Google Is Really Bad At Monetizing Content Yet CEO Schmidt Lectures Newspapers
By Tom Foremski - May 7, 2009
Eric Schmidt, Google's CEO, loves to tell the newspaper industry what it needs to do to be relevant in today's online world. A sample of recent headlines:
Eric Schmidt Tells Newspapers: Create Products People Want And ...
Google CEO Eric Schmidt to newspapers: Innovate your way out of it ...
Eric Schmidt wishes Google could save newspapers
Google CEO Eric Schmidt to Newspaper Association of America ...
Schmidt to Newspaper Execs: I'm From Google, and I'm Here to Help ...
Schmidt Lectures Newspapers - The Daily Beast
Yes, the newspaper industry needs to get wiser about how to adapt to the online world, but Mr Schmidt's lecturing is the pot calling the kettle black. Google is about as bad at monetizing content as the newspaper companies Mr Schmidt likes to lecture. And Google is getting worse at it! The evidence is hiding in plain view.
Take a look at GOOG's 2008 financial results. Total revenues = $21.8 billion.
- About 66% of revenues, $14.4 billion came from advertising related to search. This is Google's AdWords program where companies buy keywords related to search terms and Google serves up their ads on the search results page.
- About 31% of revenues, $6.7 billion came from advertising around content on non-Google sites; these are partner sites that run Google's AdSense program on their pages and it includes many media companies. This is where Google monetizes content, it serves up contextually relevant ads next to the content on a web page.
If we look at profitability, search advertising is many times more lucrative for Google than content advertising.
- In 2008 search ads produced a profit of about $5.65 billion on revenues of $14. 4 billion or a 39% profit margin.
- In 2008 content ads produced a profit of about $302 million on revenues of $6.7 billion or a 4.5% profit margin.
Search advertising produced 19 times more profit than content advertising.
If you look at GOOG's financial trends you can see that the company is shifting revenues away from content advertising to search advertising.
Since 2006 content advertising has dropped from 39% of revenues to just 30%. In addition, total content advertising was down 3% in the most recent quarter, year over year, yet search advertising grew 9%.
A recap:
- GOOG's profit margin on search advertising is 39%
- GOOG's profit margin on content advertising is about 4.5%
Google is great at monetizing search but really bad at monetizing content.
Media companies are better at monetizing content. The New York Times Co. in 2008 had an operating profit of 5% (not including impairment of assets costs.)
News Corp., in its most recent quarter reported operating income of $755 million on revenues of $7.4 billion, or about a 10% profit margin.
Granted, these aren't exactly apples to apples comparisons but they do show Google doesn't have a magic wand for monetizing content, it's performance is mediocre. Also, let's remember that Google has withdrawn from offline businesses such as its ventures to make money from placing advertising in print newspapers, and on radio and TV. Again, it shows Google is great at search but really bad at monetizing content.
How soon before it ditches its content advertising business altogether?
Currently, its overall profit margin is about 30%. If it ditched content advertising (AdSense) it would jump to about 39%. Google would become nearly one-third more profitable overnight.
Mr Schmidt knows there is little money to be made from advertising around content and that Google has been gradually shifting away from that business for several years -- yet he continues to lecture newspapers on how to be successful at something that Google isn't. Remarkable.
May 7, 2009 | Permalink | Comment | Category: MediaWatch | Subscribe to SVW
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Comments (8)
Tom,
I think you are comparing apples to oranges with Google's content advertising and News Corp.
Google does not own the content and they have to pay the content owner which comes out of their margin.
News Corp owns the content, so they keep most of the money.
Posted: May 8, 2009 3:14 AM
cswilly: News Corp. pays for creating content, it pays a lot more than Google. What Google pays for content wouldn't support the costs of creating that content. The point is that Google is bad at monetizing content and is shifting away from that business.
Posted: May 8, 2009 11:45 AM
I think Google will never get rid of Adsense. Sure on paper, it has a rather poor margin. Out of $6.7B in revenue, $5.3B is paid out to just content owners alone. But Adsense provides boosts to Adwords directly and indirectly, and ultimately gives Google total world domination. I don't think Google is too bothered by the difference in their margins because they're two distinct businesses.
But I think your point about their poor margin on Adsense business is still valid. What this essentially means is, the content for which Google pays $5.3B, is only worth spending $6.7B to advertise on. I guess you're pinning the blame on Google, though really, if you want to be consistent with your previous posts, you should equally be blaming the amateurish content creators, whose web sites carry majority of these ads.
Maybe the poor margin has to do with the fact Google has no control over the content of their partners, and cannot bring value-added services for which advertisers are willing to pay premium. So maybe they should be more selective and limit Adsense partners. On the internet, content creators as a whole is less than sum of its parts. (opposite of traditional media)
In the end, I think the problem is really bigger than Google, and there's no silver bullet. After all, competing for advertising dollar is a zero sum game.
Posted: May 9, 2009 2:40 PM
pcurve: You are right that Google pays for some content that has little value. It also pays for content such as NYT and other newspapers and magazines that carry AdSense. A key issue with AdSense is that it doesn't have a way of discriminating between bad and good content, a click is a click.
What incentive does Google have to expand its AdSense business? A dollar invested in expanding its AdWords business will bring in 19 times more profit than that same dollar invested in expanding its AdSense business. GOOG has a fiduciary duty to maximize its profits.
Posted: May 9, 2009 4:59 PM
You're right, Google does not have much incentives. They're in the business of high-automation. Google is great at solving problems, but it has no creativity in the media sense. And tailoring the right ads to the right content is something that cannot be automated in my opinion. It requires human ingenuity and creativity. Without this human intervention, as you put it, click is a click.
Organizations with high brand values such as NYT and others would be foolish to waste their precious ad space on Adsense that delivers dismal ROI. And indeed, most high-brand media sites rely very little on Adsense.
You as a content owner know your business the best, not Google. You know how best to monetize your own content. Adsense serves it purpose for both Google and amateur content creators who do not have the resources to market their content to advertisers. But bigger content owners do, and they're learning. They've learned that Google sometimes is a necessary evil. But they've also learned that they don't have to give up such a big slice of a pie to Google.
Posted: May 10, 2009 10:21 AM
pcurve: yes, publishers such as NYT would be crazy to give up their online real estate to Google AdSense, but they have, and many continue to do so. If they had something better, they would choose that. Given the slim pickings from AdSense there are other ad networks that pay more, but even at a several multiple more revenue, the slim pickings would still be slim.
Posted: May 11, 2009 12:12 AM
I think you forgot something key: You are discussing Google's profit margins, and not the website publishers (Adsense) that are running the ads. For all we know, they are making money hands-over-fist (unlikely, but worth researching).
Posted: May 11, 2009 11:03 AM
The only people making money "hand over fist" are publishers that are running link farms, spammy pages with copied content, and the like. If you had to generate your own content AdSense won't generate enough to pay for it. That's why AdSense is used if you can't find anything else.
Posted: May 11, 2009 12:28 PM