One of the most commonly asked questions about Google’s
business model is simple and straightforward: how does Google make money? The
answer is just as quick: Google makes its money through online advertising. Namely,
allowing other companies to pay to advertise on Google. The strategy is easy to
understand. People use the Google search engine by typing in a combination of
words to find out information, for example, “restaurants in Baltimore.” A
business like Woodberry Kitchen can pay Google to place an advertisement of the
restaurant on the search engine when this combination of words is used. Most
importantly, Woodberry Kitchen will only pay Google if the advertisement is
clicked on, hence the phrase “click to pay.” Google also runs the advertising
for other websites, using the same “click to pay” model. Major publishers like
Forbes rely on Google to supply ads to their sites.
So what happens when something goes wrong and these
advertisements are not there to be clicked on? The publishers lose large sums
of money and Google loses credibility. Yesterday, for an hour, 55,000 websites
were affected when Google’s subsidiary DoubleClick for Publishers went down.
Blank spaces resided where ads should have been on major websites like
BuzzFeed, Time and Forbes. The sites themselves were sluggish to load because
of the lack of ads; sites like Forbes greet the user with a full page ad, and
when it did not load, the website took longer than normal to come up. The Wall
Street Journal quotes Brian O’Kelley (CEO of DoubleClick’s major competitor AppNexus)
estimate that the issue “cost publishers $1 million per hour in aggregate.”
Yesterday’s disruption was the biggest in recent memory for DoubleClick, and
people are questioning why it happened and what the repercussions of the event
are. Some rivals claim that DoubleClick’s system is no longer equipped to
handle the vast amounts of data required to place the right ads at the right
time in the right place all in real-time. The likelihood that this disruption was caused
by DoubleClick’s system being unable to handle data is probably inaccurate. The
fact that the event did occur, though, is the perfect grounds for DoubleClick
rivals to sow seeds of discontent with ad customers currently using this Google
subsidiary.
Google has an unquestionably huge lead in digital
advertising but other behemoths, like Facebook, are determined to take a piece
of the market. Publishers losing a million dollars is not the end of the world
by any means; they will be able to recover easily from the lost revenue. What
is harder to recover from is this ding to Google’s image. Online advertising companies
can capitalize on this small crack in Google’s armor and find a way to break in
completely. It is possible that Google’s strong image will protect it, but the unknown
is worrisome for its unpredictability when it comes to the reaction of site
users and advertisers alike. This could spell the beginning of the end for
Google’s reign over digital advertising.
http://blogs.wsj.com/digits/2014/11/12/googles-doubleclick-outage-turns-internet-ad-free-for-over-an-hour/?KEYWORDS=google%27s+doubleclick
4 comments:
To be honest I have to say that I was in the percentage of people that asked the frequent question “How does Google make their money”. Now that I fully know that it is from online advertising it makes sense that this is the case. Since everyone uses the Internet and Google searches in this day and age I can see how competitive advertising on Google can be. The example used about the restaurants really opened my eyes to how expensive some of those advertisements can actually be, especially if it is a new restaurant trying to get their name out to the public. I can see that Google can loose credibility when the advertisement is not clicked on and of course the advertiser will loose a significant amount of money. This error that DoubleClick experienced the time this article was written is devastating to any advertiser that trusted the source to advertise. It also is not good for the subsidiary because rivals obviously are trying to capitalize on this. Rivals would like nothing more than to have Google potentially drop DoubleClick and pick up what they have to offer. I agree that this is an incredible loss for Google and we could possibly see some changes as to who is doing their digital advertising in the future. I just do not see Google’s reign on digital advertising ending any time soon. Speaking from personal experience, I don’t see any website like Google overtaking their advertising smarts any time soon. I feel as though Internet users are so loyal to Google, the page is so simple and straightforward that users are going to continue to use the site. When people are still using the site then they will still be drawn to Google advertisements, whatever subsidiary that they choose to use in the future. I also do not think that any of Google’s current competitors can come anywhere close to where they are as a company right now. Yes sites like Yahoo you can make an argument for but in the long run I see Google as the dominant corporation specializing in Internet-related services, online advertising and products in years to come.
Erica proposes an interesting situation, Google no longer the kings of online advertising? It’s an interesting idea but is it fully possible, I’m not sure. Although Google had a minor issue, I do not see them falling very far from the top in terms of matching online web surfers with advertisements that are curtailed to them. A company such as Google cannot afford to become the second best with online websites. If it seems as though the company is slipping form providing the best advertisement service than I could see a reconsolidation in the corporation, a sort of back to roots mentality might be needed in which the company spins-off other profitable portions of the company in order to redefine their company image. Google is the epitome of a corporation where innovation and raw computing power are at the core of its values.
For smaller online advertising companies to take advantage of the situation they move offer the same comparable product for a cheaper cost. Smaller companies are able to be more innovative through their processes than another large Google type corporations. Smaller online advertisers may take provide a search parameter to more thoroughly search through a user’s social media profiles to find ads that would be most profitable.
I think one of the most interesting points in this blog is the idea of Facebook becoming a bigger player in the online advertising market. Consumers provide Facebook with so much information about themselves for free that with the right algorithms they could really predict what sort of products and services the individual consumer is interested in or may be interested in. While other advertisers have this information they have to piece it together from multiple sources. By having all this information come from one source it should help with the reliability of the data and should create better algorithms and results. It may also help with the reliability of the ad system because it needs to gather data from fewer sources.
I found Erica’s blog to be very interesting since I was not aware of Google’s DoubleClick issue. I was also unaware that the bulk of Google’s revenues came from advertising. This didn’t come as much of a surprise since Google is the most used search engine in the world, followed by Baidu (China’s Version of Google) and Yahoo. However, what was most interesting to me about Erica’s article was what the future of online advertising holds for Google.
This hour-long advertising outage may not seem like that big of a deal but it is possible that this could be the start of Google’s fall from the top. As Erica said rival online ad platform providers used DoubleClick’s crash as an opportunity to not only promote themselves but also begin rumors surrounding Google’s inability to handle growing amounts of data. David Jones, sales engineering director at Dynatrace (a company which monitors website and web application performance) said “This is the largest single event in recent memory in terms of DoubleClick and the number of sites affected,” which number top out at over 55,000 websites. Though this slip up may have been minor, relatively speaking, its impact on Google’s reputation could lead online advertisers towards other competing companies, namely Facebook.
In Q2 of FY14 Facebook reported online ad revenues of $2.68 billion which pales in comparison to Google’s $14.36 billion amassed in the same time period, yet it still should signal concern for the current ad leader. Even with this rather large difference in revenue the main concern for Google should be the steps Facebook is taking to vastly improve and promote their online advertisements. In February of this year Facebook made its initial move with its acquisition of Microsoft’s “Atlas” ad server. Since their purchase of Atlas in February Facebook has re-engineered the platform with multiple new and updated features which have been on display since its implementation in late September 2014.
With their re-engineered Atlas platform Facebook aims to work with advertisers in order to help them better understand which articles each unique user has interacted with and subsequently acted upon. In addition to this, Atlas will also offer an automated ad-buying tool which will allow advertisers the ability to purchase different ad space that target Facebook users as they are switching websites. These new tools offered by Atlas in combination with their piles of user data, and Mark Zuckerberg’s pledge to invest in advertising improvements over the next few years are all signs that Facebook is attempting to capture more of Google’s market share.
Rishad Tobaccowala, Chief Strategist of advertising holding company Publicis Groupe SA stated, “What Facebook is doing is potentially more powerful than what Google can currently do,” in reference to the ad targeting and tracking capabilities of both companies. With statements like this DoubleClick’s outage could signal the beginning of the changing of the guard in the online advertising market.
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