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Friday, June 20, 2003

Wouldn't it Be Better if Google Could Freeze Time?

Chatter about Google's possible IPO is getting to a few of its legions of fans. Wouldn't it be nice if 2002 could really be Google's Endless Summer?

I recently had this exchange with Perry Marshall, whose consultancy, Perry Marshall and Associates, helps high-tech, B2B companies target their markets more effectively.

Perry Marshall writes:

I don't know if the rumors are true -- Google PR says they're not -- but just in case the rumors are valid, please permit me to give you my two cents.

You guys literally built a better mousetrap and the world beat a path to your door. That is an exceedingly rare thing in today's business world. Congratulations on making a great search engine.

Now Wall Street wants Google. No question about it. And I'm sure the founders can collect at least a few hundred million of they go public.

But.... please listen.

19 months ago I helped sell a small private company to a publicly held firm. In anticipation of chaos, dismemberment and destruction, I bailed. I took the money and RAN as fast as I could.

Everyone else stayed.

The biggest shareholder, who got 80% of his money in a stock trade, subsequently lost $5 million in the space of a month as the share prices plummeted.
It was horrible, and everyone who stayed was probably envious of me because I got out, and because they found themselves reporting to a bunch of idiots.

Then those idiots gutted the company and it basically doesn't exist anymore.

So... please listen, if you go public, the world's greatest search engine will be cannibalized and sold for parts. All you wonderful people will suddenly be in a quarterly cycle of indentured slavery to quarterly reports. All the visionaries will be replaced by slave drivers.

In regards to the AdWords program: Wall Street will toss out your "relevancy requirement" in AdWords so they can make their numbers. The 0.5% minimum CTR will
become 0.25% and then 0%. They'll also get rid of your bid price multiplier that rewards good CTR's and eventually you'll be like Overture --- just a big bunch of surly bidding war whores.

Please understand - It won't happen because YOU are evil, it's will happen because Wall Street is so insatiably greedy. Within two years Google will become merely a shell of its old self. And it will lose its popularity and someone else will be king.

So --- keep AdWords intact, it really is a brilliant system. And don't sell out to the dark side.


Andrew replies:

There is no question that the reason for Google going public, as is usually the case in Silicon Valley, is so the founders and VC's can get liquid. It's inevitable. Let's just hope they don't go all the way to the extreme that you foresee here, Perry. Some companies that went public didn't completely lose their idealism - Apple and Netscape come to mind. Internet.com/JupiterMedia etc. never had wild fiscal success, but one could argue that they actually turned the tables on Wall Street: raised money and then ignored Wall Street and investors in favor of pursuing a particular vision related to verticals and content plays (Alan Meckler's in this case). IPO cash can lead to excessive conservatism and hyper-accelerated, unrealistic growth, but it can also foster massive innovation if the visionary founders are autocratic and irresponsible enough (we can only hope they are) to plow money into crazy ideas that just might work.

Ask Jeeves and About.com are two others that took bunches of IPO cash (to say nothing of the proceeds from their greedy-greedy secondary stock offerings at inflated valuations) and didn't really live up to their promise. The difference with Google, I think, is that they have a built-in bias towards technology and R&D. Ask Jeeves deployed its cash and stock irresponsibly for the first couple of years, never improving on their technology. When they finally acquired Teoma, Google was already the leader in the same type of technology, and ironically the sector was so depressed, Jeeves picked up Teoma for a song. Google is smart enough to use their money to hire more Ph.D.'s to work on more neat stuff.

Go2Net was an example of a fledgling company that used its stock to make acquisitions (cool stuff like Metacrawler) to fuel growth. Investors liked the stock even if Wall Street didn't (they went public via reverse takeover so no fat underwriting fees), so they did OK without catering to the big investment firms. The merger with Infospace was a disaster, but that's another story.

Maybe what I am getting at as I go back and forth on this issue is that possibly the best thing Google can do with its IPO cash is to hoard it and grow the company at a reasonable pace. No company should ever repeat the mistakes of cash-rich net stocks with inflated valuations - like Yahoo's overpaying at least twentyfold for Geocities, and Excite paying somewhere close to a billion for an online greeting card company.

Let the insiders and investors get liquid, Google, but don't get spend-happy, and please don't let Wall Street bully you into hitting certain short term quarterly profit targets when it isn't warranted. If the stock takes a short-term hit, well that's too bad. People ought to know by now that options aren't money. It will be incumbent on Google to keep salaries to a respectable level to retain their quality personnel, rather than dangling options in front of employees as was so common in the high tech sector during the boom.

Posted by Andrew
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Stuff & AdSense

Call me cynical, but when a ClickZ columnist comes out against a particular kind of advertising, I start to get suspicious. Yes, there are flaws in any kind of online advertising that isn't purely "pull" driven like search marketing. Content-targeted ads are arguably more intrusive than search ads. Advertisers get fewer clicks (so far). Then again, compared to what? Big flashing skyscrapers (remember that ClickZ column that asserted "the more intrusive the better")?

Naysaying about advertising... from a site about advertising, a site plastered with advertising, a site that has a business relationship with scumware provider Gator. Isn't it ironic?

Posted by Andrew
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Thursday, June 19, 2003

Creepy Crawly

Cory's Secret Source was correct. Bambi Francisco confirms that Microsoft looms in the web search space.

Posted by Andrew
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Microsoft Unleashes Search Bot and World Will Never be the Same

Site owners, watch out. Microsoft is crawling through your web pages. Analyzing your site's text, following your links, going through your stuff. How's that for creepy? What's it mean?

Traffick's insider at MSN tells us that Microsoft has begun to reveal the fruit of its algorithmic search efforts -- MSNBot. And the world will never be the same.

OK, so, I'm being a bit melodramatic. But, when Microsoft does something, as anyone knows by now, they do it... shall we say, in a slightly nasty fashion. Analysts, and Microsoft itself, says that it has Google in its crosshairs. News.com reports that Microsoft has decided to roll its own search engine, instead of purchasing an algorithmic based engine, a decision that will have implications for every site owner in the world -- eventually.

Traffick's insider says that this is just the first salvo in the War on Google, and the end product of MSNBot won't be seen until at least next spring. So, enjoy your site's freedom, while it lasts. By this time next year, Microsoft might own you!

Posted by Cory
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Wednesday, June 18, 2003

Google Doesn't Disclose Revenue Share

I had guessed in the previous blog that the revenue share was around 50%. But according to Google's FAQ, "although we don't disclose the exact revenue share, our goal is to enable publishers to make as much or more than they could with other advertising networks."

Looking at it more closely, going on limited data, it looks to me like the publisher's share might be as high as 60-65%.

Posted by Andrew
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Google Extends Content Targeting to Small Publishers

Today Google launched an extended version of its content targeting program. (See previous Traffick coverage of this.)

Dubbed Google AdSense, the new program provides advertisers with placement on a potentially huge variety of topically-relevant web pages. As before, ads are matched with the content of a page "on the fly." The new wrinkle, no doubt being incorporated in stages, is technology from Applied Semantics (who formerly offered a product called AdSense), whom Google acquired shortly after announcing its first version of content targeting.

According to Google's Susan Wojcicki, manager of Google AdSense product development, the program should benefit users and publishers alike. Users may benefit because of the focus on relevancy. Publishers, especially small publishers with no dedicated ad sales staff, may appreciate the convenience the ad serving system offers them (no work outside of placing a few lines of code on their pages). And making it possible to sustain quality niche content may mean that more small publishers stay in business without having to resort to those "please donate" buttons or to rely entirely on paid content models.

Our demo of the program (see the ads on the left hand side of this page) proved straightforward to install. And it appears that Google is now going with a revenue sharing arrangement with publishers, which should be a better deal for them than the fixed CPM "media buy" approach Google took when it first announced the content targeting program. We feel a revenue share is important in an environment where advertisers are bidding in an auction system. If ads generate more revenue overall due to intense advertiser competition, publishers and Google both benefit. This will generate more publisher goodwill than if Google simply enjoyed an increasingly high margin while paying out a fixed rate to the publisher.

Some of Google's competitors have built fairly large ad networks by accepting smaller publishers, with mixed results. Some observers are questioning how Google will maintain control over traffic quality. Will advertisers run into inflated click counts and the like?

The AdSense program is supposed to combat that in a couple of ways. First, all publishers must apply and be approved by Google editorial staff. Presumably, only publishers of decent quality, niche content will be accepted. Secondly - as they do with the Google search engine itself - Google has the ability to rely on automated checks to look for anomalous behavior, low quality content, etc. This is just an extension of what Google already has the capacity to do, since they already have such a large index of web content. Potential bad actors will be flagged for human review.

The AdSense program brings a potentially vast universe of small publishers (fewer than 20 million impressions monthly - the minimum may be as low as 50,000 impressions) into Google's ad network. A largely technological solution to serving advertising on what has until now been a very fragmented marketplace of smaller publishers should offer advertisers a viable way of placing an increasing number of relevant, targeted ads within their existing Google AdWords accounts. Publishers can apply online for acceptance to the AdSense program at: http://www.google.com/adsense.

Posted by Andrew
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This Just In: FindWhat Acquires Espotting

In a move that surely caught observers and competitors off guard, FindWhat, arguably the third-place player in the paid search industry, has acquired Espotting, a pay-per-click search advertising service that can still claim #1 spot in Europe, and a solid top-five contender overall. This would appear to vault FindWhat from a "tenuous third place" position into a "strong third place," although it's unlikely to threaten Google or Overture anytime soon.

In the wake of the announcement, FindWhat raised its financial outlook for the remainder of the year. It expects to earn a solid $0.46 per share after tax.

Although some will argue that the two companies won't grow stronger as a result of being combined, in fact consolidation is a clear trend in this sector for a number of reasons. In the first place, too many companies are chasing advertiser mindshare. Using fewer advertising services and scaling those listings more widely makes sense to most businesses placing ads online. Second, it's not as easy as it looks to upgrade account management and customer service functions. We tend to think that Findwhat was stronger on the former, though Espotting might have been stronger on the latter.

Those of us who actively use these services to promote client websites will be interested to see what kinds of changes are coming (especially with regard to the convenience of use of the campaign management interface) as a result of the merger. In my forthcoming Pay-Per-Click Advertising Buyer's Guide (expected release date: June 30), Findwhat actually scored slightly higher than Espotting, but both placed well. Findwhat's reach and company management have continued to make strides in the past year, and they've done quite a bit to improve the ease of use of the service. We found Espotting's interface to be less flexible, although customer service was excellent.

Forgive us for speculating on what blockbuster mega-merger may come next in this space. We still have a hunch that a traditional online ad serving company such as Doubleclick may merge with (or, the way things are going, be swallowed by) the likes of Overture or Google. The recent trajectory of merger & acquisition activity in online advertising is surely proof that the companies which do the best job of reducing friction between buyers and sellers (of goods and services, and of the advertising that helps buyers and sellers find each other) are pushing less efficient, less accountable business models into oblivion. Will the data-centric practices of "online ROI advertising" indeed spill all the way over into the mainstream (eg. television) advertising industry?

We thought that "paid search was here to stay" when we first reviewed Goto.com in early 2000. Who would have thought, though, that it would be "kicking ass and taking names" by 2003?

Posted by Andrew
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Tuesday, June 17, 2003

MSN.ca to Power Content for Sympatico.ca

Canada's largest Internet Service Provider, Sympatico, will have its content served by MSN.ca beginning in 2004. This is a fairly significant announcement - one that reminds us of the continued international strength of MSN in many places where AOL is having trouble getting a foothold. Previously, Sympatico had partnered with Lycos in a similar deal, but the two parties agreed to terminate that deal.

Sympatico.ca has about 200 employees, while MSN.ca currently has 33.

To be clear, MSN does not offer Internet service in Canada - it focuses on content - but the new deal supposedly goes beyond content (how, exactly, isn't being fully explained).

The leaders in broadband Internet access in Canada are Sympatico (with 2.1 million customers) and Rogers Cable. Microsoft, incidentally, owns a 7% stake in Rogers.

MSN.ca received 9.5 million unique visitors in April; Sympatico.ca had 5.9 million.

Posted by Andrew
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Monday, June 16, 2003

The Internet Sans Training Wheels

Yahoo! has expanded a UK deal with BT. The two companies will offer something called "BT Yahoo Broadband," which bundles content with high-speed access.

Posted by Andrew
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