Will Google ever build another billion dollar business?

Google’s oversized ambitions recall the 1980’s financial credo “greed is good.

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Google’s oversized ambitions recall the 1980’s financial credo “greed is good.” Four hundred percent stock appreciation over two years, 50%+ search market share, 77% quarterly revenue growth, 25% profit margin…and Google wants more.

Google repeatedly confirms its intention to obtain and control all the world’s information, including individuals’ personal information; Google also repeatedly sets out to exploit others’ “information” to its own inordinate profit advantage by obtaining the data cost free and then monetizing it via Google-centric advertising auctions.

Google CEO Eric Schmidt has recently been publicly touting Google’s ambition to apply the Google magic formula to the lucrative worlds of television and radio advertising.

Last June, Schmidt used his signature story-telling style to colorfully describe the opportunity for “digital targeting” in radio advertising, as I present in “Google targets GPS-based in-car personalized advertising”:

Eric Schmidt, Google CEO, believes that when he is listening to the radio in his car, radio ads should personally address him about his needs. For example, while driving past a clothing store, a radio ad should remind Eric that he needs a pair of pants and instruct him to turn left at the upcoming clothing store.

Last month, Schmidt waxed poetic on its “big opportunity to provide greater value to advertisers “ by applying digital computing to broadcast mechanisms, as I present in “Google CEO wants $74 billion TV ad market”:

Google CEO Eric Schmidt believes television viewers should not have to stand for tv commercials that are “a waste of your time.” Schmidt is frustrated that “When you watch the television you see ads that are clearly not targeted for you.”

What does he plan to do about it? Google is preparing to deliver ‘targeted measurable television ads’ and Schmidt says Google has “a good shot at it.”

Why is Schmidt so enthusiastic about radio and television advertising? Schmidt sums it up succinctly:

Those businesses are billion dollar businesses.

Schmidt is also supremely confident in Google’s prospects and affirms that Google should be “using our advertising system, our targetability, for every form of advertising.”

While Schmidt is Google’s supreme cheerleader, his enthusiasm and confidence in Google’s billion dollar advertising diversification “manifest destiny” is mirrored by all the world’s Googlers.

Alan Eustace, SVP Engineering & Research, on Google’s diversification strategy: “you build a billion dollar product with a million dollar product.”

Eustace echoed Schmidt’s billion dollar ambitions at an investor Q & A last week in NYC. He was asked if Google is more than a “one-trick stallion,” if there are material revenue streams that Google can generate outside of search advertising.

Eustace on Google’s diversification efforts:

The one trick pony is a funny way of putting it. Because search has been so good to us as a company, that if you measure every other opportunity in the company, with search as the metric, if I ignored every opportunity that doesn’t have the same growth rates or ROI or anything else, I would never invest in anything. Because there is nothing that we know early on that is going to be as wildly successful. But the important thing is you build a billion dollar product with a million dollar product and there are a lot of places that we think strategically could be very good for the company, very beneficial to us, our advertisers and our users and we continue to invest in those areas.

Google is continuing to invest in “those areas” but its diversification investments have not yielded billion dollar fruits.

GOOGLE PRINT “TEST”

In”Google’s print auction fizzles” last March, Business Week describes how Google’s attempt to bring the “accountability” of Google’s “targeted advertising” to print media failed to meet Google’s lofty expectations; “The search giant's auction of magazine ad space didn't generate much enthusiasm -- or business, in the case of one successful bidder”:

Google's effort to roll its advertising juggernaut beyond digital and into the world of print publications is struggling…

In February, Google auctioned off ad space it had purchased in about two dozen magazines, from Martha Stewart Living to Road & Track. The auction -- the latest twist in a six-month experiment with buying and reselling print ads -- was open to thousands of advertisers. However, Google was forced to extend the auction by several days to lure more buyers.

The tepid demand became evident in some of the winning bids, which were recognized earlier this month. Nicholas Longo, CEO of CoffeeCup Software, which makes tools for creating Web sites, wound up paying just $4,000 for each of three half-page ads in Martha Stewart Living. It was a long shot: The magazine's rate card pegs the price of a half-page ad at more than $59,000. Neither Google nor Martha Stewart Living would say what Google originally paid for the space, but it didn't get a similar discount…

Investors, who have bid up Google's stock valuation to more than $100 billion, are expecting the company to successfully diversify its business. Google executives have often stated that they are seeking to expand Google's online advertising stronghold into various offline media, including radio, print, and television ads. In addition to its efforts to broker the sale of print ads, Google in January, 2006, acquired dMarc Broadcasting, which facilitates the sale of radio advertising.

The lackluster appetite for its February auction is just the latest challenge for Google's six-month foray into print ads. Late last year, Google conducted its first trial by purchasing and reselling ad space in a handful of magazines. Although the Internet giant lauded the trial's outcome, a BusinessWeek analysis found that 8 of 10 participating advertisers were disappointed with the results and probably wouldn't buy print ads through Google again.

Google has apparently abandoned its print diversification efforts which had been aimed at determining "where and how we might best bring value to print advertising”; its “AdSense for Paper” homepage has not been updated since April, following its failed initiative.

GOOGLE DMARC ACQUISITION

Google AdSense for Radio is no typical Google “test.” Google has a lot riding on its radio bet; $1.13 billion to be exact. Google owns dMarc Broadcasting, for better or worse. In “Google AdSense for Radio: Google diversification win?” I question “How disruptive will Google’s work with dMarc Broadcasting actually be”:

Google acquired dMarc because of its existing track record in the broadcast space. According to Google:

dMarc connects advertisers and agencies directly to radio stations with a robust advertising platform that automates everything from sales to scheduling, delivery and reports. This enables advertisers to, among others things, purchase and track their campaigns effectively — and significantly reduce the costs associated with processing broadcast ads.

According to dMarc, through its Scott Studios and Maestro automation systems, it is already working with "thousands of radio stations in the US and abroad."

Eric Schmidt, Google CEO, describes AdSense for Radio as “essentially the integration of the dMarc Console and management tools into our advertising network.”

Schmidt discussed the status of its dMarc acquisition during last week’s Q2 earnings conference call:

The dMarc team itself is fully integrated. We're expanding it both in engineering and sales..They're on an integration schedule of about three months from now, so every week there are more milestones, and they're working very hard. It's very exciting.

SHOW US THE MONEY (BILLION DOLLARS WORTH)

Schmidt put forth a rare straight forward assessment of the challenges it faces in building future billion dollar business at a luncheon with media executives in NYC last June:

We don’t know the right answer in almost all these cases, but we know how to test quickly. One of the characteristics of these innovative businesses is that you have to keep testing and testing and eventually you find it. The first trials may not work and so we have to find partners who want to work with us, and they understand that we may screw it up.

Before touting the next billion dollar diversification opportunity for Google, perhaps Schmidt should wait till his company has one under its belt.

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