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December 08 2011

17:00

The newsonomics of Google’s retail push

It looked like just more head-butting among the mammoths of our time: Google will match up with Amazon, said the Wall Street Journal last week: “The Web-search giant is in talks with major retailers and shippers about creating a service that would let consumers shop for goods online and receive their orders within a day for a low fee.”

Most of the stories played on that Goliath vs. Goliath theme, and of course that’s an increasingly familiar one as the businesses of Google, Amazon, Facebook, and Apple overlap, intersect, and collide. Who is a bookseller? Well, Amazon, and Apple, and Google, kind of. Who is selling and renting media — well, who isn’t or preparing to do so? Who is in the hardware biz — all except Facebook? Who’s reaching for the digital ad riches, now generating $80 billion worldwide; Google, the king, and Facebook, the fast-threatening prince.

Yes, the Google/Amazon match-up over delivering goods is a good and real storyline. As big brains butt, it could be thunderous and landscape-changing. That landscape includes the news business, and you can almost feel the rumbles underfoot just with the word of Google’s move.

Let’s look at the newsonomics of Google’s would-be one-day-shipping program — let’s call it Google Tomorrow™© — and its wider impacts and strategic rationale. First, we’re talking about a lot of potential money. U.S. retail e-commerce is forecast to hit almost $200 billion this year, with the global total adding up to $700 billion. So there are many companies trying to get in the middle of it.

The idea of website-facilitated buying — and shipping — from fairly local retailers isn’t a new one by a longshot. Storerunner plied this territory, too early, a decade ago. Webvan, the best funded of the grocery deliverers went from brilliance to punchline in about 30 seconds. Shoprunner is currently out there, pitching the same idea as Google Tomorrow. Newspaper companies have been more steadfast, more the tortoise in the race for perfection of our emerging online/offline commercial world.

Companies like the Gannett-owned ShopLocal and independent Travidia, with its FindnSave product used by McClatchy and other news chains, have been building the know-the-local-retail-inventory, compare-prices-and-buy terrain for years. Unlike what Google may do, they don’t deliver one-click buying and delivery. They offer product selection, availability and then click off to retailer’s own sites for buying and shipping or store pickup. The idea seems like a great one, a merger of the best of online and offline, yet it’s been slow to grow. Every time I’ve checked out the sites, I’ve found the promise smart, but the inventories too uneven or the hierarchy of results skewed to preferred shops — not my preferences. Consumers have clearly opted for Amazon over these kinds of sites.

The impact on the ShopLocals and FindnSaves is not what should concern newspapers, though. The big issue: retail advertising.

While the web has greatly damaged newspapers’ classifieds and national ad businesses, retail has been a relatively stronger area. Worth about $13 billion last year — or half of daily newspapers’ ad revenue — it’s a lifeline at this point in the tough print-to-digital transition. Retail is being challenged on several fronts, with the Sunday preprint business a big concern. In fact, both Google and newspapers are pursuing e-circulars to counter the inevitable print downturn in that area.

Wait a minute, you may say — that $13 billion is advertising money and Google, like Amazon, wants to make money facilitating actual commerce. But the division between advertising and selling is an old one, fast blurring. Think about where we’ve come from the era of impression-based (newspaper, TV, radio, magazine) ads into the era of pay-per-click, pay-per-lead, pay-per-acquisition, and more.

Retailers don’t want to advertise; they want to sell stuff.

Give them new routes to sell stuff, and deliver it more cheaply than they could before, and they’ll migrate their ad/marketing/lead generation dollars. So if Google can really make it easier to personalize, routinize and make more efficient the selling process, it will place itself between the seller and the buyer. As it does that, it replaces the newspaper as middleman, further reducing much of the revenue that is keeping newsrooms staffed, even if many of them are now half-staffed at best.

Is the replacement of newspaper as advertising-oriented middleman inevitable? Probably, but over a longer term. Since the dawn of the web, people have been chasing the perfection of commerce, and it’s been a tough slog with far more losers than winners. Amazon, of course, is the big winner, but with relatively small profits, a paltry $63 million in the last quarter on sales of $10.8 billion. While Amazon is perfecting commerce, it’s got a long way ago. Since it was born in 1994, four years before Google, it has built a one-of-a-kind business on customer obsession and brilliant analytics. Its recommendations engine is ready for the web hall of fame, and its latest foray with Prime membership (“The newsonomics of Amazon’s prime moves“) shows it knows how to build on its foundation.

Google lacks some of Amazon’s core strengths. It’s a mix-and-match technology company, famously trying lots of things and at times more quickly abandoning losers. In commerce, Google is moving forward with a spate of moves. Google OnePass is a restyled content buying system, with some prominent publishers signing on. Add in Google Latitude, Google Local, Google Local Shopping, Google Shopper, Google Tags, and Google Places, all relating to local commerce. Google Offers is gaining steam and is working with publishers on syndicating local daily deals.

There’s an irony to such publisher partnerships, of course. On the one hand, Google is a “partner,” magnifying publisher businesses through its ad and search products. On the other, initiatives such as Google Tomorrow are a potential dagger to newspapers’ jugular. That’s the way of the web world. For Google, or Amazon, or Apple, or Facebook, any new initiative it takes on has its own internal logic. Should another industry — say newspapers — be wounded in the process, it’s just collateral damage. Given the size of these digital behemoths, as they decimate legacy industries, you can almost hear them say, “Sorry, did I sideswipe you? I didn’t feel anything.”

If everyone is a frenemy these days, and Google is taking on Amazon, media companies have to ask: Who is the frenemy of my frenemy?

One last point to ponder about Google Tomorrow. Consider it, in part, a defensive move.

If, in fact, selling and advertising are blurring, Google has to move more in the selling direction. Right now, it’s an ad company, pure and simple. About 97 percent of its revenue comes from advertising (and you thought newspapers relied too much on that revenue source). It has brilliantly moved to expand its digital ad dominance (now taking in about 40 percent of the dollars in the U.S.) by merging its paid search foundation with big acquisitions in display advertising and mobile. Just last week, the feds let it buy AdMeld, an ad optimizer — and Google’s 57th acquisition so far this year. Now, the Doubleclick ad management system offers a singular approach, incorporating in one place display, search and mobile, to the delight — and terror — of publishers and others in and around the ad industry.

The dominance is a sight to behold. Yet as digital innovation continues to disrupt everything in its path, the ad business is vulnerable, with companies, led by Amazon trying to eliminate the cost and friction of finding buyers. So let’s look at the Google Tomorrow battle plan as one aimed at Amazon surely, but with ammo that may hit newspapers as well — and one that may allow Google to find that big, elusive second revenue stream.

Photo of Amazon warehouse by Chris Watt/Scottish Government used under a Creative Commons license.

Each week, Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of news for the Lab.

November 29 2010

15:00

The Newsonomics of eight-percent reach

[Each week, our friend Ken Doctor — author of Newsonomics and longtime watcher of the business side of digital news — writes about the economics of the news business for the Lab.]

We’ll all familiar with the chaos of the moment. Publishers and broadcasters, readers and viewers, search giants and software midgets — they all see that we’re on the verge of the next news and information revolution, as the built-out Internet really begins to power human access to content on an array of digital devices, anytime, anywhere. But it’s not just the media dealing with that revolution. The same chaos of choice that alternatively delights and befuddles envelops businesses as well.

For old-fashioned sellers of newspaper space and broadcast time, it’s been a fitful education, and a reminder that merchants don’t want to buy advertising — they want to find customers, as cheaply and efficiently as possible. The First Amendment didn’t tie merchants to media in a constitutional permanence; it just seemed that way.

Marketing spend — email marketing, social media commerce, search engine marketing and optimization, building and operation of brands’ own websites, events and conferences, among others — is increasing worldwide, while “advertising” stagnates, and that’s due mainly to the increase in digital, increasingly measurable, marketing alternatives for businesses of all kind.

Yet, it’s also clear that we’re at the beginning of this digital marketing revolution, with two numbers convincing me we’re maybe not even a tenth of the way there. I’ll call that the Newsonomics of eight-percent reach, and explain those eight percent in a moment.

Consider first the big picture of marketing spend. Chuck Richard, a fellow information industry analyst at Outsell, has done work showing that marketing ad spend in the U.S. now totals $368 billion, of which 32.5 percent is going to digital and 30.3 percent to print.

It decreased at the rate of only 4.5 percent in the recession-wracked 2009, and should rise about 4.2 percent this year. Spending on advertising alone was down 8.5 percent in 2009 and is forecast to be down 0.8 percent in 2010.

So against those numbers, let’s look at a couple of numbers.

Google reaches about eight percent of the small businesses in the country, estimates Click Z’s Gregg Stewart. That’s 1.5-2 million businesses who use Google’s ad services, contributing to its $27 billion annual revenue run rate. As Stewart points out, Google advertising is a convenience for many harried smaller merchants:

Local businesses face a multitude of challenges daily; servicing customers, generating sales, meeting payroll, and in effect doing what they “do” for a living. Basically, they’ve got their hand in everything and this rarely allows for deep specialization in any one specific facet of their business. Local businesses do not have the time required to research keywords, monitor results, and modify bids and ad creative along with all the additional complexity that is associated with SEM.

Look at that eight percent another way, of course, and we see 92 percent upside, a big opportunity to help merchants make sense of the chaos. Google — along with Yahoo, Yelp, Yellow Pages companies, AOL, and Microsoft — have been plumbing this territory, and so have newspaper companies and a trio of hungry online marketing services companies.

Now Google is making a couple of aggressive moves. It has announced Boost. It’s a product that is built on top of its local listings and Google Maps. Boost — there’s an ironic ambiguity to the name, in that it is intended to boost Google’s revenue and boost some money out of the pockets of local media — adds the ability to put ratings and reviews in place-based ads, and they are sold on a pay-for-performance basis, unlike an earlier similar offering. The Boost test is going forward in more than a dozen cities.

Secondly, Marissa Mayer, Google’s long-time maestro of the search business, is now in charge of the local business. That’s another signal of what an opportunity Google sees in local business, online and on mobile.

How much of the local business market do you think metro newspapers reach? Eight percent, estimates Mike Sacks, VP for operations at Tribune. That’s a number, give or take a couple of points, I’ve heard from other publishers as well. While that total is likely higher for smaller-circulation dailies, its small size is a reflection of the old way of selling, pre-chaos.

Newspapers worked the biggest local merchants for big contracts, concentrating on getting a relatively small number of checks from a small number of deep-pockets advertisers. Now, those advertisers — the likes of Best Buy, Target, and Macy’s — are increasingly going direct to their customers and using all manner of social and engagement media to find and upsell customers (“The Newsonomics of online marketing“).

So, newspaper companies, including Gannett, Hearst, and Tribune, most prominently, are re-strategizing. If the dollars from that eight percent are only half what they were 10 years ago, then we’d better get some revenue from the other 92 percent, they’re saying. They’re doing that three main ways:

  • Retraining salesforces, and hiring more commissioned salespeople, to work the territories, selling not only space in their own papers and sites, but Yahoo inventory, Facebook placements, mobile messaging and more.
  • Telesales: Think “boiler room” lite; more salespeople calling more prospects.
  • Self-service: Sack’s Tribune is one of the companies using the Mediaspectrum platform to enable local merchants to place their own online or print ads. This Orlando Sentinel “Place an Ad” page shows what merchants can choose from. At the sister Sun-Sentinel, in Fort Lauderdale, Sacks says that more than a hundred new advertisers have been added in the year the service has been in place. “Every single cent is a new one…I’d like to see it grow ten-fold,” he says of the prospects of turning an experiment into a line of significant revenue. Sacks says average sized deals come in at about $1,000/$2,000 and also provide lead generation for upselling. Overall, Mediaspectrum’s self-service ad product is in place at almost 100 newspaper titles, including all of the Tribune’s papers (but not broadcast properties), UK’s Trinity Mirror chain, Morris Publications, the Columbus Dispatch, and the Washington Post. Most offer both online and print placements.

As we enter 2011, this new battle for local ad dollars is growing in strength, as merchants aim to make sense of the chaos of marketing choice. This exercise in chaos — and how sellers of marketing services do or don’t take advantage of it — affects more than just newspapers, of course. Locally, commercial broadcasters and Yellow Pages companies — the two other local media with substantial feet-on-the-street sales forces — are sensing the same opportunity to get to smaller businesses, as they, too, lose some of the bigger-business advertising they’ve long held.

Advertising agencies are in the midst of their own identity crises, as their value proposition to businesses is thrown into question, with the advances of pay-for-performance advertising and self-service overall.

The online-only players aren’t just the search giants. ReachLocal, Orange Soda, and Yodle are the companies you hear a lot about when you talk to local site general managers. They are all working the same turf, with ferocity. A recent visitor to the Yodle “sales pit” came away with the impression of “how well trained these guys are” and how their state-of-the-art customer relations management system qualified prospects well.

That 92-percent “open” market — maybe 23 million businesses — tells us how early we are in this digital marketing movement. Commerce change is one thing. For those who care about the news, the big thing to watch is whether those dollars, as they move digitally, move to companies that produce news, distribute news — or have nothing to do with news.

Photo by Leo Reynolds used under a Creative Commons license.

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