The typical American business executive likes incremental changes, like, perhaps, an 18 percent speed increase. Or maybe a little bit more efficiency over here, and some additional functionality over there.
PowerPoint slides to the contrary, a paradigm shift is the last one thing most executives honestly want because, to the typical executive with a large company, any monumental shift raises the frightening possibility that the company will end up a lot smaller than it is today.
Thats why its typically the startups and the small niche players that embrace big-picture change, if only to get someone to listen to them.
But what if one of those small companies that embraced big change—say, the Internet and its subsidiary, the World Wide Web—got big?
Thats the question—and the challenge—facing $11 billion search giant Google. At a recent media day at Googles New York offices, Google executives and managers discussed the enormity of the current e-commerce conundrum, and how the company is struggling to find the best way to deal with it.
Read more here about why providers are ogling Googles wireless possibilities.
Consider this: In the early days of e-commerce, a typical retailer and manufacturer might have been marketing between eight and 12 products, especially with search-engine links. Today, that same company would typically be doing the same kind of Web marketing with some 12,000 products, said Tim Armstrong, who serves Google as its president of advertising and commerce for North America.
This new environment, Armstrong and other Google people said, requires a very different approach. Googles answer is something called an Asset Map, a way to visually lay out every single one of a retailers assets, including all of its products and services. This, theoretically, allows a company to see not only which of their products are not covered, but to try and project some kind of return-on-investment analysis.
Armstrong argues that this is morphing ad budgets into operational budgets. Is a Google ad akin to a traditional piece of advertising—something that an ad budget should fund—or is it closer to the cost of a car dealer building a new showroom and dealership?
Google is making the argument that their auction-driven pricing model is more than a marketing cost. Google execs argue that its actually a tool to help match inventory and purchase patterns with inventory. Thats because, they argue, the variable pricing allows budgets to fluctuate with consumer interest.
In theory, that should allow better real-time information about demand, in a much more predictive way than simply examining purchases. In other words, if the number of times consumers look at ads for SUVs fluctuates in the same way during different months (or during different weather patterns), that can help influence core business purchasing decisions.
Another core change for e-commerce is the explosion of social networking and video sites—primarily launched for a younger audience—including Facebook, MySpace and YouTube (now owned by Google). These sites create the potential for customized, focused campaigns in a way that simply didnt exist a decade ago.
Armstrong said the social networking sites caught him off-guard—”the traffic is really incredible,” he said—because he didnt initially expect search to be a factor. He saw videos as something people would merely browse. The high demand for video searches was “a very nice surprise.”
Then theres the mobile movement, which places limits on ads (minimal screen size, less RAM and much slower bandwidth) but also opens up possibilities by being with a consumer at all times, and including very precise location information.
Page 2: Whats Next for Google
Whats Next for Google
On mobiles potential, Armstrong said, “Every phone gets an individual ad, built on the fly.”
All of these factors combine at a time when consumers and businesspeople are becoming much more comfortable with Web searches. “People are getting much more sophisticated about how they search,” Armstrong said, pointing, for example, to significantly longer average search queries. And the process of guessing what search terms people will use is getting more complex. The word “iPod,” for example, is searched for using any of 7,000 words.
The biggest challenge in the near term for Google, though, is privacy. Googles current policy, for example, forbids the use of third-party cookies, said John McAteer, Googles head of retail. Thats an unusual stance to take for a company that is typically seen as pushing the privacy envelope.
In search engine ad placement, there are two traditional ways to sell ads. The first is contextual, where ads look at the page where its to appear, and behavioral, where it looks at who the site visitor is and potentially that surfers recent traffic.
Googles self-imposed ban on third-party cookies would presumably take it out of the behavioral game, but non-cookie techniques are being explored. For that matter, all policies can be reviewed and amended.
In theory, an advertiser should find behavioral ad placement more effective. After all, the reason the contextual ad is placed on a certain page is because of the kind of people likely to read such a page. A behavioral search could be more precise about delivering to those prospects, regardless of what pages they felt like visiting.
To read about why one legal watchdog has targeted Google for piracy on Google Video, click here.
But even behavioral cookies are not perfect, as people can accidentally hit irrelevant pages or perhaps are looking to buy a one-time gift for someone with very different tastes. The only ideal approach is to use both techniques simultaneously.
Although the mobile phone offers the most specific geographic targeting potential, Google is experimenting with IP addresses and search terms to try and deliver very geographically localized ads. Using IP addresses to identify location is about 85 percent accurate today, said Brett Goffin, a Google industry sales manager in retail.
Many things account for the 15 percent that is inaccurate, such as broadband ISPs whose locations appear instead of the address of the person surfing. Theyre often close, but not precise. Certain domains—such as AOL.com—are notorious for giving little hint as to a members location. VPNs also can wreck havoc with IP address location accuracy.
There are still some sites that strongly suggest location, such as TV station Web sites, weather sites and the wording of the searches themselves (“furnishings in Austin,” for instance).
The amount of time people spend on the Web today is roughly equivalent to how long they watch television, McAteer said. Mixed in with all of that Web traffic are some 8 billion searches a day, he said.
There is little doubt that the biggest potential impact on Web advertising will be merged channel retailing. McAteer argues that retailers have only begun to see the evidence that online ads can affect brick-and-mortar sales.
An explicit example are sites that allow coupons to be printed and then brought into the stores. The retailer can track how many times those ads are printed (showing presumed interest) and how many times they are redeemed.
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Retail Center Editor Evan Schuman can be reached at [email protected].
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