The limits of Google.

Last month Millward Brown Optimor published their fourth annual BrandZ Top 100 Most Valuable Global Brands rankings and would have you believe Google's brand is worth exactly $100 billion. While I have debated the worth of these kinds of valuations and surveys in previous blogs, in the wake of the impending release of the Google Wave, it now seems a good time to consider the limits of the brand.

Some people think Google breaks the brand model i.e. no advertising on its home page, no advertising per se but both these measures are merely symbolic. While Google may have inspired what many see as a form of brand disruption, is game changing and is somehow Schumpeterian, it is a behemoth brand utilizing both the common architecture associated with monolithic status as well as exhibiting a traditional set of values not unlike Apple and Virgin.

Similarly, you could argue that Google has unlimited potential as a brand and its brand extensions merely reflect this. However, while Google is a highly successful company but with 97% of its revenues coming from Web advertising and 68% of that from advertising on its own Web sites, it is still very much a single proposition company.

Google’s market dominance means it has virtually reached the limits of organic growth and anything further can only come from transformation via acquisition and perhaps through product and service development, in much the same way Apple has. Sure it’s testing the field with Wave, Chrome and Android, which appear to be the spearheads of a greater platform strategy but if we take YouTube as an example of expansion by acquisition, it seems fairly evident that Google is a one-trick pony.

Since its 2006 acquisition of YouTube revenue estimates have varied wildly with analysts like Bear Stearns and Credit Suisse suggesting Google will see between $90 -240 million in revenues this year. It’s a big range but as the number three brand on the internet YouTube only made around $80 million last year and while that’s no small potatoes, it is struggling. Given Google’s 2006 acquisition of YouTube came with a $1.65billion price tag and Credit Suisse estimates operating costs at around $711 million this year. Therefore it’s reasonabl e to assume that despite Google’s deep pockets, the operating gap is not going to be tolerated for too long.

So what does this mean for the Google brand? Of course, YouTube’s traffic will continue to grow exponentially, with no clear end in sight as will the not inconsiderable cost of this business. Set this against mildly successful efforts at monetizing content via advertising and the overall state of the advertising market and you come back to the central problem for YouTube and ultimately, Google. The non-propietary nature of both its search engine and content that forms the basis of the Google brand and proposition is, at the same time, its achilles heel.

To get further understand these limits, look at the performance and what I see as the eventual fate of Yahoo. Like Google, nearly all of Yahoo’s revenue comes from search and display advertising. Since Google’s 2004 float Yahoo has been losing share in search and though Yahoo is still the second most popular search engine, its searches are inferior. While Yahoo’s content continues to attract users for the moment, its search traffic is secondary to choice of Yahoo as a portal. The problem is that while content from the portal generally helps generate search traffic, yet without either distinctive content (everyone accepts that content is no longer a competitive advantage) and superior search, Yahoo is going to decline. What is best described, as Yahoo’s kitchensink approach to both content and feature development, is not disimmilar to that of Google’s. In this market “innovation” is a very tired word. Yahoo has Flickr. Google Picasa. Yahoo has Finance. Google Finance. Yahoo has Mail. Google Gmail and now Wave. Yahoo has Groups. Google Groups. Now just think of Google’s failures with News, Lively, Orkut and Knol and then apply that to a similar Yahoo’s list of failures or better still AOL, its hard not to draw the conclusion that the direction for both brands is anywhere but down.

On revenue and market performance measures alone, Yahoo is a sombre example of how little stock one can place in single proposition revenue models. In 2004 Yahoo reported net income of about $238 million and had a market value of about $36 billion. At the same time Google's stock market value was around $16 billion based on a net income of around $106 million. Microsoft’s offer for Yahoo last year put its market value $45 billion, against a brand valuation 7.45 billion. It had barely moved and most people thought Microsoft was being generous and Yahoo missed the boat. Now with the rankings reversed and sobriety entering market valuations, Google’s Wave is looking like no tsunami.

This blog was originally published in Marketing Magazine on 11 June 2009.

Death of Print 2: Sensis and the final days of the phone book.

When did you last use the print edition of a phone directory?

In Australia the first directory was on a single sheet and listed just 44 numbers, now more than 100 years later it’s still in print but looks likely to go the way of the rotary dial phone. Here’s a couple of recent and related events that suggest publisher Sensis needs to prepare for the inevitable:

• Print company PMP’s contract with Sensis for production of Australian White Pages and Yellow Page directories expires on 30 June 2009;
• A new GPY&R Yellow campaign for Yellow Pages announces the release of a handy sized print version for use in the car;
• Google and Telstra subsidiary Sensis announce they have signed a deal to integrate the data from Yellow Pages business listings into Google Maps Australia;
• Total worldwide smart phone shipments hit new peak of 39.9 million in Q3 2008 while in Europe almost 40% are GPS enabled. In Australia, 3m will ship constituting 30% of all mobile phone sales.
• Google announce a new iPhone application that runs a voice translation service which enables users to speak and ask for the name of a service or store near their location and have it sent to their phones.

According to Sensis, its Yellow Pages print version does AUD$1 billion in advertising annually and the Yellow Pages Online a further $100 million. Last year more than nine million print copies of its White Pages were distributed in Australia with Sensis claiming a 99% penetration rate into Australian households. But the events above threaten these brands’ relevance and could convey them to the dustbin of history.

The long decline in landline connections can be linked to falls in use of both print editions. In February Sensis parent Telstra announced, somewhat half heartedly, that it had arrested some of the decline in its fixed line services. In fact, the decline was just 2.1 % against a 2.5 % decline in the previous six months to June, the annual decline still around four or five per cent.

But there maybe something more significant going on with Sensis’ so-called Yellow and White Pages Networks, with both registering significant online declines in viewership this year. Alexa data puts Yellowpages.com.au views of its online edition down a massive 10% for the last quarter and Whitepages.com.au down 3%. This contrasts with White Pages’ claim in March it was number one for business search and Yelllow Pages announcement in November that more 11 million Australians used its service every month.

While competitive intelligence service Hitwise’s latest figures has White Pages with an increased market share of 10.89% for the same period but this is only 0.19% of all use across the entire online market with Google’s Australian operation dominating the market with 8.38%. White Pages is not even a top 20 site in Australia. Similarly, Hitwise has Yellow Pages increase market share by 7.25% for the period for a total share of only 0.11%. Up against Google, Microsoft and Yahoo, it is a minnow.

Sensis’ deal with Google Australia seems to at least acknowledge that its market share is close to a fiction and it needs to better position its brand to take advantage of the much anticipated growth in location-based services coming from the explosion in smart phone use.

By year’s end around three million smart phones will have shipped in Australia, most with built-in GPS such as the iPhone and Nokia Navigator. Portable navigation devices like Mio and TomTom, primarily used in cars, seem already to have been sidelined as carmakers increasingly include it as standard and users opt for more personal technologies. Already Nokia is the third largest provider of mobile navigation across all platforms in Europe. In this scenario, the release of the new Sensis Yellow Pages directory for car use seems both archaic and a folly.

Sensis says 25% of all phone books don’t get recycled but end up as doorstops or propping up computers. Perhaps these users are the only demographic that’s going to find it hard to lose the phone book. Regardless, PMP might want to check its contract when it comes up next year. My feeling is Sensis is losing its way and needs a better strategy that increases relevance, brand visibility and usability for a complete multiplatform environment, otherwise it might see more of its brands (think Trading Post!) analogous to a doorstop.

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The battle of the brands 2: new global brand survey just more deck shuffling.

There's nothing very surprising in BusinessWeek's annual survey of the 100 Best Global Brands, just that Google isn't already closer to the top of the pack and that it pre-empts the rapid decline of some world's major financial brands.

In its latest and eigth iteration, the brand rankings compiled from data from JPMorgan Chase, Citigroup and Morgan Stanley, see little shift in the dominance of global brands with the exception of Disney's failure to grow, Mercedes-Benz departure (down to 11) replaced by Google's (10) much anticipated entry into the top ten.

What's most interesting in this list is the fact that $157 billion Google hasn't already surpassed Microsoft (ranked 3) and that Swedish megaclothing retailer H&M is rocketing up the charts(22) while Thomson Reuters (44), Blackberry (73), Ferrari (93), Armani (94), FedEx (99) and Visa (100) are all marked as new entrants to the pantheon.

Behind Google, Apple (24, up from 33), Sap (31, from 34), Nintendo (40, from 44) and Amazon (50, up 62) all signalled significant growth off the back of strong sales and increasingly focussed efforts of true and marked differentiation via technology.

In what must have anticipated the seismic shocks in financial markets, big value declines were posted by Merril Lynch (-12%) Citi (-14%) and Morgan Stanley (-16%), while old school brands such as Ford (-12%), Gap (-20%) and Motorola (-10%) all struggled to hold onto their market and customer relevance.

Outside of the financial giants, Ford, Gap and Motorola have all been characterised as so bogged down in moribund cultures that their ability to innovate has had significant effects on their share price and caused subsequent declines in brand value.

Indeed for Ford, Gap and Motorola it must signal that lessons can be learnt, not from big ticket investing in advertising but in building cultures that are imbued by technological and design innovation, which big risers Google, H&M, Amazon and Zara already know.

Yahoo, slow death of a portal?

Microsoft's increasingly aggressive stance on its Yahoo bid looks certain to be bolstered by recent figures on Yahoo’s overall performance as a search vehicle.

According to SearchEnginewatch nearly 10 billion "core" searches were conducted in the US in February, accounting for a 6 percent decline from January search activity.

Altogether search queries were down at all the major search engines. Google serving 5.9 billion search queries, down 5 percent from January. In February, Google's share of searches was 59.2 percent, up from 58.5 percent.

Yahoo's search share slipped from 22.2 percent in January to 21.6 percent in February. Overall, it served 2.1 billion searches, down 8 percent from the previous month.

In March, much the same scenario has also been played out over at Hitwise, whose measures have Google owning around 67.25 percent of all US searches for March. Yahoo! Search, MSN Search and Ask.com each receiving 20.29, 5.25 and 4.09 percent respectively.

In 2007 Hitwise had Yahoo with 21.26% of all searches and the year before that 22.30%. It represents not only a continuing rout by Google but also plays into suggestions that Yahoo’s market position is being eroded.

In Australia, the Yahoo7 alliance has been criticised for its inability to find focus with advertisers increasingly shunning the joint venture (See DIFFUSIONblog 23/10/07) and relegating it to a second tier advertising status.

In February Nielsen//NetRatings Yahoo!7 in third place in the market with 5 million unique users, though this figure is an aggregate and does not represent search only. It cites its recent content deals with Bebo and Disney as proof that its a real challenger to Google.

The Australian operations focus seems to be on stretching the width of advertising, rather than increase the range of opportunities for users and increasingly gain traction from engagement with the brand. In a mature market such as Australia, where Neilsen claims internet usage has peaked at 80%, the effort may go unrewarded and probably unrecognised.

This scenario is mirrored in almost all aspects of Yahoo’s attempts to rescuscitate its ailing brand.

The simple fact, as the statistics show, its market relevance with users and with advertisers is declining. From a content, usability and experience side, Yahoo now does little to differentiate itself from its competitors. Its competitors, particularly MSN, do nothing more than mimic the same.

Portals, like Yahoo, and before that Excite, Lycos and AltaVista (remember these!) all experienced year-on-year declining relevance and consequently market share as their brands no longer provided users with differentiating content and experience. It wasn’t about building advertising platforms, it was as Google worked out, about building a brand that delivered differentiating and innovative content and usability for users.

I'll let the statistics speak for themselves. According to SearchEngineWatch in 2001 Yahoo was the top search engine, referred the most traffic to web sites in the US, accounting for more than 38% percent of search referrals with MSN 15.9 percent, the nascent Google 11.3 percent and AOL 7.8 percent. Internationally, Yahoo referred 41.5 percent of all traffic, followed by Google at 13.9 percent, MSN 12.9 percent and AOL 5.4 percent.

As everyone knows, its a numbers game. And the numbers are real.

Yahoo7 tries another strategy shift.

Seven Network's announcement that it's Yahoo joint venture is undertaking yet another restructure not only points to a strategic shift in its operations but may also be a portent for the future of general media-based portals.

Last week Yahoo7's acting chief executive Rohan Lund, was reported to have presented yet another new strategy to arrest the site's declining fortunes as it continues to loose market share. The new strategy sees Yahoo7 abandoning what has been described as a "relentless advertising focus", to concentrate on both news and search as it seeks to oust Google as Australia's leading search engine.

According to reports in The Australian, the strategy is designed to do "anything to drive traffic to the portal" with Lund quoted as saying that the portal aimed to be home page for every Australian going online.

It's both a fairly naive assertion and a blind strategic assumption that against an ever changing landscape, Yahoo7 believes it can arrest the near 80% consumer and advertiser drawing power of Google.

And it's a lesson that Lund would do well to learn from his similarly well meaning predecessors.

For example, I've been online long enough to remember (and use) portals such as Apple's eWorld (see pic), Netscape, Lycos and Excite. All of which, except for eWorld, still exist in some form or another but whose drawing power in this market is either non-existent or negligible.

Hitwise, an internet ranking company who's data is based on market share of visits from a sample of nearly 3 million Internet users in Australia most recently ranked Yahoo7 in 10th place with just .9% of total Australian traffic.

This compares to Goggle's first place with a total share of nearly 10% of Australian traffic followed by 9MSN's meagre but significant 2.6%. Also in the top 10 is Myspace (2.17%), Hotmail (1.85%), Ebay (1.85%), Facebook (1.11%) and Youtube (0.95%)

Based on these figures theYahoo7 strategy has an uphill battle to overcome the status quo on both internet news and search.

And while some of its free-to-air news market dominance may also rub off on the online new service, what about the other Network 7 content and its ability to bring traffic and point of difference to the site?

Network 7's digital strategy is lagging behind both the ABC and Network 10 on areas such as after telecast access to immediate downloads. Downloading is becoming a huge threat to all Australian television networks as viewers become time shifters (as we have noted previously, even US television audience measurement is now done on the basis of total viewer ship including time shifting) and overall television viewing continues to decline.

It will be interesting to see if 7's Tivo marketing announcement is somehow bound into the notion of on-line content and directing free-to-air and subscription traffic flow, but right now it's fairly light on detail.

Further, the Yahoo and 7 team could flounder for the very reasons predecessors like Excite did. In 2001 former Excite founder William Hearst III, described the demise of the portal this way:

"The strategy was to build a national brand that could compete against AOL. To the extent that we spent money pursuing that strategy, which may not have
been the right strategy, perhaps, but to the extent that we spent money chasing that strategy, " Hearst said.

"One of the lessons--and I hate to say it--is that you can gain a tremendous advantage by partnering with big, well-established companies, and people are
going to continue to do that. But those companies are going to find it very difficult to put their new start-up venture ahead of their own corporate responsibilities. So when you have a start-up controlled by big, established companies, it's going to be a little different than a real, stand alone start-up."

And this is really the conundrum for Yahoo7. When the joint venture was announced in December 2006, it was widely anticipated by joint venture chairman John Marcom that it was "in a prime position to capitalise as viewers change the way they consume television programmes."

But since then Yahoo7 has been slow to move and perhaps its unwise pursuit of Google, Fairfax and 9MSN underpins how wrong footed it has been.

Interestingly, as Hearst notes, perhaps it's no longer the case that the nation's leading television company no longer needs Yahoo to be its digital arm and that going out as a real stand alone company (in much the same way Fairfax has) and building its own identifiable set of online brands and services from its massive content base should be re-examined.

Google challenges TV advertising's black art.

Google's breaking into the world of television advertising sales with a new targetted model.

Launched this week in this US, Google's TV Ads enables TV advertisers to bid for spots to more than 13 million households on US satellite TV network Echostar and only pay for what is watched.

It's a major new foray into the world's more lucrative $170 billion television advertising market, after the company's recent failed attempts to launch it's Ad Sense model into print and radio.

However, at this stage the new ad sale system won't get quite as personal as its online counterpart because of US privacy restrictions.

The system will be targeted more broadly at specific demographic groups, regions and programs on one of EchoStar Dish Network's 125 satellite channels which include Discovery, CNN and MTV.

Google will be able to do a daily analysis of anonymous data collected from Dish network subscribers and only bill advertisers for that segment of an audience that actually watched a commercial for a designated amount of time.

Former NBC executive Mike Steib, who recently joined Google as head of television advertising, said that the group was already “in active discussions” with other networks.

However, Google is also likely to meet with stiff resistance from bigger US cable TV operators like Comcast, Time Warner Cable or Cox Communications, who jealously guard the data their systems generate on customer-viewing habits.

It also must face off against ad measurement competitors like Nielsen Media Research and hot start-ups like Spot Runner.

Either way, DIFFUSION believes that if Google creates the same impact it has had on the world of online advertising effectiveness its also going to have a sudden and very measurable impact on the way TV ads are sold.

More importantly, the black art of television advertising will come under even more scrutiny from advertisers, as they start to demand their agencies provide real-time measurement of active viewers and results from campaigns.

It's yet another signal for the death knell of television advertising as we know it.