The ad budget becomes the operating budget: Google shares its vision of advertising's future.
Nick Utten is CMO of E-Trade, but he jokingly (and repeatedly) refers to his company as "gTrade." Three years ago, "E-Trade spent their last dollars online," Utten explains. Today, "our first dollars go online. Search is a major part of that, and we're not even close to the top of our spend."
Utten, who earlier held CMO positions at Revlon and MasterCard, doesn't limit his Google-related spending to search. He also buys keyword advertising, campaigns on YouTube, and ads in Google's display advertising network and participates in Google's contextual beta tests in both television and radio advertising. Utten holds a daily Google meeting with his team of Ph.D.s (eight in the U.S., bolstered by another slew of eggheads based abroad), all charged with creating analytical algorithmic models of the company's Google campaigns.
"Test, learn, optimize" is the mantra. Utten and his team don't use their Google-derived data only to optimize their many campaigns in near real time on the search giant's many platforms, but also to tweak creative, offers, flights, and localities in their traditional print and broadcast ad campaigns.
As they're not close to their top of spend on Google, Utten says, "we'll keep spending more online until it plateaus out." And sure, E-Trade's buying inventory and search terms on Yahoo and MSN as well, he confirmed while we shared a cab after a media event yesterday at Google's New York headquarters. "But frankly, they're not really even in the race."
It's Not an Ad Budget, It's an Operating Budget
Of course, Utten was invited by Google to share its Kool-Aid with media. Google's head of the financial services sales vertical, Jon Kaplan, would have been delighted at how on message Utten remained after he left the building. E-Trade's an early adopter of the new advertising model Google's chief ad honcho Tim Armstrong is preaching: turn your advertising budget into an operating budget. Rather than picking a year-on-year or quarter-on-quarter number, he'd like advertisers to view their Google buys as an operational expense, "like making a movie or building a dealership."
And Google wants its advertisers to advertise more. A lot more. Say, about a thousand times more.
As an example, he cites an unnamed computer manufacturer and Google client who, a few years ago, ran campaigns for 8 to12 products annually. Today, that same company advertises 12,000 products and services, according to Armstrong. The idea, he says, is businesses can make all their assets available to allconsumers all the time, and in doing so, connect only with interested users.
"You don't need to go into a fixed budgetary cycle," Armstrong argues. Instead, advertisers must learn (with or without battalions of number-crunching Ph.D.s at their sides) how their budgets fluctuate with consumer-interest cycles.
In a breakout session on the financial vertical, examples of evergreen and episodic advertising were trotted out. The company is keeping an eye on search behavior in the wake of this week's interest rate cut and the ongoing mortgage crisis, for example. Lenders are adjusting their ad spend as a result, and banks are seeking depositors to fund their own loans.
This isn't only Google's idea, of course, though it goes far to explain its proposed DoubleClick acquisition. It's also what's fueling the reorg AOL announced this week, Microsoft's snapping up of aQuantive, and WPP's buying of 24/7.
Whither Ad Agencies?
Google isn't explicitly out to disintermediate ad agencies, and (swears Armstrong upside down and sideways) it certainly doesn't want to be in the agency business. But if its vision of the future is realized (and face it, to a large extent it's already happening), the implications for agencies will be just as seismic as they were when this whole Internet thing came along in the first place.
Utten may have put it best when he explained insofar as E-Trade's constellation of traditional, interactive, and media agencies are concerned, the company remains idea agnostic. Instead, what he's buying is the "best optimization."
"It's probably more impactful to build ads on the fly," is the way Armstrong put it.
Not exactly Madison Avenue's core competency, is it? No wonder Google is poaching from the top ranks of agency creative talent to help agencies get the hang of what promises to be a whole new ballgame.
The promise is more effective advertising which, handled correctly, will be sustainable and even self-financing.
The pitfall? That daily meeting between eight sober engineers with doctoral degrees and the high-strung prima donna of a creative director.
C'mon, Google, solve that!
Meet Rebecca at ClickZ Specifics: E-Mail Marketing on October 2, in New York City.
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Rebecca was previously VP, U.S. operations of Econsultancy, an independent source of advice and insight on digital marketing and e-commerce. Earlier, she held executive marketing and communications positions at strategic e-services companies, including Siegel & Gale, and has worked in the same capacity for global entertainment and media companies, including Universal Television & Networks Group (formerly USA Networks International) and Bertelsmann's RTL Television. As a journalist, she's written on media for numerous publications, including "The New York Times" and "The Wall Street Journal." Rebecca spent five years as Variety's Berlin-based German/Eastern European bureau chief. Rebecca also taught at New York University's Center for Publishing, where she also served on the Electronic Publishing Advisory Group. Rebecca, author of "The Truth About Search Engine Optimization," was ClickZ's editor-in-chief for over seven years.
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