Can Google Go Glossy?

It was a babystep that sent tremors through the media
establishment. Seeking ways to expand its advertising juggernaut beyond the
Internet, Google-this fall purchased about a dozen pages of ad space from
niche publications such as PC Magazine and Budget Living. Google then divvied up
the space and sold it in small pieces, often four to seven per page, to its
network of several hundred thousand advertisers-most of whom can’t afford
pricey magazine ads on their own. Now Google says the trial program, dubbed
Google Publication Ads, is taking off, with hundreds of publications inquiring
about it. The company is expanding the trial from four publications to scores of
them, likely to include both niche and general interest titles.

TrimYourDebt’s Blackhurst was disappointed

However, a closer look at Google’s foray into magazine ads
suggests it could be in for a tough slog. Sure, plenty of publishers are
clamoring to snare ad dollars from Google. But a BusinessWeek analysis of Google’s
pilot, including interviews with 10 advertisers and two publishers, indicates
that advertisers haven’t warmed to the program so far. Only one of 10
advertisers interviewed by BusinessWeek said their print ad performed well
enough to recoup the money it cost. And eight of the 10 were unhappy enough with
the results that they say they’re unlikely to do further print advertising
with Google.

The lackluster results came despite deep discounts in
magazine ad rates. Some ad pages were sold by Google for as little as
one-quarter of the listed ad rates at these magazines, according to information
provided by participating advertisers. It raises the question: If most marketers
are reluctant to re-up, despite Google and the magazines forgoing profits, can
this endeavor become a moneymaker for all the parties involved?

Certainly, Google has proven itself a versatile, innovative
company and it could modify its approach in magazines to boost its chances at
success. Still, the early feedback should be worrisome for Google. Its Internet
ad business is going gangbusters, with 2005 profits expected to climb fourfold,
to $1.6 bn. But with its stock at a stratospheric $400 per share, giving it a
market valuation of $120 bn, many investors are betting Google can expand beyond
the online text ads that constitute 98% of its sales-into splashy online image
ads, as well as new mediums such as radio, TV, and print.

Good on Paper
On the surface, print ads make a lot of sense for Google. Magazine ads are
expected to generate about $22 bn in the US this year, compared with the $13 bn
anticipated for online ads, according to researcher eMarketer. Plus, Google
boasts relationships with hundreds of thousands of small advertisers. By selling
bite-size chunks of these ad pages, it hopes to draw in thousands of marketers
who otherwise couldn’t afford magazine ads. Google’s ultimate goal: to
extend its position as the nexus between advertisers, publishers, and customers
beyond the Internet. Says Timothy Armstrong, Google’s vice-president of
advertising sales: "Advertisers are always looking for more places to show
profitable ads."

Google Tries Selling Magazine Ads

Advertising in popular magazines has
long meant an investment of over $10,000-too steep for many small
businesses. Google is hoping to change that with its pilot magazine
program. Here’s how it works:

STEP 1: Google
purchases ad pages in publications such as Budget Living. Then the search
giant approaches companies that use its online advertising and may be a
good fit for the magazine’s subject matter.

advertisers pay Google a set fee, often between $2,000 and $3,000. Ad
sizes have ranged from 1/7 of a page to the entire page.

STEP 3: Google
tries to measure the customer response to magazine ads with the same sort
of performance data that advertisers get online. It does so with
customized toll-free numbers and Web pages.

But Google faces a couple of daunting hurdles in print ads.
Foremost, most magazine ads aren’t geared toward direct marketers, which
constitute the bulk of Google’s advertisers. Take, an online
business that sells tools to individuals to reduce credit-card and other debt.
TrimYourDebt’s goal is to send users to its Web site, something it has done
profitably by purchasing text ads next to Google searches for terms such as
"debt consolidation."

But when TrimYourDebt tried Google’s print ads, it found
the approach far less profitable. Indeed, Google’s core strength-algorithms
that link the appropriate ads with each search query or page of online content-is
much more difficult to apply offline. After buying a small portion of an ad page
in Budget Living’s November issue for approximately $3,000, responses trickled
in a couple of weeks later. TrimYourDebt declared the trial a disappointment,
estimating it would generate less than one-tenth as many leads as a similarly
priced online campaign. "The whole power of the Web is to bring targeted
visitors to your site," says Jennifer Blackhurst, co-founder of
TrimYourDebt. "The print ad hasn’t done this, so it didn’t justify the

Google’s other major problem: It can’t simply lower the
asking price on print ads, as it can online, to the point where they make sense
for marketers. On the Web, Google lets advertisers bid against each other for
placement alongside search results. Since it costs Google essentially nothing to
give each surfer results to their query, it can afford to let advertisers bid a
few pennies for every time their ad gets a click. But producing and distributing
magazines can be expensive, so publishers can’t sell ads for pennies.

There’s another hitch. Magazine publishers display ad
prices on rate cards and typically give large marketers discounts from those
rates. Publishers are reluctant to provide Google with bigger discounts than its
best advertisers for fear of seeing rates collapse.

Google is already getting some of the cheapest possible ad
rates, according to two participating publishers. For instance, Google has
purchased several one-page ads from PC Magazine for approximately $20,000
apiece, according to a source familiar with the transactions. That’s about
one-quarter of the price listed on the magazine’s rate card-and below the
level where PC Magazine makes a profit, says the source.

Even with such discounts, Google appears to be reselling ad
spots without making money itself. For PC Magazine’s October 18 issue, Google
resold a one-page ad to seven advertisers. BusinessWeek reached four of those,
who paid an average of $2,750. Assuming that average for all seven advertisers,
Google generated $19,250 for the ad, leaving scant room for profits since its
cost was about $20,000.

Still, Google isn’t backing away from the market.
Co-founder Sergey Brin lauded the ad program during Google’s third-quarter
conference call in October. And ad-sales chief Armstrong says Google is working
hard to improve its performance. "We view this as a long-term R&D
project," says Armstrong, who wouldn’t comment on specifics about
pricing. "We’re not as concerned with profitability right now as we are
with finding value for publishers, advertisers, and customers."

Google certainly has the cash and patience to sustain a
lengthy effort to penetrate the magazine advertising arena. But based on this
assessment of Google’s initial foray, don’t expect it to replicate its
online successes anytime soon.

By Ben Elgin

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