 25% of its marketing budget in recent years.

Titans of traditional media are all too aware of this shift. Vanity Fair Editor-in-Chief Graydon Carter last month told an audience of advertisers that while he often used Google, he never remembered the ads. Schmidt countered by using Vanity Fair as Exhibit A: Its circulation is around 1 million, he said, and a full-page ad for a Prada bag costs around $100,000. So that ad in Vanity Fair costs 10¢ per impression. How about paying about 20¢ per impression, he offered, for a link to a Web site where you can buy the bag?

In truth, Vanity Fair's ad is cheaper per impression if you measure by the magazine's total audience, but Schmidt's point is nonetheless clear: Which gets you closer to commerce, and how much do you pay for that? So goes this tech-driven narrative of the future. We have seen much of this movie before. But suddenly I'm not sure how this one ends.

The McGraw-Hill Companies, Copyright 2005

PHOTO (COLOR): SCHMIDT The CEO's talk terrified Old Media types

E-mail: jon_fine@businessweek.com

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