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November 10, 2006

Some Questions About Google's Radio Plans

Google (NasdaqGS:GOOG) has said for some time now that they will be entering offline media, including the radio advertising space, as part of their vision of "organizing the world's information". They presumably began their radio efforts with the purchase of dMarc Broadcasting back in January of 2006.

In a recent CNN article, Google spokespeople revealed that they're hiring a radio sales force and intend to test a "Google Audio Ads" offering by the end of this year.

The CNN article also provides support for a rumor that Google is in talks to buy $1 Billion in radio advertising inventory from Clear Channel.

Basically, it looks as though Google will use its cash on hand to buy $1 Billion in radio advertising inventory at a huge discount, and then re-sell it via its radio sales reps using a system similar to the current Adwords system used for buying online search advertising. The article cited a source who says that Google is paying its new radio sales reps 50% more than what a typical radio sales rep makes.

In previous comments, Google has indicated that it intends to make radio advertising accessible to advertisers who only want to spend $200, because the minimum advertising budget for entering radio advertising is $20,000. We can tell you that the $20,000 figure is very high. In fact, depending on what an advertiser wants to accomplish, a $200 schedule is certainly doable - today, prior to Google's entry into radio.

Google spokespeople declined to elaborate on their Google Audio plans.

Here are the questions about Google's moves that most vigorously jump out at us:

- What is Google's pricing plan for the inventory it buys at a discount? Do they intend to sell it at similar prices as the media outlets? Or at a discount? If it is at a discount, then how will they make money when they're paying their sales reps 50% more than is typical?

- When Google buys this $1B in advertising inventory, will they be getting prime inventory, or all weekends and overnights?

- How will Google not be competing against the company (or companies) from whom they buy the discounted inventory?

- Assuming Google offers its inventory at prices that are lower than the media outlets themselves, and that this is where they're primarily adding value, will they also provide reporting and campaign management that is necessary to properly establish, manage and grow a radio advertising campaign profitably? Will Google be working with radio advertising agencies who have the time and infrastructure and know-how for managing radio campaigns well? Or, if they plan to work directly with clients, are they assuming that clients have the time and know-how to manage radio campaigns? Anyone who has seen Google's Adsense reporting can attest to the fact that it can easily be information overload for the layperson. And anyone experienced in building successful radio advertising campaigns knows that success requires much, much more than just low cost advertising.

Many have come before Google with the intent of revolutionizing the radio industry. None have succeeded, including dMarc prior to the Google acquisition. We understand and applaud Google's efforts to diversify its source of revenues beyond search advertising. Google's ambitious plans make it an awfully exciting time in the advertising business, and no less so for those of us in radio advertising. We're eager to see how Google's initiatives shake out.

Posted by Jeff Small & Brett Astor at 05:26 PM | Permalink