Advertisement revenues will continue decline. Nobody wants ad in their life. People do not trust paid info. Google makes all of its profit from the misdirection of search engine users. Search results are all manipulated, all low quality. Google business model is totally evil. That is why there is a Department of Justice investigation on Google business model is going on. Google is also blocking the innovation in the search area due to the fact that a new kind of search will not allow any misdirection, manipulation of search results to promote the paid websites links. If search engine gives a good answers to any question it will not allow any misdirection, manipulation of results as there will be only an answer to any question, not a long list of results. That is why Google is feeding the scientists working in the fields of artificial intelligence and singularity summits. People like Kurzweil are getting support from Google for the same reason. Google is buying them to close any way to an innovation in the field of anwering engine. That is why we are stuck with stupid world and cannot transform it into an intelligent internet civilization. New IBM Watson DeepQA technology and self-programming cognitive chip could be the right solution for globally effective answer engine. This is the right direction the global movement protesting the failures of current power structers around the world like should focus. Protests against dictators and failures in democratic countries both are doomed to open the way to this intelligent internet. The movement against the global failures should grab this opportunity to create the 3-D printing over the intelligent internet where nobody has to work for money, but free to live as they wish.
What An Antitrust Case Against Google Might Look Like
posted on March 1st, 2009
Editor’s note: The following is a guest post by Eric Clemons, Professor of Operations and Information Management at The Wharton School of the University of Pennsylvania. The views he expresses are his own, and we present them here to foster debate.
The mainstream press, such as The New York Times, has noticed that even Google itself is starting to worry about the possibility that the Department of Justice may seek regulation, possibly even the break-up of Google. How can this be? How can a firm seen as a triumph of creative capitalism and a virtuous contributor to the economy (“Don’t be evil!”) possibly be suspected of anything? Is this regulatory oversight gone mad? Not exactly.
Below I summarize what I do know about Google’s behavior and what I believe the Department of Justice is likely to perceive and likely to need to demonstrate if it seeks to act against Google. In a later post I will expand, including what I believe but cannot yet demonstrate. It’s important to remember that I am not an attorney, just a computer science faculty member at a major business school, with some litigation experience, and that I have had no conversations with Google or with the Department of Justice about these issues, but I believe that what follows provides some insight into thinking at the Department of Justice.
- Even with the appearance of competition from other search engines such as Yahoo and Microsoft in the market for sponsored search, Google enjoys monopoly power over corporations that participate in its keyword auctions. This monopoly power is especially great when Google deals with corporations whose operations are largely fixed cost, such as hotels and airlines.
- Google is abusing its monopoly position by overcharging corporations for access to consumers. These charges are passed along to consumers and ultimately result in consumer harm.
- Google is likewise abusing its monopoly position, deterring market entry in areas that would benefit consumers and damaging potential entrants.
Any one of these would justify regulatory intervention. The second and possibly the third would also justify some form of financial compensation to those who could demonstrate that they had been damaged by Google……
- The conditions are right for Google to enjoy enormous market power over service providers, who feel they must bid for positions in Google’s sponsored search keyword auctions.
Offsetting the fact that Google’s market share advantage in search is greater than that of Sabre or Apollo at their largest, is the fact that alternative routes to airlines, hotels, and retailers exist. For instance, in the case of hotels, customers can call the hotel directly or can call the hotel chain’s central reservations systems, or can enter the URL for the hotel’s own website for reservations or can enter the URL for the hotel chain’s central reservations websites. The concept of relevant market share, which was a critical part of the Microsoft antitrust litigation, is likely to be a crucial factor here as well in assessing how important Google search is to companies’ access to their customers.
What else will the Department of Justice need to show? It will want to show what the economist William Baumol has called contestability is absent, which is usually taken to be an indication that market power can be obtained, and it will want to show the abuse of that market power. (Interestingly, Baumol developed the theory of contestability when he was consulting for AT&T, and he developed the theory to argue that there were cases when even 100% market share did not constitute monopoly power. In contrast, we argue here that even without monopoly market share, market power may exist). His test for the presence or absence of contestability is the ability to earn enough in one industry to subsidize others. The test for abuse of market power is both prices that are too high and the use of these subsidies to deter entry by competitors. In the Microsoft trial these two were established simultaneously, and the same can be done here:
- Google is earning enough from sponsored search to subsidize almost all of other businesses, including gmail, Google Office, Latitude, gDrive, and others.
- Google is indeed subsidizing these other businesses, deterring entry and, ultimately, allowing them to charge monopoly prices later.
What else would the Department of Justice want to demonstrate?
- As long as Google provides its services to consumers without charge, consumers will have no reason to switch search engines. This is not strictly true; more precisely, as long as the combination of natural organic search for most searches, and sponsored paid search for searches related to purchase decisions is effective, then consumers will have no reason to switch search engines. The Department of Justice will probably want to assess the quality of organic search and of paid search to determine why consumers are satisfied.
- As long as Google has the market share that it currently enjoys in sponsored search, no single service provider dares risk refusing to participate in the auction for keywords, especially those that are part of its trademark and most likely to be used by consumers searching for them. The presence of other search engines with limited market share does not alter the power that Google has over corporations because of the large numbers of consumers that do use Google. The DoJ will probably want to assess the extent to which corporations are being overcharged and the extent to which these charges result in higher prices to consumers for goods and services.
Notice that the argument that Google has monopoly power and that it abuses it does not require demonstrating that Google’s search is superior or inferior. It does not require establishing that Google could do a better job with organic search, or even that it deliberately does not do a better job with organic search. It does not require showing that consumers are harmed directly by lower quality organic search, if indeed lower quality organic search exists. It surely does not require establishing that Google got its market share illegally. It merely requires establishing that Google has monopoly power in a market that is not contestable, and that it is abusing that power to overcharge corporations and deter market entry in other businesses. Likewise, it does not require demonstrating the Google paid search is the only excessive charge suffered by the travel industry and passed on the consumers; at its most abusive, hotels.com was charging a 30% commission while claiming to be a low cost.
I believe the Department of Justice will be able to establish monopoly power and the abuse of that power. Ultimately, the Department of Justice will seek to demonstrate consumer harm, direct or indirect, caused by the high fees charged for sponsored search, and, ultimately, I believe that the DoJ will succeed in establishing this, but these are not essential to establishing the presence of and abuse of market power.
Again, I am not approaching this as an attorney would, nor have I discussed this with lawyers for any of the concerned parties, but I expect that attorneys both at the DoJ and at Google headquarters are already addressing these issues.
Why Advertising Is Failing On The Internet
posted on March 22nd, 2009
Editor’s note: The following is a guest post by Eric Clemons, Professor of Operations and Information Management at The Wharton School of the University of Pennsylvania. In it, he argues that the Internet shatters all forms of advertising. “The problem is not the medium, the problem is the message, and the fact that it is not trusted, not wanted, and not needed,” he writes. The views he expresses are his own, and we present them here to foster debate. (Obviously, we hope there is a place for advertising on the Internet since it pays our bills). Update This post has obviously touched a nerve. Clemons responds to his critics below at the bottom of the post.
1. There Must Be Something Other Than Advertising:
The expected drop in internet advertising revenues this year was neither unpredictable nor unpredicted, nor was it caused solely by the general recession and the decline in retail sales. Internet advertising will rapidly lose its value and its impact, for reasons that can easily be understood. Traditional advertising simply cannot be carried over to the internet, replacing full-page ads on the back of The New York Times or 30-second spots on the Super Bowl broadcast with pop-ups, banners, click-throughs on side bars. This might be a subject where considerable disagreement is possible, if indeed, pushed ads were still working in traditional media. Mostly they have failed. One newspaper after another is going out of business across the United States, and the ad revenues of traditional print media, even of highly respected magazines, is declining. The ultimate failure of broadcast media advertising is likewise becoming clear.
Pushing a message at a potential customer when it has not been requested and when the consumer is in the midst of something else on the net, will fail as a major revenue source for most internet sites. This is particularly true when the consumer knows that the sponsor of the ad has paid to have this information, which was verified by no one, thrust at him. The net will find monetization models and these will be different from the advertising models used by mass media, just as the models used by mass media were different from the monetization models of theater and sporting events before them. Indeed, there has to be some way to create websites that do other than provide free access to content, some of it proprietary, some of it licensed, and some of it stolen, and funded by advertising.
The idea that content has a price and net applications should find ways to earn a profit without providing free access to other people’s content gets explosive reactions; when virtual reality pioneer and tech guru Jaron Lanier suggested in a New York Times Op Ed that authors deserved to be paid for their content he actually received death threats. But other models are possible and several suggestions for alternative forms of monetization are offered below.
2. Advertising will fail:
The internet is the most liberating of all mass media developed to date. It is participatory, like swapping stories around a campfire or attending a renaissance fair. It is not meant solely to push content, in one direction, to a captive audience, the way movies or traditional network television did. It provides the greatest array of entertainment and information, on any subject, with any degree of formality, on demand. And it is the best and the most trusted source of commercial product information on cost, selection, availability, and suitability, using community content, professional reviews and peer reviews.
My basic premise is that the internet is not replacing advertising but shattering it, and all the king’s horses, all the king’s men, and all the creative talent of Madison Avenue cannot put it together again. To analyze this statement we need a working definition of advertising, and I proposed the following, which is as general as I could make it:
Advertising is using sponsored commercial messages to build a brand and paying to locate these messages where they will be observed by potential customers performing other activities; these messages describe a product or service, its price or fundamental attributes, where it can be found, its explicit advantages, or the implicit benefits from its use.
It is frequently argued that the advertising industry will provide sufficient innovation to replace the loss of traditional ads on traditional mass media. Again, my basic premise rejects this, suggesting that simple commercial messages, pushed through whatever medium, in order to reach a potential customer who is in the middle of doing something else, will fail. It’s not that we no longer need information to initiate or to complete a transaction; rather, we will no longer need advertising to obtain that information. We will see the information we want, when we want it, from sources that we trust more than paid advertising. We will find out what we need to know, when we want to make a commercial transaction of any kind. The conventional wisdom is that this is exactly what paid search helps us to do, but all too often they are nothing more than a form of misdirection, as I explain further below. Instead, we will use information that we trust, obtained at the time that we want to see it.
Better targeting of ads using individual interests and individual behaviors will ensure that we do not bore or annoy as many people with each ad, but cannot address the trust issue. As for paid search, it is closer to other mechanisms that allow a website to sell access to potential customers. It works effectively as a revenue source for Google, of course. But it surely is not replicable for the average content website.
3. Advertising will fail for three reasons:
There are three problems with advertising in any form, whether broadcast or online:
- Consumers do not trust advertising. Dan Ariely has demonstrated that messages attributed to a commercial source have much lower credibility and much lower impact on the perception of product quality than the same message attributed to a rating service. Forrester Research has completed studies that show that advertising and company sponsored blogs are the least-trusted source of information on products and services, while recommendations from friends and online reviews from customers are the highest.
- Consumers do not want to view advertising. Think of watching network TV news and remember that the commercials on all the major networks are as closely synchronized as possible. Why? If network executives believed we all wanted to see the ads they would be staggered, so that users could channel surf to view the ads; ads are synchronized so that users cannot channel surf to avoid the ads.
- And mostly consumers do not need advertising. My own research suggests that consumers behave as if they get much of their information about product offerings from the internet, through independent professional rating sites like dpreview.com or community content rating services like Ratebeer.com or TripAdvisor
Yes, both network executives and their ad agencies have noted that we are not watching traditional ads, and they attribute this to the fact that we have moved beyond newspapers, televised network news, and broadcast movies, to video games, iPods, and the internet. Porting ads to a new medium will not solve the three problems noted above. The problem is not the medium, the problem is the message, and the fact that it is not trusted, not wanted, and not needed.
Finally, some websites create and sell access to customers. Again, this can be divided into multiple categories.
- Misdirection, or sending customers to web locations other than the ones for which they are searching. This is Google’s business model. Monetization of misdirection frequently takes the form of charging companies for keywords and threatening to divert their customers to a competitor if they fail to pay adequately for keywords that the customer is likely to use in searches for the companies’ products; that is, misdirection works best when it is threatened rather than actually imposed, and when companies actually do pay the fees demanded for their keywords. Misdirection most frequently takes the form of diverting customers to companies that they do not wish to find, simply because the customer’s preferred company underbid. Misdirection also includes misinformation, such as telling a customer that a hotel is sold out when, indeed it is still available, if the hotel has chosen not to pay a promotional fee, and then allowing the guest to choose an alternative property. Misdirection is, regrettably, still a popular business model on the net, although for reasons I explored in an earlier TechCrunch post on Google it seems ultimately to be unsustainable. More significantly from the perspective of this post, it is not scalable; it is not possible for every website to earn its revenue from sponsored search and ultimately at least some of them will need to find an alternative revenue model.
- Selling Access. Misdirection will fail totally and completely. I use a Mac, but I have abandoned Safari for Firefox. I have an iPhone and an iPod but I have never used the little white earbuds, preferring instead to purchase a pair of Shure E500 phones that I think sound vastly superior. Similarly, I would be equally happy to purchase a search service that worked for me, rather than accept a free one that works both against me and against the firms I patronize. In contrast, while people will continue to value community content and social search, these will be difficult to monetize. Finally, contextual mobile ads will, likewise be difficult to monetize. With information easily available, I will make my own restaurant choices, irrespective of those pushed at me via SMS, especially when I know that those pushed at me have been pushed for a fee, rather than based on an impartial assessment of my preferences. Yes, I can imagine SMS ads initially succeeding if they provide discounts, but ultimately this leads to little more than a bidding war for traffic and benefits no one other than the firm that provides the text messaging services. I can think of a few commercial SMS services that will benefit everyone, such as letting the most loyal guests of a restaurant know when it is still possible to get a reservation if they act immediately, eliminating the inefficiency of empty tables, but the restaurant will do this itself, using its email or cell phone contact lists. I don’t see this as advertising, or as being monetized by any intermediary. Of course, in an age before texting and email restaurants would have welcomed the all-knowing intermediary as the only mechanism available for communicating quickly with its most loyal customers. Now, restaurants have lists of their most loyal customers and can send out real time messages of interest. If the Blue Note were to text me on some night that I am in New York that it is still possible to get a table for two for Clark Terry, or Tria were to text me on a day when I was in Philadelphia that, surprisingly, there was no wait for an outdoor table right now, I’m sure I would respond to both. Of course there is no intermediary for this interaction, and this is more like direct communication than paid advertising.
The internet is about freedom, and I suspect that a truly free population will not be held captive and forced to watch ads. We always knew that freedom comes at a price; perhaps the price of internet freedom and the failure of ads will be paying a fair price for the content and the experience and the recommendations that we value.
Online Ads: Even the Evangelists Turning Bearish
posted on February 25th, 2009
Sarah Lacy currently works at TechCrunch as a senior editor. She is also an award winning journalist and author of two critically acclaimed books, “Once You’re Lucky, Twice You’re Good: The Rebirth of Silicon Valley and the Rise of Web 2.0” (Gotham Books, May 2008) and “Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos… → Learn More
It wasn’t too many months ago that saying online advertising would decline in 2009 was enough to get you laughed at in the blogosphere, mocked on Twitter, and have Eric Schmidt roll his eyes and explain, again, why Google ads were such a better value than traditional media.
Flash forward to this week and the Interactive Advertising Bureau big wigs are predicting whole businesses dependent on online ads could go belly up, and researcher IDC has completely reversed its growth estimates. No longer will online ads grow 10% in 2009, says the firm. IDC now predicts a 5% drop in revenues in the first quarter that could get worse in the second. Fingers crossed for the second half of the year.
The trend is certainly already moving in that direction: Last year the market was growing at 18%. Last quarter it grew a sad .4%. That’s flirting dangerously close to the first quarter-over-quarter drop in online ad sales since the great dot com bust. Suddenly everyone’s bull scenario isn’t double-digit growth; it’s a year that doesn’t tip negative.
How’d everyone get the story so wrong? (Ok, not everyone. Stop waving your hand Henry Blodget, I see you.) Two big assumptions were at work here: One was that online advertising is more actionable and more measurable than advertising in the offline world. The other was this pie chart that Yahoo’s PR department used to love to trot out showing the discrepancy between the amount of time people spend online and the percentage of advertising spend that goes online. “At some point, that has to balance out, right? RIGHT?”
There’s enough truth in these assumptions to ensure that online advertising won’t have nearly as bad of a year as offline advertising. But in this market, that’s like saying a broken leg is better than an amputated one.
Plenty of attendees at this week’s IAB conference pointed out that problems like reliable audience measurement are no closer to being solved than they were during the industry’s last identity crisis in 2001. Some people argue, it’s gotten worse. There was also plenty of worried chatter that desperate times would lead to desperate measures, causing advertisers to play fast and loose with user privacy in an attempt to make a sale.
I have a better idea: How about actually come up with innovative advertising products? Google-aside, I think the Web industry has gotten lazy when it comes to advertising innovation. There’s too much outsourcing to the ad networks and too much of an assumption by the portals and other large properties that gaudy eyeballs will be enough. That’s old media thinking. It’s enough to get ads when times are good, but not necessarily to keep them when times get bad.
A lot of people criticize newspapers for just putting their stories online, the same way they’d dummy them up on the printed page, rather than really utilizing the two-way medium. I think you could argue the same about the way many sites think about display ads. Too often it seems a cat and mouse game where I’m chasing an ad around a page looking for the close button so I can read some content. Sure, maybe I look at your message more than I would in a banner. But it’s also annoyed me enough that I will never buy your product. In many cases, even a back-to-basics approach works better, as I wrote about in my BusinessWeek column today that highlights some of the shockingly high CPM rates that un-high-tech email newsletters are getting.
Like so many things in the recession, it’s ultimately a good sign that marketers are panicked. We might actually see some innovation here.