Google control system part 1 mobile

Google’s System to Control Advertising Inventory on Multiple Platforms

Examples of Company Practices with Supporting Facts and Data

PART 1: MOBILE

Simon Buckingham

April 14th, 2010

PRIVATE AND CONFIDENTIAL

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Background

- Simon Buckingham is a New York based Internet and Mobile Entrepreneur- Founder and CEO of 3 companies

- Simon has spent nearly 20 years in the mobile industry since starting at the carrier group Vodafone in 1991 where he launched SMS text messaging and its business partner programs

- Perspective is as an advertiser and customer of Google in the US and globally spending significant sums on digital marketing to raise awareness and drive sales of our products and services

- Google has been not just a tool and a supplier with keyword search (AdWords) but also our ad agency for digital, TV and print inventory buying

- Have been generally happy working with them until I read a blog post in December 2009 which mentioned they had extended ad campaigns to run on smartphones which I wasn’t aware of. This led me to research Google’s mobile extensions and led ultimately to the production of this presentation

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Google’s Economics

– Google’s economics revolve around a bidding/ auction system to sell inventory that is based on keywords and driven by Cost Per Click (CPC) charges to advertisers

– Because there are a finite number of premium keywords but a potentially unlimited number of advertisers, Google is incented to increase the size and liquidity of the advertiser pools where bidding occurs for different keyword auctions so that the Cost Per Click (CPC) rates increase

– Our analysis leads us to believe that in order to keep growing its business, Google needs to continuously but gradually introduce new ways to:

- Reduce the blended cross-program Click Through Rates (CTR) that advertisers see over time but only gradually so as not to cause too much advertiser dissatisfaction

- Increase the overall blended Cost Per Click (CPC) costs but gradually in a managed way over time so as not to cause too much advertiser fallout

– Google maximizes revenues by selecting the most expensive ad in real time every time a page loads. The bids for that ad inventory come in from a large pool of advertisers comprising not just AdWords advertisers but also other competing ad networks and buyers who have access to the AdSense ad space through the DoubleClick Ad Exchange etc., pushing advertisers down the list of search results and necessitating higher bids to maintain the same positions in paid search listings and visibility above the fold on Google’s search results page

– Google’s large acquisitions such as DoubleClick and its proposed acquisition of AdMob enable Google to maximize the revenue it earns from advertisers by aggregating advertiser pools and gain new inventory by extending their campaigns to the new platforms of display and mobile respectively

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Google’s Strategic Direction and System

We believe that Google has developed a system of automatic program and platform linkages, opt-ins and extensions that are opaque and costly for their advertisers. These systems are designed to extend Google’s Internet search dominance into commerce, advertising and apps on the Internet and mobile platforms, giving them disproportionate control of advertising inventory on multiple

platforms:

Mobile Internet Advertising, commerce and Apps

Together Google and AdMob would have an estimated 75% of the in-app mobile advertising market (whilst Google’s program is still in beta and with no ads in most of its own apps.

Unlike the Internet, Yahoo and Microsoft have no presence in the in-app ads space

Internet Advertising System

Google’s Product Set allows for complete coverage and control of Internet advertising. Products include AdSense, AdWords, DoubleClick, Mobile, Checkout, Search,

Nexus One, Android, YouTube, Gmail, Affiliate Network, New separately auctioned Search Products (Sitelinks, Product Ads, Local/ Map Ads, Comparison Ads)

Largest single provider of Advertising and Audience on the Internet

Desktop Search and Keywords

Estimated 75% Market Share

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Inception of Google’s SystemInception of Google’s System

Our analysis indicates Google began employing the system it uses to extend its business of creeping ad inventory by migrating and aggregating advertisers to new products nearly 8 YEARS ago whilst the company was still Google Technology, Inc. and a year before its IPO:

– On June 18th, 2003, when Google AdSense was launched, it appears that all AdWords advertising campaigns were automatically opted into the new program

– Ad campaigns designed and set up in AdWords for Google’s own site and search network were suddenly automatically opted into and appeared on the new AdSense content network which included tens of thousands of blogs and personal websites that were running AdSense

– Advertisers paid dearly as suddenly their ads started turning up on a vast array of different sites that they hadn’t planned for or vetted. As well as increased administrative overhead, advertisers have told us that this change resulted in significantly higher levels of Click Fraud as some of the site owners who had signed up as AdSense publishers clicked on the ads on their sites to generate income for themselves which the advertisers paid Google for

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Automatic Program Extensions

Google has built a system that includes regularly launching new programs, services and features and:

– Automatically opts its advertisers and customers into them

– Retroactively alters all advertiser’s existing campaigns to reflect these new programs irrespective of whether those ad campaigns were designed for different programs, targets and audiences

– Does so without the explicit consent of their advertisers or email notifications to them. The onus is squarely on users of Google’s services to be ever-vigilant to the opaque introduction of these new services. Google opts its customers in and then backpedals later if they are found out- refunding only those advertisers that notice that their campaign settings have changed and take the trouble to ask for a refund- leaving Google with significant extra revenue and profit from those who don’t notice or request

– Google bundles together different products and programs across multiple media; for example, Google’s Search Network (own sites) and Content Network (third party sites), Internet and mobile, publishers and affiliates- when their management knows they are not the same from either an ad quality or engineering perspective

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Automatic Extension of AdWords to Mobile

On 8th December 2008, Google extended their Internet products to the mobile platform simply by changing the default campaign settings for AdWords from Desktops and Laptops to Desktops, Laptops and mobile devices with full Internet browsers (smartphones), and this has remained the default ever since. The default AdWords campaign setting of “All Available Devices” which is “Recommended for new advertisers”. You must click on the “?”do you learn that “Desktop and Laptop Computers: Formerly the default setting for campaigns”:

Google not only changed the default for new AdWords campaigns to automatically include smartphones, it also retroactively altered the campaign settings for all active AdWords campaigns to run across both platforms populating smartphone ad inventory with those campaigns

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This change ignored the fact that the mobile and Internet platforms are very different:

– Unlike Internet browsers, smartphone Browsers do not support the Adobe Flash format that many ads and websites use

– Smartphone screens are small in size and websites are typically not designed optimally for viewing on mobile devices

– Google itself recommended to advertisers in an AdWords blog post to “Put your call to action in a spot on your landing page that's easy to find. Keep in mind that it's a bit more difficult to navigate websites on a mobile device, so consider shortening your checkout process” (but not until December 10th 2009, a year after the smartphone campaign extensions were introduced)

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There is a marked difference in both the presentation and results from a Google Search for “GPS” on a Laptop compared to a Smartphone:

Searches conducted on 11/ 12th April 2010

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Launch of AdSense for Mobile Apps Program

On June 29th 2009. Google launched its AdSense for Mobile Applications in-app advertising program with the Beta designation. The program has remained in beta for nearly a year. Even in Beta, Google has signed up many top mobile app developers including National Public Radio, Concentric Sky, Textplus, Twitteriffic and Craigsphone. Google lists some of the other app developers it serves in-app ads for on its program page:

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Automatic Extension of AdSense to Mobile

On October 5th 2009, Google extended its AdSense programs to high-end mobile devices (smartphones). Google would now automatically detect and run a larger ad optimized for high-end mobile devices, creating and populating yet more new inventory:

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Automatic Extension of Checkout to Mobile

On January 10th 2010 for the Nexus One launch, Google automatically extended its Checkout payment service from Internet ecommerce stores to mobile transactions and commerce. Transaction fees for the Checkout payments program are linked to usage of the unrelated AdWords advertising program. When consumers browse a Checkout supporting website on their mobile device, they see the Checkout logo, after which they are automatically directed to the mobile version of Google Checkout:

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Automatic Extension of YouTube ads to Mobile

In March 10th 2010, Google changed the default YouTube Internet ad campaign settings to automatically run the mobile version of its website:

Information about this new ad program was published not on the Google YouTube Blog or the Google Mobile blog, instead it could only be found on the YouTube Business Blog

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Automatic Extension of YouTube ads to Mobile

In a test ad campaign on YouTube, mobile wasn’t mentioned at all during set up. After activating the campaign, it was necessary to go into “Edit your video” and at the bottom left corner click on “Syndication” where you can opt out of the ad showing on mobile and TV:

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Automatic Extension of AdWords to the iPad

On April 2nd 2010, automatic serving of AdWords campaigns to the iPad goes live (the day before the device shipped to consumers). This was an extension to yet another platform.

The iPad is considered a separate platform that is a hybrid device between a smartphone and a netbook computer.

Google can and is delivering its ad programs to new Apple devices and platforms.

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Automatic Extension of Site Search to Mobile

On April 6th, 2010, Google announced that any enterprise that uses the Google Site Search product on their website on the Internet will automatically now have site search with the same features when that website is visited from a mobile device:

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Expanding Google Mobile Apps Portfolio

In fact, Google has rapidly created mobile versions of its Internet products and services and extended from the Internet to mobile platforms at an accelerated rate:

Of the 22 apps listed here, the following four are the most popular and pre-installed on smartphones and mobile devices: Google Mobile App, YouTube, Maps and Search. With the exception of Google Search, these apps have not yet been fully rolled out with in-app advertising

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Google’s Mobile Vertical Integration

•Checkout•AdSense

•AdWords

Display

and Text

•Calendar

•Search

•YouTube

•Gmail

•Voice

•Maps

•Image

Search

•Enterprise

•Android Market

•GoogleOnline

Store for Phones

and

Apps

•Predictive Text

•By Voice

•Local/ Maps

•Augmented

Reality

(Goggles)

•Chrome

•Device OEMS

•Mobile

Browsers:

OperaSkyfire

•Carriers

•Tablets

•E-Readers

•Set top boxes

•Nexus One

•Droid

•etc.

•Open Handset

Alliance/

Android

Platform

•ChromeOS

PaymentIn App

AdsApps

App

StoresStoreSearchBrowsersDevices

Operating

Systems

As a result, Google is highly vertically integrated across every part of the mobile industry value chain to a degree that it never achieved in the Internet market:

By comparison, Apple does own or operate several key parts of this mobile advertising ecosystem- it does not license its operating system to external companies, it does not have its own browser or search engine (Google is the default search engine for all of Apple’s devices) and doesn’t own and operate such a range of popular apps and destination sites. Apple’s mobile advertising acquisition (Quattro Wireless) has a much smaller share of the in-app advertising market. The acquisition is primarily defensive to protect itself against Google. With the announcement of iAd, Apple’s acquisition has already become focused on ad serving for an increasingly closed ecosystem serving only Apple devices. Google on the other hand will simply proliferate both its search engine and apps on more and more devices and platforms as the free open source Android platform is deployed on more and more devices and device types

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Implications

Advertisers pay dearly when an ad that is designed for the Internet is automatically served on a smartphone. For example, a Lexus banner ad on the start up page of the ESPN Score Center iPhone app on Saturday March 6th 2010 led to an error message due to the non-support of Flash on the smartphone. Clicks on the same ad on a PC browser however preserved the intended Flash based experience. Irrespective of whether the ads deploys properly, the advertiser pays for the click that leads to this ad.

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Implications

The process is not seamless for advertisers as stated by Google: “Note: We may truncate ad text when displaying ads on high end mobile devices”:

It’s the advertiser who is left with the responsibility of sorting out what copy works on which devices and platforms. However, beyond this note, Google provides no specific information on which devices truncate ad copy or what length of messages will appear on which devices

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Implications

- Given its dominance of web search traffic, Google has been able to repeatedly increase the advertiser pool for a given search term by linking its programs on the Internet and extending those programs to mobile mostly without the advertiser’s knowledge or consent

- In the case of mobile extensions, advertisers who were interested in mobile results were bidding against Internet advertisers whose ads were suddenly appearing on mobile devices because the Internet advertisers were automatically opted into mobile and were therefore unknowingly serving ads to mobile devices

- Since fewer ads are displayed on mobile devices due to small screen sizes, competing with the newly enabled Internet advertiser pool pushed mobile advertisers down the list of search results, necessitating higher bids and CPC maximums to get the same traffic. All advertisers whether they wanted to only target desktops and laptops or target mobile devices only for services both ended up paying Google more for clicks

- Advertisers are unlikely to notice that they were paying for mobile visitors because they have apparently been getting inaccurate mobile visitor tracking data from the Google Analytics tool that is built into Google’s ad products. This is because Google’s standard analytics packages use JavaScript technology for counting clicks which works on the Internet. However, since this technology format isn’t widely supported on mobile devices, it causes some mobile phones to crash, meaning the click may not get counted at all. One digital advertising specialist tested Google Analytics side by side with a specialist mobile analytics package and found that it only tracked 12% of the page views that a specialist mobile analytics package that didn’t have the JavaScript issue counted (http://www.brysonmeunier.com/mobile-analytics-with-google-analytics/)

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Lack of Information Transparency

It is a very opaque process to find out the important information needed to understand these program extensions and linkages, probably by design. There are at least 114 separate blogs are listed in the Google Blog Directory (as of 9th April 2010). Distributing pertinent information across so many different blogs serves to make it difficult for advertisers and others to discover key information about new programs and changes that impacts them since there is no central location for this information:


Broken Link when requesting more information about the change in campaign serving default settings:

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The first 6 months of data necessary to compare clicks, impressions, CTR [Click Through Rates] and other performance metrics for Internet vs. high-end mobile devices between the introduction of the new mobile default campaign targeting option on December 8th 2008 until June 3rd 2009 such there was no way assess or split how the addition of the mobile targeting was performing:

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Because of the lack of information transparency, advertisers need to spend an inordinate amount of time overseeing changes that Google makes to its programs. For example, we run mobile campaigns but didn’t know that our Internet campaigns had been running on mobile devices until passing reference was in the fourth paragraph of a blog post made a year after the policy introduction:

“With this new option, you’re opted-in to show ads on the G1 and iPhone, and you’re also eligible to show on additional devices that use full Internet browsers as these devices enter the market”.

“If you currently have an AdWords campaign running, by default your campaign will show ads on desktop and laptops computers, as well as iPhone and G1”.

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Contravention of its own Ad Program Terms

Google’s Advertising Program Terms governing all advertising programs include the following statements:

“Customer is solely responsible for all: (a) ad targeting options and keywords (collectively "Targets") and all ad content, ad information, and ad URLs ("Creative"), whether generated by or for Customer; and (b) web sites, services and landing pages which Creative links or directs viewers to, and advertised services and products (collectively "Services"). Customer shall protect any Customer passwords and takes full responsibility for Customer's own, and third party, use of any Customer accounts.”

With respect to AdWords online auction-based advertising, Google may send Customer an email notifying Customer it has 72 hours ("Modification Period") to modify keywords and settings as posted. The account (as modified by Customer, or if not modified, as initially posted) is deemed approved by Customer in all respects after the Modification Period.

Google retrospectively altered the ad targeting to include smartphones when they changed the default campaign settings which the customer should have been solely responsible for. Google also infringed the advertiser’s sole right to set all ad content and information given that Google states that “We [i.e. Google} may truncate ad text when displaying text ads on high end mobile devices.”(https://adwords.google.com/support/aw/bin/answer.py?hl=en&answer=107264)

Additionally, Google did not send us as the Customer an email giving us 72 hours to modify the settings back to the default settings we had set our campaigns up to target. Furthermore, given that we did not modify our account settings, the account should have remained as initially posted

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In Conclusion

– Google built a Internet business that allowed them to control the majority of advertising inventory on the web. Google has been able to leverage better returns from its Internet search dominance for a few different reasons:

- Google’s first act to create a way to index and rank the vast array of content on the Internet was brilliant and innovative which caused a lot of consumers and investors to admire and even revere the company and its founders (myself included)

- The laissez faire regulation free environment during the eight years of Bush Junior’s Republication Administration coincided almost perfectly with Google’s exploitation of its dominant market power and acquisitions that extended that dominance from search to display advertising (via Double Click) and online video (via YouTube)

- Google avoided regulatory oversight when it came within three hours of being formally declared a Internet search monopoly in late 2008 by the US Federal Government when it withdrew its deal to take over the running of a potion of Yahoo’s online search business

- Advertiser reluctance to speak out due to Google’s dominant Internet market share, their agencies are getting 12-15% of the ad fees and are not therefore incented to complain

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In Conclusion

– Google has stealthily and systematically leveraged the same system to extend their Internet dominance to the Mobile Internet and apps

– The results have not been good for the Internet- Google has arguably been more innovative with its economic extensions than with its engineering prowess- advertisers have ended up paying more and getting less whilst Google has been by far and away the leading beneficiary

– The Black Box has become the Black Hole

– The mobile internet and apps industry is still nascent and because marketing and advertising of these new services is so critical, competition and innovation needs to be protected so that the inventory doesn’t get controlled and leveraged through Google’s system

– Google should not be allowed to do the same in the mobile world and at the very least, the AdMob deal needs to be blocked- Google does not need help extending themselves to mobile-allowing the AdMob deal will just give them an unassailable advantage and dominant control of mobile ad inventory

– If the acquisition is approved, Google will have a dominant position in digital advertising on both ends of a converging Internet, as well as in the middle where the hybrid devices such as eBook Readers, tablets etc. are, thanks to the Android and Chrome operating systems

– The implications will be even more severe as Google will get to collect and leverage even more search data including the geo-location information to target more localized ads and services to consumers and enterprises

– Federal regulators are the only agencies that have the power to stop this monopoly

– This is a unique moment in time to influence how business is conducted in the digital world of the future

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Contact Details

Simon BuckinghamAppitalism, Inc.909 Third Avenue28th FloorNew YorkNY 10022

o: 212-451-9854 m: 917.573.6067

e: [email protected]

w: http://www.appitalism.com

Feel free to contact me with any Questions or Comments on this presentation: