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February 18, 2007

el-gooG – Google Gets Local Backwards

A year after Google acquired their company dMarc as the basis for Google Audio Ads (ads on radio stations) , brothers and company founders Chad and Ryan Steelberg have left the company.  It’s easy to read too much into their departure since many purchase contracts include some mechanism to keep the founders around for awhile and founders notoriously don’t like working for acquirers.  However, there’s speculation that Google is not doing as well as planned in this venture and CNet talked to a lot of people about industry perceptions of Google’s service.

Bottom line: Google hasn’t had much impact in this industry and most commentators are wrong about why.  This is an object lesson in the hubris of web companies and the danger of assuming that what scales up will also scale down.  Also a good lesson in what the Local Web should NOT be.

At the very end of the CNET article is this quote from analyst Greg Stirling:

Eventually what's going to happen is that paid search growth will slow. The markets are looking to Google to maintain their astronomical growth rates and so they have to develop these other market opportunities to maintain their revenue growth.”

I don’t know whether Google was following this typical piece of Wall Street backwards logic when it decided to go into radio advertising.  Google has succeeded by being excellent at what it does; obviously at some point its revenue growth rate will slow.  It’s earnings will slow even more dramatically if it moves into areas where it offers no excellence or differentiation.

Google is using its national advertising sales force to peddle local ad time to national firms.  However, the firms only get to decide on region, format, and demographics - not on the actual stations.  According to the CNET story, local stations have only made remnant time available to Google because they sell their prime time to local advertisers with whom they have long-standing relationships and who pay more than Google does.  But the national advertisers don’t want remnant time.  Standoff!

Moreover, the stations would rather not sell remnant time at all than sell it too cheaply.  We bloggers’ll let Google run an add in our sidebars for almost nothing because we don’t have a better use for the sidebar space and our readers can easily ignore the ads. CNET quotes Tom Bender of Greater Media Detroit: “Somebody could come along and buy time for $15. Well, you know what? I'd rather play a record because I know that my listeners would like it more.”

Ad agency reps who were interviewed think that the problem is that Google doesn’t have relationships with the radio stations.  My guess is that’s hogwash; if Google could offer the stations more money and long-term commitments, they’d be able to buy the prime time ad spots.  But Google is (and actually should be) committed to its self-service model which doesn’t result (or isn’t resulting) in firms paying up for the radio ad spots.

According to Bender, 80% of advertising sold on radio is local.  The whole business side of a local radio station (or local newspaper for that matter) is selling ads locally which requires a great deal of time spent on relationships with local merchants AND participation by the radio station in making the creative, organizing contests, holding events, etc., etc.

Obviously Google isn’t going to compete with the local sales force of the local station.  What puzzles me is why Google didn’t approach this opportunity the other way around: have the local sales force sell for Google! Google has plenty of ad inventory online.  Radio stations have only a rudimentary presence online.  Google has no local presence; radio stations have nothing but local presence.

My suggestion for Google (which has done pretty well in most things without my suggestions) is to turn the thrust of this business around to play to their own strengths and the strengths of the radio stations.  Give the radio stations a platform on which to build their online presence.  Help the radio stations to serve their advertising customers better by selling ad campaigns which include both radio and online – particularly online pay-per-click triggered by search with local keywords or national keywords mapped to local outlets.  Let the radio stations share in Google revenue for Google inventory rather than trying to take a share of the station’s existing revenue.  Let the radio stations be the local SEO experts (with Google’s help).

It may well be true that distributing national ads to local stations will become a commodity business and the fat share that ad agencies get now will be whittled down.  Could well become an auction business with only a platform provider as a middleman.  But this isn’t the main opportunity in local advertising.

Delivering web benefits to local markets means building from local strengths and giving local organizations an opportunity to use the web to serve their own needs.  Local ad salesman won’t be disintermediated nearly as easily as their national competitors.  But helping local radio stations strengthen their service to their local customers is a national business worth of Google.

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