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March 07, 2006

What Google's Analyst Day Slides Said About AdSense

While Google's Analyst Day seemed to go off without a hitch on March 2, 2006, word began leaking out today about some inadvertantly released notes on Google's Analyst Day powerpoint slides, prompting Google to release a Form 8-K to the U.S. Securities and Exchange Commission (SEC).

It began noting that some information was included on notes within the Powerpoint presentation.

On March 2, 2006, Google Inc. posted its Analyst Day presentations on its Investor Relations website, http://investor.google.com/. The initial posting inadvertently contained certain annotated comments not intended to be presented at Analyst Day, including the following statements

One of the statements was notably a mention about AdSense, which the 8-K states as follows:

But strong competitors are attempting to aggregate traffic
  • AdSense margins will be squeezed in 2006 and beyond;

Of course, full text of these notes was released on absolutevalue.blogspot.com. An easier-to-read version was then included on ZDNet blog. A total of 12 slides included notes, 2 of which mentioned AdSense specifically.

Here is what was said specifically about AdSense (I have included the entire text from a slide where AdSense was mentioned because it is relevant, although I have bolded the specific AdSense):

Slide #9 - More Complete Ads System

Now let’s look at another core element of our business: advertising. Consider that today, 1 in 4 retail dollars is spent online, and you’ll immediately understand the tremendous opportunity before us.
Our ads business for the moment is healthy and growing and we’re on a strong trajectory

  • projected to grow from $6bn this year to $9.5bn next year based purely on trends in traffic and monetization growth

But strong competitors are attempting to aggregate traffic
  • AdSense margins will be squeezed in 2006 and beyond
  • Y! and MSN will do un-economic things to grow share
  • The ad network will be commoditized over time

So, we need to build a more complete ads system that is characterized by two words: wider and deeper. That is, cast the net wider to attract new customer types) and deeper to enhance our relationship with existing customers.

The quote about AdSense margins is the one that has been most quoted in the media news reports, and is specifically mentioned in the 8-K.

Slide #11 - More Complete Ads System (continued)

By Wider, we mean:

  • Simplifying the experience and streamline advertiser acquisition for small and medium-sized businesses
  • Developing a great branding product for large online advertisers and for offline advertisers of all sizes
  • Expanding offerings to include print, radio, TV, and direct mails

By Deeper, we mean:
  • Providing Advanced Tools & Reporting for sophisticated advertisers (e.g., API, bid management, ad scheduling)
  • Expanding AdWords from clicks to conversions (e.g., Landing Page Optimization, Google Analytics integration)
  • Tightening integration with other Google products (e.g., SiteMaps, GoogleBase, Local)

To really get down to brass tacks, we’re going to:
  • Execute well on our core ads projects to help us exceed the $9.5bn target (and backfill any AdSense partner loss) and drive advertiser satisfaction
  • Simplification
  • Quality initiatives (e.g. landing page quality)
  • Fight hard to maintain share in the AdSense network
  • Aggressive guarantees
  • Increased monetization on existing pages
  • Expand inventory rapidly through:
  • Support for new ad formats
  • Targeting other types of media
  • Developing market-leading/”hit” Google properties and consumer applications
  • Extend into adjacent SMB services (CBG is only a first step)
  • Treat advertisers as full-fledged businesses with a broad set of needs (not just advertising)
  • Ensure that we are not supplanted in the consumer buying cycle by eBay, AMZN, Yahoo in their effort to become one-stop shops in the full buying cycle
  • By bringing more product information to Google (e.g. via Base)
  • By providing users with a richer search experience (e.g. attribute search, vertical search, and richer product information and reviews)
  • By leveraging CCC apps to provide users with the product/service information they care about when they want it

New ad formats will be great for publishers, since it has been a while since there has been something new. Ad Links were the last, which were first launched a year ago, although the horizonal style was launched more recently. And I don't consider the referrals program to be a new ad unit style per se.

With the other types of media, we have seen the rich media beta test as well as Google's expansion into print ads, radio ads and click-to-call. They slide also mentions television advertising as well as direct mail.

Fighting for their AdSense publisher share is an obvious goal... and one that Yahoo Publisher Network (and in the future, MSN ContentAds) are working hard towards taking over some of that share. AdSense seems to still be doing a good job on that front for regular publishers - although some of that is definitely because of the lack of competition. Once YPN expands from their limited beta and begins accepting many more publishers - particularly from outside of the US - AdSense could see their market share strength weaken.

Another very important AdSense publisher share to consider is the role of the larger scale "premium" publishers. It seems that other companies (such as Kanoodle, Quigo, Industry Brains, ContextWeb... most which cater to large size publishers) are securing some of the former AdSense partners for their own programs over the last six months or so. However, this general impression could also be due to the fact that oftentimes these larger newly-formed partnerships are announced through press releases.

The news of these notes has gotten plenty of coverage today, although there seemed to be very little mention of this in the initial days following the Analyst Day, although a few mentions about slides being changed during Analyst Day regarding the Google GDrive, although no one was able to save a copy of the powerpoint at the time. The first major story to break from the inadvertant disclosure was about the Google GDrive, although since the SEC notice, the focus has been more on the financial implications of the leak.

For more on the other things disclosed in the slides, read my article TeraGoogle, Google's Social Search Aspirations & More From Accidentally Released Analyst Day Notes on the Search Engine Watch Blog.

Posted by Jenstar at March 7, 2006 06:08 PM

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Good meeting you over lunch at the China Grill at SES NY last week.

Google can't have it their way any more. The Street loves to punish companies that don't play by their rules.

Wack, bad Google. Go sit in the "time out" corner, until you decide to act like a big boy company.


Posted by: Jordan Glogau at March 8, 2006 05:33 AM

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