The dirty little secret behind Google’s business model

Posted on April 29, 2010 by Ian Betteridge

Marco.org – The ad delusion:

“You can’t really blame them. A portion of Google’s business depends on the delusion that their “AdSense for Content” ads the ones you see on blogs, not Google’s search results are good most of the time. The rest of the internet knows that they’re usually crap, but at least Google’s employees and leaders need to believe in them.”

And that, in a nutshell, is why Google is actually a lot weaker than many people imagine. It’s business model is founded on a fantasy: That contextual, text advertising is the most effective model. Sure, it owns DoubleClick (and now AdMob) so it’s diversified into other kinds of ad – but contextual is a massive chunk of its revenue.

It’s becoming more and more of an irritation to advertisers. Virtually every company I’ve spoken to of late has spent more time rolling their eyes in frustration over keyword ads than talking of how great it’s been for their business.

Advertising is changing. Not dying – changing. And the big question is whether Google has bet correctly on which way it’s going, or not.

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  • Sam Needham

    How about reading that paragon of tech journalism, The Independent, for some actual reporting, some actual numbers? Like, what proportion of Google’s revenue is on its own sites (paid search etc) vs 3rd party contextual (Adsense for content, Doubleclick etc) ?

    http://www.independent.co.uk/news/business/analysis-and-features/google-juggernaut-rolls-on-1947316.html

    “Google makes almost all its revenue through online advertising. Ads on its sites generated $4.4bn (£2.9bn), up 20 per cent year on year. Those it placed on third-party sites for clients generated $2bn (£1.3bn), up almost a fifth”

    Google makes 69% of its advertising revenue from its own sites, a ratio which is rising and has been (rapidly) for several years. I’d look up the numbers, but rather like you, I can’t be bothered.

    Google’s business model is “founded on a fantasy”? Even taking out *all* 3rd party revenue still leaves quarterly revenues of $4.4bn, rising 20% y-on-y. That’s the kind of fantasy I like.

  • http://microinformation.wordpress.com martin

    i’d rather think, that advertising itself is the fantasy here and that it really *is* dying. that is: paying money for publishing “ads”. what will be coming after ads? nothing that will replace this business model, i’m afraid.

  • Ian Betteridge

    Sam, you’re missing the point: Ads on Google’s own properties are also contextual, especially of course search. But contextual advertising is getting, well, less contextual and more useless. There’s a good reason that Google has been upping the priority of advertising on its results pages – the click throughs have been declining.