Google continues to conquer the world of advertising – let’s not forget that’s getting on for a $400 billion global business with over 40% of it spent in the US ‘ and its latest figures show that its momentum is not slowing down.
And CEO Eric Schmidt said that the company continues to open up new advertising formats, and ahs just announced a new deal with Nielsen, the media measurement giant that dominates audience measurement for the US TV industry, along with about 40 other countries.
Even so Google search grew, traffic grew, and revenues grew in the existing Google base with Q3 revenues up 57% to $4.23 billion, up consecutively by 9% since last quarter in what is usually a down period. Net income was over $1 billion compared to $925 million in the second quarter and international revenues were $2 billion, around 48% of the total, although much of this improvement was down to currency fluctuation.
Traffic Acquisition Costs, the portion of revenues shared with Google’s partners, increased to $1.22 billion compared to $1.15 billion last quarter. By comparison Yahoo grew revenues by just 12% in the same period, which suggests that even in its traditional market Google is continuing to pull away from the herd.
The new deal with Nielsen was pre-announced in the NY Times, and is aimed at giving advertisers more accurate and more granular detail of the people viewing advertising, on a second-by-second basis, rather than day by day.
When Nielsen was bought by Dutch public company VNU for $2 billion a few years back, it irked Netherlands based investors as a high price. Today the Nielsen brand is at the heart of everything that VNU does, and the company has changed its name to Nielsen and after continued friction with investors, which led to a change of senior management, the company is now owned by two private equity groups, Blackstone and Kohlberg Kravis Roberts, who paid €8.9 billion ($12.5 billion) for it back in May 2006.
There are only two ways forward for a company like Nielsen, and that’s back into a high value public market, so a US flotation, or a trade sale as an exit. There is probably no better trade sale for Google right now, and the exceptionally high value of Nielsen can be mitigated by the fact that Nielsen has so many other subsidiaries that can be sold off, that the price doesn’t even need to be that high. The private equity groups have already allowed a management buyout of the business publishing side of the group and the core Netherlands based businesses, to drive down debt.
But what exactly can Google do for Nielsen, and aren’t the two rivals rather than likely suitors? Google has run its TV experiments using set tops to collect data from EchoStar set tops. Its system can tell down to a second when a DVR is fast forwarded, when an advert is switched off, and when the TV is turned off.
As such it can be used to improve campaigns, measure the effectiveness of spending and allow big brands to cut back on TV advertising. At the same time it can provide a converged system so that broadcast networks that are looking to move into the internet can compare the effectiveness of dollars spent on advertising around internet video to that of TV. In that way Google systems can lead to a transition to a hybrid model, where TV programming is shown on the internet as well as on TV. That’s a move that broadcasters have been forced into, given the fact that TV audiences are shrinking for the first time in 50 years as people take up other activities in the home ‘ DVR, DVD, internet social and UGC sites, gaming etc’
What Google cannot do today, and what it would feel is anathema to its tech based focus, is find out which members of a family are in the TV room when the TV channel is changed. That’s the final link in the TV advertising value chain, which today Nielsen offers by hand managed people meters and mass interviewing.
Nielsen itself has described a future when the mobile handset samples the TV a person is watching (even in a bar using audio recognition), and identifies it, or the set top in the home relays data back to a central internet suite, and other technology based initiatives.
But time and time again it has found other technological based companies in its way, offering similar point products such as counting who visits what web sites with its Netratings service. An association with Google is an opportunity to use the Google brand to leave behind all the fresh rivals to its leadership in audience measurement, and gain all the technological insights that Google can give it, including the demographics that it captures about different homes and their buying capabilities through its existing systems.
Add to that the auction systems that Google is famous for, and tie the Nielsen database to those auctions and to the ad serving mechanisms of DoubleClick and you would have a situation where Google would simply take over US TV ‘ serving the ads, auctioning the ads, and measuring who watches them is a powerful value chain.
In the free to air world, content is only as valuable as the advertising it attracts, and such a scenario would make Google uncomfortably in control of the value of content assets, and give it an even bigger stranglehold on the content companies that want to sue Google’s YouTube, such as Viacom.
If you think that Microsoft and others were angry when Google bought DoubleClick, that’s nothing to how they are going to feel about this deal, and the potential for any kind of deeper relationship between Nielsen and Google.
As for Nielsen, it may not be able to keep up with Google and risks losing its monopoly control of audience measurement if it treats Google as an enemy rather than a friend ‘ and that’s something that its Private Equity bosses would be unhappy with.
The initial deal between Google and Nielsen will start small and just add ratings collected from set-tops within a single pay TV operator’s network, but the two companies say their deal is a multi year relationship and that it will grow.
It is perhaps a way of putting the two together without the benefit of a merger that will keep the deal out of hot water with regulators and rivals.
Google has been selling ads on DISH Network channels for about 6 months, and has impressed advertisers with the depth of data is has made available for auctioning off local advertising.
Google also analyzes the data adding demographics and second by second switch off of switch over times. It now needs Nielsen to take this to a much wider audience, putting the measurement in the hands of someone that the advertising agencies and big brands already (have to) trust.
With Nielsen on board the cable operators may feel they HAVE to sign up, and if they sign up and have full inventory sales and happy customers ‘ then the system can grow and grow.
And why should the audience measurement partnership stop at TV ‘ there are games, web sites and mobile handsets (a Google phone?) to collect data on, to name but a few, all expected to grow in advertising share over the next few years ‘ and are a focus for both the two companies, with Google’s only weakness being in-game advertising, where Microsoft leads.
All of this plays to the end point where advertisers ask to reach a certain demographic, at a certain time of day, with a certain offer, to people that are currently watching something relevant to the offer ‘ regardless of the media they are viewing ‘ internet pages, mobile handset TV, web TV, YouTube, in-game adverts and of course TV.