Google challenges media's big players

Google unveiled an agreement to buy DoubleClick for $3.1bn (£1.5bn) which, if approved by regulators, would give it dominance in graphical or display online advertising.

Meanwhile, it moved further into the traditional media space, signing a multi-year deal with Clear Channel Radio to sell radio spot ads.

However, Google views itself as a technology company rather than a media owner, and is keen to downplay the threat it poses to the traditional media establishment in general and media agencies in particular.

The company partners with media owners both online and, increasingly, offline. In the past six months it has invested considerable time and energy in wooing the UK agency sector, switching Mark Howe to be UK sales director in charge of agencies, and training more than 1,000 agency staff as Google agency professionals.

Yet the fact remains that Google not only competes in the media space, but it does so in a way that disrupts existing business models.

Huge challenges

An Accenture report published last week, Mass Marketing Unplugged, says Google and the rise of search marketing present "huge challenges for advertising agencies", which the industry is currently "ill-prepared" to face.

Part media owner, part media agency and part sales house, Google both co-operates and competes with the existing media players.

Paul Mitchison, UK managing director of online marketing specialist DGM, says the DoubleClick acquisition raises "uncomfortable questions" about how Google positions itself to marketers.

"Traditionally, Google has been seen as a media owner, not an intermediary," Mitchison says.

"The acquisition of DoubleClick may not be as simple as it appears. Google is attempting to get into a difficult market by purchasing an ad-serving technology, which while extremely useful, will not provide Google with the relationships it will need to forge with major publishers on the display side of the business."

Dennis Woodside, Google's UK managing director, says the company has no desire to encroach on agencies' turf in terms of strategy, planning and creative execution, but he does acknowledge that it is keen to use technology to automate the buying process where possible.

Mark Creighton, managing director of digital media agency I-Level, says he views Google as a partner, not a threat. "Certainly digital media has always been about more than just transactions," Creighton says.

He adds: "Every day we optimise campaigns against the price we buy it at. Everything is so transparent; probably more so than other media."

In its defence, Google claims that the online advertising market is intensely competitive for both consumers and advertisers.

Woodside says: "On the consumer side, there are several very large, well-funded competitors competing with us and there's no switching cost for the consumer to change their search engine.

"On the advertiser side, there is a whole slew of ways to get an ad out - there is no lack of competition."

Industry backing

Although Microsoft has objected to the DoubleClick acquisition and US and international regulators will no doubt examine the deal closely, Woodside's contention is backed by many others in the industry.

And now the unstoppable Google is looking beyond its dominance of the online advertising industry; it is moving into traditional media sectors, including radio, TV and press. The Clear Channel deal will see Google sell a guaranteed portion of its 30-second advertising spots on more than 675 of the radio group's AM/FM stations in the US.

The agreement follows Google's purchase last year of dMarc, which provides an automated advertising platform for the radio industry. Woodside says the deal is an "experiment" that, if successful, could be exported globally.

It follows similar agreements in the newspaper and TV sectors. Earlier this month, Google signed a deal with EchoStar Communications in the US to introduce an automated system for buying, selling, delivering and measuring television ads on EchoStar DISH Network's 125 national satellite programming networks. The US division has also created an auctioning system for newspaper advertising space, which has been running for six months.

Google is clearly a technology innovator, justly proud of its engineering heritage and expertise.

But there is little doubt that the company is also a media powerhouse and will have a profound effect on the media landscape.

"How people define us is up to them," Woodside says. "How we think of ourselves is through the technology we build."

GOOGLE BY NUMBERS

Google UK earned revenue of $578m (£288.4m) in the first quarter of 2007 - 16% of Google's overall revenue for the quarter

- The pound's strength against the dollar increased the UK's share of overall revenues, up from 15% in both the first and fourth quarters last year

- Overall, the search giant reported revenue of $3.66bn (£1.8bn) for the three months ended 31 March 2007, up 63% year on year, 14% quarter on quarter. This generated net profit of $1bn (£0.5bn) compared with $1.03bn (£0.51bn) the previous quarter

- Google-owned sites accounted for 62% of revenue. Third-party sites monetised through Google AdSense accounted for 37%

- International revenues were 47% of the total, up from 42% this time a year ago.