Google is poised to extend its newfound dominance in display.
Whatever direction online display media takes in 2011 and beyond, Google will be alright.
After three years of intense R&D -- and even more intense M&A -- the company now owns large swaths of display media's plumbing. It's on pace to capture $2.5 billion in display ad revenue in 2010, making short work of CEO Eric Schmidt's 2009 pledge to turn display into Google's "next billion-dollar business." But that's just the tip of the iceberg.
Agency groups ZenithOptimedia and GroupM both predict online ad spending will grow significantly next year, and researcher eMarketer projects display spending will expand from $8.9 billion this year to $15.9 billion in 2014 (though it will still trail search spending). As that tide surges, it's evident to many that Google has rigged its boat to rise more swiftly than its rivals.
Google Is the Platform
"Google has rebuilt the infrastructure of a huge part of online advertising," said Adam Cahill, SVP and director of digital media at Hill Holiday. "They're the guts. It kind of doesn’t matter what the outcome - they'll be touching it in some way."
Google's product stack includes ad management leader DoubleClick; a year-old ad exchange that is already dominant in real-time bidding; demand-side platform Invite Media; creative optimization platform Teracent; and incubated products like Display Ad Builder, which lets small search advertisers roll out display media campaigns in minutes. Its ad network now exceeds the reach of previous ad network leaders AOL and Yahoo, according to comScore.
"We have hundreds of engineers focused on continuing to add value in display advertising," says Neal Mohan, VP of product development for Google's display ad products. "We are going to not only continue but grow that investment... We really think this is display advertising moving from the bronze age to the golden age."
Few, if any, companies are investing as aggressively in display. Microsoft and Facebook are throwing beaucoup bucks at it, but both are hampered by built-in limitations. Facebook is confined by its platform focus, and has shown no interest in integrating with third party tracking and serving tools. That may turn into an advantage later if it launches an ad network, allowing it to leverage social affinity in Facebook ad creative around the Web. And Microsoft, while its display investment is formidable, has failed to acquire and integrate display ad technologies as quickly or as effectively as Google, according to sources familiar with the company's internal operations.
Mohan is careful not to say too much about Google's future plans for display. "There are a number of interesting things we can do both on publisher side and advertiser side that's going to drive value for both of those players."
One likely area of investment is data aggregation, a potentially large revenue source but also a sensitive category in light of Federal regulators' current interest in online ad targeting. Another is ad verification, which helps advertisers guarantee their campaigns meet campaign specifications and honor website block lists.
Big Brands Love Google's Reach
Google's display ad network now contains more than a million websites, including video powerhouse YouTube. It is the largest ad network in the U.S. with 93.4 percent reach, according to comScore. But its year-old DoubleClick AdEx exchange is the bigger story, since it's there that Google is preaching the gospel of real-time bidding.
According to Mohan, AdEx transactions have more than tripled in the last two quarters. And next year Google plans to make video advertising available via the exchange, which should further stimulate spending by brand advertisers.
When it comes to big brands, much spending is channeled through agency trading desks like Publicis-owned Vivaki and IPG's Cadreon. Mohan wouldn't say how much revenue is coming from these agency-buying divisions.
"What I can say is the trading desks are growing rapidly," he said.
Google's courtship of agencies recently led to a mini-scandal in which TechCrunch reported Google is issuing "kickbacks" to Vivaki and other agency partners in the form of education and tech support. The company has dismissed the allegation, saying the purpose of its Vivaki partnership is to benefit advertisers. But the incident showed how sensitive the tech community is to Google's leverage and influence in agency-land.
"We recognize that Google will be successful in display advertising by making our agency partners successful," said Mohan. "The way we can do that is by being their technology and innovation partner." In any case, adoption of display by big search spenders, often through agency intermediaries, has been a key factor in Google's growth. Ninety-nine percent of its top 1,000 advertisers run campaigns on the Google Display Network in addition to search.
"A couple years ago only a handful were doing that," Mohan told ClickZ. Additionally, 75 percent of those advertisers have increased their ad spend -- indicating the ads are performing.
Not the Only Company
Matt Freeman, CEO of IPG-owned Mediabrands Worldwide, acknowledges Google's importance in display ad buying. But he also points out the number of individual players is still growing, and Google doesn't have a lock on the future. Mediabrands' Cadreon business now has almost 100 partner companies, including data providers like eXelate and BlueKai, social advertising products like 33across, and transactional companies like Groupon that are becoming more relevant to media planning.
"The number of partners is expanding not contracting," Freeman said. "There are a whole set of mobile companies that are becoming increasingly important."
The proliferation of vendors has been famously visualized in an ecosystem map created by Luma Partners founder Terence Kawaja (view the map). While a number of firms represented on the map are owned by Google, the bulk are not. However many are highly dependent on it.
As Cahill notes, "If you talk to the DSPs, their product development is based on what Google is doing."
Meanwhile, many old-line Internet giants are still doing their thing. AOL and Yahoo command serious influence and digital ad dollars. But their investments are focused less on display technology than on content initiatives -- including so-called content farms and hyperlocal journalism.
"It's really the companies that are building platforms that are doing well," said Cahill. "The companies that are just selling content and audience aren't doing as well."
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Until March 2012, Zach Rodgers was managing editor of ClickZ's award-winning coverage of news and trends in digital marketing. He reported on the rise of web companies, data markets, ad technologies, and government Internet policy, among other subjects.
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