That Other Internet Behemoth

Very interesting article in the New York Review about Google. I did not know this:

In 2008 the advertising on Google’s search engine was responsible for 98 percent of the company’s $22 billion in revenue, and while Google refuses to provide more recent percentages, the company’s 2009 revenue of $23.6 billion suggests that little has changed.

So basically, the biggest, most dominant, most terrifying company to come out of the newest medium since books makes all its money off advertising. If I were the owner of a newspaper, I’d take notice of this. Effective ads, and not pay-walls, is the future of the Internet.

And as to that ad technology, Google essentially stole it:

Back in the early 2000s, though, another company, Overture, which was far more focused than Google on making money online, had already developed such a system. Google copied much of the system from Overture in 2001; Overture sued Google in 2002; and Overture was itself bought by Yahoo in 2003. Yahoo settled the lawsuit against Google out of court for $275 million in 2004, and the system, modified over time, still provides the vast majority of Google’s billions of dollars in revenues.

Also interesting to see that Yahoo had the chance to be Google, but declined, thinking it would be better off being Yahoo. When Google tried to sell its superior search technology to Google,

[The Yahoo founders] were impressed with [Google’s] search engine. Very impressed, actually; their concern was that it was too good…. The more relevant the results of a search were, the fewer [pages] users would experience before leaving Yahoo. Instead of ten pages, they might see just a couple, and that would deflate the number of page views Yahoo sold advertisers.

And users soon decamped from Yahoo to Google for the better search technology. D’oh! Although this is a nice story for those of us who choose to focus on quality over pageviews.

Also some interesting points about where Google stands on net neutrality. This should frighten a lot of people:

More importantly, the iPhone, the iPad, as well as the whole gamut of mobile devices that run Google’s own Android operating system, have led many users to access the Internet through wireless devices rather than through cable or phone lines. It is not hard to imagine a future in which many users give up their home Internet connections—much as many have abandoned their “land line” telephones—and gain online access exclusively through wireless devices. But Google, in its joint statement with Verizon, dropped its support for net neutrality for wireless devices. Instead of insisting that the rapid expansion of wireless Internet access should make net neutrality all the more essential, Google executives claimed, in corporate-speak, that the “nascent nature of the wireless broadband marketplace” would make the application of the principle of net neutrality premature.

And the things I’m hearing out of the FCC on net neutrality do not suggest that it will push back against this sort of behavior. If this keeps up, it seems likely that the Internet will go the way of film and radio–media that started out more or less democratic and practiced by extremely large groups but that eventually became dominated by a few major players.

And then there’s this:

In addition, these personalized ads will become more pervasive, allowing advertisers to coordinate campaigns across a single user’s computer, e-reader, and cell phone, as well as the many other devices that are now being built with wireless connections, such as radios, TVs, watches, and cars. With the help of a highly efficient data clearinghouse, marketers will be able to update these campaigns instantaneously, based on such factors as the sites that we visit, the searches we make, and the places we go.

The ability to target a tightly knit group, such as a circle of friends or a family, has been of particular interest to marketers. Irwin Gotlieb, the CEO of GroupM, the largest advertising agency in the world, relates one example to Auletta: “Take disposable diapers. Should you just market to pregnant women? I would argue that maybe the grandmother has significant influence.” Thus if a daughter-in-law becomes pregnant and searches on Google for baby blogs, or looks at strollers on Amazon, the grandmother-to-be—whose relationship to her daughter-in-law could be discovered through Facebook, or perhaps through the social networking service Google is reported to be working on—may begin to notice a remarkable increase in diaper ads not only on the websites she visits but also, as more and more devices become tied together through wireless connections, over her radio, on her television, possibly on her toaster, and certainly on her cell phone, which, following another of Gotlieb’s suggestions, might start flashing with coupons for diapers when, through the phone’s location features, a marketer is made aware that she has walked into a supermarket or drugstore. It’s not hard to imagine a future in which an ill-informed grandmother-to-be might suspect that there will be a new addition to the family, simply by observing changes among the ads she’s served up hour by hour and day by day.

For more on this subject, check out Ken Auletta’s recent book, Googled, on which much of this article is based.

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