Google Inc. has brought in billions of dollars in revenue by brokering advertisements that appear on Web sites. Now it is taking its ad machine beyond the Internet in an ambitious quest to place ads in traditional media such as newspapers and radio.
The move could open enormous new markets to the search company. But it could also test the limits of Google's automated ad-placement technology that brought it more than $3 billion in online ad revenue in 2004.
The Mountain View, Calif., company yesterday announced the latest prong of its offline-ad efforts, the acquisition of closely held dMarc Broadcasting Inc. of Newport Beach, Calif. DMarc runs an online system for advertisers to buy radio airtime.
It then automatically slots the advertisers' commercials into radio stations' computers for broadcast. The deal calls for Google to pay $102 million in cash and up to an additional more than $1.1 billion over three years if dMarc meets certain targets.
Most people think of Google as a place to go to gather information. But in a business sense, Google operates as a huge clearinghouse for advertisers.
At the heart of Google's advertising operation is an automated system that auctions off the right to place advertisements on its search-results pages when an Internet user types in certain key words.
Most of its advertisers simply log into the system to place their ads and make their bids.
They pay only when someone clicks on the ad. Google also brokers the sale of ads that appear on other Web sites -- sometimes tied into key words and sometimes not.
The radio deal is the latest of a series of recent moves by Google in which it aims to bring its Internet advertising expertise to bear on old-media markets.
Since last year, Google says it has been placing ads on behalf of advertisers in three magazines and the Chicago Sun-Times newspaper.
And Chief Executive Eric Schmidt late last year acknowledged in an interview that the company is considering extending its ad system to TV advertising as well.
At the core of Google's foray into offline-media advertising is its realization that traditional media such as newspapers, TV and radio remain vastly larger ad markets than the Internet, despite shifts to the Web in recent years.
Online advertising was a roughly $10 billion market in the U.S. last year, a small fraction of the more-than-$250 billion total ad market, according to estimates by ZenithOptimedia, a media services unit of Publicis Groupe SA, the big advertising-holding company.
As it moves onto new turf, Google will rely on a potentially powerful advantage: its huge base of advertising customers.
The search company had more than 400,000 advertisers who bought Google-brokered online ads or ads on Google's own sites as of last year, according to internal company documents released as part of a recent lawsuit.
The advertisers range from Ford Motor Co. to bird-diaper seller Avian Fashions in Stafford, Va.
Google hopes to use its automated system to link these advertisers, particularly the smaller ones, with ad opportunities in traditional media they might not have otherwise bothered with.
The Web-search company believes its systems can help advertisers target their ads at susceptible audiences and then track data on any increases in sales that result -- and do it all through a simple Web site.
Google won't say whether it hopes to apply the auction model it uses online to radio or print ads, but some industry executives think it will try to do so eventually.
They also speculate that Google will try to present smaller, local advertisers with a broad package of ad possibilities, ranging from Web-search ads to TV commercials in their local market.
Such a move could allow Google to tap into a large but fragmented market many national ad companies have largely neglected to date.
"We are always considering new ways to extend Google's advertising program to benefit our users, advertisers and publishers," says a Google spokesman. "We do not have any specific product plans in this area or additional details to share at this time."
Some ad-industry executives and analysts are convinced that Google's next stop will be attempting to broker TV advertising.
"They have to go where the money is. And the money definitely is in television," says Rishad Tobaccowala, chief innovation officer at Publicis Groupe Media, a division of Publicis that seeks out advertising opportunities in new media.
Advertising executives played down the idea that Google's moves so far could have a big impact on the media-buying business.
They say large advertisers will still rely on the big national firms for ad content and strategy advice, and that Google is generally targeting smaller fry who don't use those firms' services.
For its part, Google says it aims to work with ad agencies, who it says are some of its largest customers. But the company could offer a much-desired revenue boost to traditional media looking for more-efficient ways to sell off excess airtime or white space in newspapers.
"Today in the traditional media world, it's a very relationship-driven marketplace," says Jeff Lanctot, general manager of Avenue A | Razorfish, the interactive marketing unit of Seattle digital marketing company aQuantive Inc.
With Google's planned effort to broker radio ads, "you're supplanting personal relationships and replacing them with technology and that's a pretty daunting task."
Google's effort also raises questions about the company's ability to meld traditional media -- some of which still require that humans be involved in the placement of ads -- into its streamlined online advertising system.
It could also be harder to measure the impact of a TV commercial or radio spot than a Web ad evaluated by how many clicks it generates.
Google has risen to national prominence by selling ads on its own and others' Web sites -- often triggered by key words.
Entering the word "stork" in the Google search engine, for instance, brings up an advertisement on the right side of the search-results page for Fun Sign Surprise, a company in Philadelphia that makes yard signs to announce special occasions.
Many advertisers like the system because they pay only when a consumer clicks on their ads -- roughly 50 cents per click on average, according to analyst estimates.
The advertisers can easily track the effectiveness of their ads and quickly make changes or updates through Google's Web site.
Google deploys a sales staff to target the largest advertisers, but it otherwise relies on a Web-based automated system for selling and generating the ads, which keeps its costs low.
The company keeps a commission, averaging around 20%, when it places the ad on another site.
Analysts surveyed by Thomson First Call estimate Google generated about $4 billion in revenue last year, nearly all from online ads, when certain expenses are factored out.
In announcing the dMarc acquisition yesterday, Google offered some outlines of how it planned to apply a similar model to radio advertising. Since last February, dMarc has provided an automated online system for advertisers to buy spots on radio stations and upload their commercials digitally to the broadcaster.
The company currently has agreements with more than 500 U.S. radio stations. It also sells some of the computer equipment and software that radio broadcasters use to manage and play their programming and ads.
When an advertiser buys a spot, it is automatically slotted into those systems.
DMarc says it has more than 100 advertisers who buy radio spots this way. On its Web site, dMarc presents them with various options for selecting radio outlets such as by format, geographic market, time slot and audience demographics.
Advertisers pay based on the number of estimated listeners their commercials reach, or a fee for each customer call or transaction the commercials generate under a system similar to Google's pay-per-click model for the Web.
DMarc provides them with a system to manage their radio advertising. They can also track when their ads were played.
Carey Dixon, a buyer at Aegis Group's Carat, says the media planning and buying agency bought airtime through dMarc on about 150 stations for commercials from RadioShack Corp. that began running last week. She says she placed the commercials through a dMarc employee, though she plans to use the online system to track them. "So far, so good," Ms. Dixon says.
Google says many of its Web advertisers are small businesses that would not otherwise advertise in traditional media such as radio. "There is a set of advertisers we have that are typically undiscoverable," says Tim Armstrong, Google's vice president of advertising sales. "They may not typically be called on by the publishers' sales forces."
"They have clearly demonstrated an ability to bring many new advertisers to the search business, so I think it's a good thing for the radio business," says David Goodman, president of marketing at CBS Corp.'s CBS Radio division, which owns 179 radio stations.
He says CBS Radio doesn't currently use radio ads from dMarc or Google, but would consider working with them in the future.
The Web-search company separately last year began brokering advertisements in three magazines: Ziff Davis Media's PC Magazine, Future PLC's Maximum PC and Budget Living LLC's Budget Living. In PC Magazine, for instance, Google placed seven ads on a single page, with small graphics and logos from each advertiser.
The ads contained short text descriptions of the businesses and toll-free telephone numbers and Web-site addresses for the advertisers.
Google's Mr. Armstrong declines to provide financial or logistical details, saying he still considers the print ad brokering a "research and development project."
