Most of the attention around Google today was at the Googleplex in Mountain View — where the company was showing off the first release of its Chrome Web browser. Meanwhile, Google ad czar Tim Armstrong paid a visit to New York, where he joined Citi’s Mark Mahaney for a fireside chat at the bank’s annual tech conference.
On his mind: Not much new. Over the long-term, he said, the economic downturn could actually be a good thing for Google as advertisers bring more of their ad spend online. And he thinks there’s still a lot of room for growth in the company’s core search ad business — like maps, local, etc. Good to hear! Meanwhile, Armstrong admits that selling ads on YouTube isn’t yet a perfect science, but that the company has made progress in the last year — and will keep getting better.
LIVE Notes from the interview:
4:07: Mark: Google is our number one pick in the Internet.
4:07: Standard disclaimers from Google’s investor relations person.
Mark: Talk about the core search business, video, display ads, and the new browser. What do you think drives the growth for PC search business. We’ve seen deceleration. Is there anything that makes you think it won’t continue?
Tim: There are still a lot of innovations in search to go, like universal search and maps and local. There are different dynamics in each country and there are still a lot of countries in the world where people are just getting online. From a revenue perspective I think there is a lot of headway.
M: Are there still advertisers for whom search is new.
T: Yes. Our most sophisticated customer is a very small fraction of our customer base. Even some of the customers that are spending significant amounts of money aren’t sophisticated (running all of the prodcuts and services and are totally optimised). Just a handful of advertisers who do this.
M: What are the major pain points that still need to be address. Three things that advertisers really want to see improved.
T: Complexity is one. There are a lot of companies who have spent the last four or five years doing the basics, but a lot of things have happened. Two is measurement and ROI. A lot of customers are really starting to drive their businesses off of digital. Customers really want Google Analytics and stuff like that. Third thing is education. A lot of customers want to know, how should I be set up? What technology do I need to own and how does my people structure need to happen?
M: Developing a series of advertising solutions, some of them are offline (print, radio, TV). Talk about your ability cross sell.
T: We have the ability to cross-sell. Our entire customer base is the same. It’s not like we’re getting in different markets. It’s the same market. Hardly anyone buys a YouTube campaign that’s just YouTube. They buy search, and print. From a scale perspective we’re in the R&D phase, but it’s been a great endeavour because the customer base is the same.
M: Your relationship with agencies. If you solve those issues, do you still need agencies?
T: If you solve all those issues, agencies will still have a lot to do. The people who make that complaint, are the people who came to the game late. We have agencies who have been working with us for a long time, and those guys aren’t calling us “frenemies.” They call us partners. Google typically deals with a small segment of a customer’s needs. But the amount of work that it takes to run campaigns today will probably only get greater. If we look in a crystal ball and ask will agencies get bigger or smaller, I think they’ll get bigger. Same with ad budgets.
M: Is there still an obvious efficiency argument to be made on PC search? Is it still much cheaper to sell a car this way?
T: The efficiency gains are still there. One example we had this summer, is a company was running a campaign themselves, and they weren’t doing it very efficiently. We came in and the cost per acqusition dropped for them from $1,500 to $50. And their market share went from 0% to 14%.
M: What was wrong with my old browser?
T: Three areas of the browser that are important — consumer innovation, browsers crash a lot. The second is the apps themselves, things have changed in how people are programming for the Web. Third area is access points, a lot of Google products are run through browsers and for us not to have a stake in that.
M: Every quarter you’re spending around $150 million on distribution costs for toolbars. Is Chrome a potential cost-saving measure?
T: We don’t think about it like that.
M: Display ads: Is there a need for a me-too display ad solution in the market. Something Google and Doubleclick can do to make it better?
T: Certainly hope so. Display ad business is interesting because it starts from the same customer base. We already have a large display ad business. Search and display are coming closer and closer together, and for us to hav ea platform that works across search and display is signficant. One of the areas we’re wokring very very hard on is measuring the display ads in a more effective manner. We’ll have announcemetns coming out in the future. One of the things we’ve done in search is ad quality. How do you measure the ad quality of display. What do you measure?
M: Reasonable to assume — you’re 60-70% in search ad spend. Could you get to 10-20% of display ad business in five years?
T: Takes three things to be successful in display — inventory, targeting and measurement, and customer base. With inventory, we’re in a good position because of YouTube. With targeting we’re in good shape with AdSense. With the customer base, the top display ad spenders are the top Google customers as well.
M: When will we start seeing some of these initiatives? Do you have more than YouTube in inventory?
T: Lots of things we’re going to launch — interest targeting and demo targeting. I think from an inventory perspective, is YouTube alone to move market share? I think it is. I dont visit many ad agencies where YouTube is not a main topic of conversation. Five years ago, the meeting was about search, and now they’re 50-50. 6 months ago we were unsure what the opportunity was with YouTube and now we’re more clear.
M: Have you solved the problem of having ads effectively up on YouTube in the right place?
T: Advertisers want three things — better brand, more traffic, more revenue. YouTube has the ability to do all three. There are cases when ads run on content you don’t want it to. I would expect that situation to improve over time. But, both social networking and YouTube have this problem with advertising. Really as an advertiser you want to be associated with the end consumer. As an advertiser you want to make sure that you don’t over correct based on your previous 20 years experience. The audience is tremendous, and as an advertiser you need to approach these things with an open mind.
M: What have you done to make YouTube better for advertisers?
T: In the display business, customers tell you what they want. We collected hundreds of those orders, and said, can Google meet all these customer requests. A year ago, no, but now we’re stronger at it. Within five years, because of the work we’ve done over the last 6 months, we’re in a position to scale that business?
M: Is there a self-service solution? If I upload a video, can I check that I want to make some revenue?
T: Yes. From a revenue perspective, we’re interested in how do you help people help make money from their content. We don’t have anything specific to announce with YouTube. But the more you’re able to help people make money from content they produce, the more content gets produced.
M: Where does mobile show up? Any interest in mobile search? Material source of revenue for Google?
T: Most customers are trying to develop a mobile campaign. Now there are mobile agencies that are popping up. Mobile’s one of those things where how quickly is it going to scale? A lot of that has to do with the platform. 25-50X more searches from an iPhone. If you ask the question on the iPhone, that market looks very similar to the PC business. On the non-iPhone market, it’s going to grow as the platforms evolve.
M: It seems like only in the last month or so, I’ve seen ads show up.
T: We’ve been selling ads on mobile in the last 16-18 months but recently it’s been scaling in the U.S. and Europe, you can expect to see more of it.
M: I think one of the reasons the stock has come off, is because at the beginning of the year there was no impact from the recession, but by June, the second sentence of the press release refrerenced the macro-environment. What’s the latest thinking on how much of an impact from a prolonged recession?
T: From a data perspective, y/y all categories except for real estate showed nice growth. In Q1 and Q2 we saw customers basically pause — take a look at what they were doing. From a perspective of, is this a negative cycle for us. There is a very positive cycle because people are adopting digital faster. In general, the economy is the economy but in the long-term digital is a very positive trend.
Q: I’m using my DVR on my TV. I think we’re moving more and more the inability to monetise my eyeballs on TV. Are the customers talking to you about that?
A: Just anecdotally we’ve been talking to a lot of ad customers, customers are still very interested in TV. The audience is using their DVR, and advertisers are trying to keep the audience engaged which is good for us. The net macro effect for us, I’m guessing is positive. As audiences on the Web get bigger and DVRs get bigger, the net macro effect is better for us.
Q: Competitive situation with Microsoft — Cashback?
A: One of the things that’s interesting in being in those rooms making deals is that it’s not always about the money. There are deals over the last five years where if it was just about the money, we would have lost them. Customers start to realise that at the end of the deal you’re not just betting on the money you’re getting, but it’s about the end-user experience. So it’s the worst thing to make a lot of money but have a bad end-user experience. The ultimate choice for partners is traffic needs to go up and you need to make more money, and not all of these deals have both those components.
Q: How do you look at the risk/return of improving the video quality on YouTube?
A: We’re very happy with YouTube as a platform — allowing everyone to upload content. Everyone’s got their own definitions of quality. Over time, one of the things about YouTube, we’ve been improving the search on YouTube, but we’ll actually incentivise people to make higher quality videos because people will watch them more. In general, hopefully you’ll see the quality go up just naturally. It’s not necessarily something that YouTube will force.
Q: What percentage of revenue comes from brand advertisers in search vs. direct response advertisers?
A: I don’t think we break that out. We’ve had a higher percentage of revenue come from ROI advertisers but in the last 6 months, search as a brand has become bigger. Proctor & Gamble is a good example.
Q: Direct response does better during slowdowns and branded generally does worse? So is that the case right now?
A: That’s more company-specific. They start to re-evaluate where the best ROI is. A lot of the CPG companies are very into CPMs. I don’t see them behaving too much differently. The brand solution in search is fairly new, also. It’s growing so we’re happy with it.
Q: My perception is that U.S. and UK is much different with rest of the world in terms of monetization?
A: The way we think of it is we ranked all of the countries in the world and where would be the biggest priority. US and UK have a lot more growth to go, and the countries beyond them also are good opportunities. In some of htese countries, it’s OK to have a gap because a lot of the consumers are coming online. In Brazil the adoption comes on a weekly basis of consumers coming online. I still think we have this grid of areas where we can add the most value. Our resources go to those market.
Q: Privacy mode in IE8 a risk to DoubleClick franchise?
A: In general if you look at the Internet Advertising Bureau, they’ve been in conversations with MSFT over the browser but it will be interesting to see what the industry outcomes are. We have nothing to comment on IE8 in general.
Q: Tougher for you to hire the people you want five years ago?
A: Quality of people has gotten better, and that continues. There’s a waiting list of employees right now. There are more people who have interviewed than we have jobs available for. We haven’t lost that many people. Google tends to be #1. Some people go to startups, a couple of people got incredible increases after they left. There hasn’t been a fundamental change in that part of our business.
Q: Social network sites was a major monetization challenge at the beginning of the year. That would seem to be an area where if you get targeting, you can make a lot of money?
A: We really worked on our AdSense targeting to make it more applicable to social networks. My guess is that there’s too much traffic there, it’s growing. Most of the targeting criteria on social networks are criteria that were used in other areas. I think one of the things that will happen is people working on different things to target social networks.
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