Is Traditional Media Being “Googled?”

It’s a tired old tale.  A plodding industry, stuck on a conventional business model, blind to the new realities, digs in its heels and gets world upended by a young, tech savvy company.  They never knew what hit them.

That’s what Ken Auletta, says Google is doing to traditional media in his 2009 book Googled.  As the story goes, with powerful algorithms and a disruptive business model, the web upstart is killing the media business as we know it.

The book is a worthwhile read and he largely gets his facts right.  However, he gets the media principles wrong.  While Google has truly become a force to contend with, its effect has been a mix of positive and negative.  Old media is prospering and, increasingly, it is Google who is having to adapt.

Trading Analog Dollars for Digital Pennies

The central quandary for traditional media, as Jeff Zucker famously put it, is “trading analog dollars for digital pennies.”  By transitioning to digital they run the risk of undermining their core business of selling offline ads to large clients and ad agencies.

This argument falls flat among the digerati.  They say that “analog dollars” are plummeting anyway and advise traditional media companies to forget about the past and embrace the future.  In other words, get rid of the printing presses and newsstands and face up to hard truths that the new digital future will eventually force them to contend with anyway.

It’s a convincing argument, but doesn’t bear much scrutiny.  Online media represents only about 15% of global media spend, so abandoning the other 85% wouldn’t be wise.  Further, even during the height of the crisis, traditional media was making money on operations where they lost money was on investments, and much of that was digital investment.

Moreover, as I wrote before, traditional media is prospering again.  And digital media?  Try and quickly name five profitable Web-only media companies.  Can’t?  Neither can I.  It’s no wonder that going concerns with thousands of employees and billions of dollars of profits to protect are proceeding cautiously with Google specifically and digital in general.

Disintermediation – Cutting Out the Middle Man

Yet, publishers are not the only players with something to lose.  According to Auletta, and others, it’s the big ad agencies that are in even greater peril.  Google allows advertisers to buy directly and cut out the middle man.  That, supposedly, is a death knell for cozy ad men and their cushy jobs.

This argument, however, also falls flat.  There’s nothing to stop advertisers from dealing directly with media in the traditional world either.  In fact, publishers have been trying to cut out ad agencies for decades, with very little success.

In reality, buying media is a fairly complex exercise in arbitrage and optimization that media buyers have spent decades mastering.  Clients pay for their services because they value their expertise, not because they are somehow trapped or tricked into working with them.

As for Google’s intentions, what is one to make of the sale of their Performics unit to Publicis?  If they were hell bent of cutting the agencies out, why would they sell such powerful performance advertising technology to a major ad conglomerate?

Sleeping With The Enemy

In actuality, Google seems to be getting ever-cozier with the traditional media world.  As Auletta chronicles in his book, there have been many efforts on both sides to find areas of mutual interest.  From striking content deals on YouTube to advertising deals with traditional media web sites, there is expanding common ground between the two camps.

As for the ad agencies, Google also appears to be working hard to reach out to them.  They have hired ex-agency executives to improve relationships, regularly hold trainings and seminars in agency offices and are, generally speaking, fairly responsive to concerns.

In fact, as this article in TechCrunch shows, lately there is growing criticism that Google is getting too cozy with ad agencies, rather than too aggressive. The truth, most probably, is that Google is increasingly acting like a traditional media supplier, courting ad agencies even while they go directly to advertisers when they can.

What’s Really Going On?

If you spend too much time listening to journalists and bloggers (present company excepted, of course), the situation can be quite confusing.  What is Google doing cozying up to bumbling, crumbling traditional media?  And, for that matter, why is traditional media letting the fox in the hen house?

In reality, there are fairly conventional media explanations for what’s happening:

Inventory Optimization: All ad inventory is not created equal.  That’s why if you watch TV after midnight, you will see an assortment of infomercials and direct sales ads instead of major advertisers.  The same goes for magazine ads towards the back of the edition or web pages deep in the site.

While publishers are very protective of their premium inventory, they are much less sensitive of low value inventory.  Much of this inventory often goes unsold, so if Google can sell it, that’s a win for everybody.

Classifieds vs. Display Advertising: While Google has sold plenty of ad space, it has largely been direct response advertising.  That’s proved disastrous for newspapers, which have historically depended on classifieds, but hasn’t had much of an effect on other media.

Moreover, as growth in Google’s search advertising business starts to slow, they are getting increasingly interested in the display part of the business.  Traditional media companies have plenty of skills that Google would like to learn.  Partnerships make good sense.

Google Guys Are Smart, Good Partners: While the size and exponential growth of Google does inspire fear, their conduct does not.  I can’t think hearing about a single partnership which fell apart because Google acted dishonorably.  In my own experience, I have found them highly constructive, if a bit disorganized.

Having Some Skills Negates Others: If you are an engineer, Google is a great place for you to work.  Want to tell a story or uncover malfeasance?  You could hardly do worse than Time Inc.  Like to service clients?  You can shine at an ad agency.

Companies attract the best talent in their core competencies, but do worse in other areas.  Marketing people at tech companies tend to get short shrift.  Engineers at media companies don’t get to work on the cutting edge and so on.

Google, like any other organization, will always be better at some things than at others. Everybody needs partners.

The Future…

Nobody knows the future, not even Google.  I’m certain of this, because I’ve checked.  I searched for “the future” on Google and the first two results were a Wired article from  April 2000 (worth a read, btw) and a Wikopedia entry about a 1992 album by someone named Leonard Cohen.

One reason that prognostication is so difficult is that that while we extrapolate from current trends, future events are usually determined by the interaction of factors that don’t seem important now.  Viagra, after all, earned billions by failing as a heart drug.  Google, with all of their impressive algorithms, can’t find what they aren’t looking for.

So we’re all in the same boat.  The world is changing in ways we really don’t understand.  Our business models might be disrupted or we might be sitting on some hidden gold mine that doesn’t look very promising at the moment.  In effect, we are all muddling through.

…And that’s what makes it so much fun.

– Greg