Speaker 1: Welcome to tech Stuff, a production from iHeartRadio. Hey there,
Speaker 1: and welcome to tech Stuff. I'm your host, Jonathan Strickland.
Speaker 1: I'm an executive producer with iHeart Podcasts and how the
Speaker 1: tech are you. I've often said that Google is not
Speaker 1: a search engine company. It's an advertising company. And of
Speaker 1: course these days, when I say Google, you could argue
Speaker 1: that I really mean Alpha, that you know, the parent
Speaker 1: company that owns all the various Google companies. But to
Speaker 1: be clear, I am not the only person who says this, right,
Speaker 1: I don't mean to say that I'm some sort of
Speaker 1: guru who I did not come up with it. I'm
Speaker 1: not the first person to say it. I also say it.
Speaker 1: That's all. I agree with those who say this. But
Speaker 1: here's something that I find interesting. So, once upon a time,
Speaker 1: Google was a search company. It was not an advertising company.
Speaker 1: In the very early days, Google didn't generate revenue through advertising.
Speaker 1: So let's set the clocks back quite a bit. In
Speaker 1: nineteen ninety five, a guy named Larry Page was mulling
Speaker 1: over the idea of enrolling in Stanford University in order
Speaker 1: to go to grad school. He was at the campus
Speaker 1: in order to get the lay of the land, and
Speaker 1: there was a student who was assigned to him to
Speaker 1: show him around, a Stanford student named Sarah gay Brinn,
Speaker 1: and the story goes that the two got along kind
Speaker 1: of like oil and water. They apparently didn't agree on
Speaker 1: practically anything, but a year later, when Larry Page was
Speaker 1: in the graduate program, the two decided that they would
Speaker 1: work together on what would turn out to be a
Speaker 1: truly huge project. So their goal was to build a
Speaker 1: new kind of web search engine. So at the time,
Speaker 1: the dominant search engines that were still working off the
Speaker 1: very young Worldwide Web primarily used keywords as their guide.
Speaker 1: So you would pop into a search engine. The one
Speaker 1: I used all the time was web Crawler, but there
Speaker 1: were lots of them, and you would type whatever it
Speaker 1: was you were searching for, like let's say it's the
Speaker 1: word tractor, for example. The search engine would return results
Speaker 1: of web pages that featured that keyword somewhere in the page,
Speaker 1: and they might have different ways of prioritizing the web pages.
Speaker 1: Maybe if the keyword appears in the title of the page,
Speaker 1: it might rank higher.
Speaker 2: That kind of thing.
Speaker 1: But the problem was there was never a guarantee that
Speaker 1: the search results you got would actually be relevant to
Speaker 1: the search query that you put in. They might include
Speaker 1: the search term, but it may not turn out to
Speaker 1: be useful. Maybe the page just mentions tractors off handedly,
Speaker 1: like as a joke or as a reference, and it's
Speaker 1: not actually about tractors, it just happens to have the
Speaker 1: word tractors in it. Or maybe it's a web page
Speaker 1: run by a real scumbag who just crams the bottom
Speaker 1: of the page with a ton of random keywords, ones
Speaker 1: that they've determined are really popular, and it's on an
Speaker 1: effort to capture as much traffic from search engines as possible.
Speaker 1: They don't care that this isn't what you were looking for.
Speaker 1: They just want to get you onto that page. The
Speaker 1: search experience could be really a frustrating one. It often
Speaker 1: involved users going to a page, taking a quick look,
Speaker 1: saying oh, this isn't what I need, backing out, and
Speaker 1: then doing it all over again. And it wasn't very
Speaker 1: satisfying or helpful page. And Brend wanted to create an
Speaker 1: engine that would return much better search results.
Speaker 2: So how would you do that?
Speaker 1: Well, their solution was to take a broader approach to search.
Speaker 1: Their search engine would assign a rank a page rank
Speaker 1: if you will to each result, and higher ranks would
Speaker 1: appear higher in the search results page and lots of
Speaker 1: factors would go into determining what page rank a page
Speaker 1: would receive. For example, let's say that you've got a
Speaker 1: web page and you notice that there are tons of
Speaker 1: incoming links pointing to this web page. Well, that could
Speaker 1: end up being a boost to that page's rank, because
Speaker 1: the thought is, if a lot of other web pages
Speaker 1: are pointing to this page, it must be good, right,
Speaker 1: if you've got a lot of different pages. Of course,
Speaker 1: you can game that too, right, You could create a
Speaker 1: whole network of pages that just link to each other
Speaker 1: in an effort to try and boost page eranks. So
Speaker 1: another part of this ranking system would take into account
Speaker 1: the quality of those incoming links, the idea being well,
Speaker 1: if the incoming links are coming from really established websites,
Speaker 1: maybe they belong to a known entity like an important company,
Speaker 1: or maybe it's a web page that has been around
Speaker 1: for a while and has sort of proven itself, any
Speaker 1: links that that page has are going to be worth more.
Speaker 1: Plus those pages themselves, the ones that been around or
Speaker 1: from known entities, those would have a higher rank because
Speaker 1: they were thought of as just being higher quality. Now,
Speaker 1: this is just a couple of examples of factors that
Speaker 1: would determine a web page's page erank.
Speaker 2: As it turned out, there were.
Speaker 1: Lots of them, and the formula would change frequently, and
Speaker 1: it was always kept secret so that pages couldn't try
Speaker 1: to game the system. Although they didn't stop anyone from trying,
Speaker 1: it just meant it was hard to do because you
Speaker 1: didn't exactly know which factors were the most important. The
Speaker 1: PageRank approach meant that you were far more likely as
Speaker 1: a user to come across a search result that was
Speaker 1: relevant to whatever it was you were actually searching for.
Speaker 2: Now.
Speaker 1: Originally, the pair called their search engine BackRub. I think
Speaker 1: we could all agree that it was a fortunate thing
Speaker 1: that they decided to change the name to Google. The
Speaker 1: two received a healthy one hundred thousand dollars check from
Speaker 1: an investor in nineteen ninety eight, and they launched Google Incorporated,
Speaker 1: and for the first couple of years, Google existed primarily
Speaker 1: off of influxes of cash coming from investors. Everyone could
Speaker 1: recognize that Google was providing a valuable service, one that
Speaker 1: was becoming increasingly important as the web was getting more
Speaker 1: complex and larger, and it was doing so at a
Speaker 1: level that really set Google apart from the competition. Google
Speaker 1: was quickly making a name for itself as being the
Speaker 1: best of the web search engines at that time, but
Speaker 1: investors were also starting to get a little concerned, and
Speaker 1: the reason for that was that the powerful Google search
Speaker 1: engine didn't have an equally powerful way to generate revenue.
Speaker 2: Now.
Speaker 1: Initially, one strategy was to try and form partnerships with
Speaker 1: portal sites. And these were websites that acted kind of
Speaker 1: like a homepage, like this is the page that you
Speaker 1: would see when you started up your browser. This was
Speaker 1: kind of a gateway to the rest of the web.
Speaker 1: They might host a few articles. Maybe some of those
Speaker 1: articles were written in house by an editorial staff that
Speaker 1: worked for the website. Maybe some of the articles were
Speaker 1: really generated by a third party and they were just
Speaker 1: being linked to on this landing page. And many of
Speaker 1: them would also include a search tool. So Google would
Speaker 1: try and make deals with these different sites to be
Speaker 1: that search tool. But Google with small potatoes in those days,
Speaker 1: so these deals were few and far between, and they
Speaker 1: certainly weren't enough to make Google look like it was
Speaker 1: going to be arousing success financially, So clearly Google would
Speaker 1: have to come up with a different approach if the
Speaker 1: company was to stay in business, and someone else had
Speaker 1: to come up with an idea that, with a little tweaking,
Speaker 1: would work just fine, and then Google would take that idea.
Speaker 1: To say they stole it would probably be too harsh,
Speaker 1: but they certainly emulated an idea that someone else came
Speaker 1: up with for a totally different site. Now that's someone
Speaker 1: else was a guy named William Bill T.
Speaker 2: Gross.
Speaker 1: He graduated from the California Institute of Technology with the
Speaker 1: degree in mechanical engineering, which would not make you think
Speaker 1: of someone who would go on to create a web
Speaker 1: search engine, but he became known as something of a
Speaker 1: serial entrepreneur. He would launch lots of different companies across
Speaker 1: his career as soon as he was graduating, essentially, including
Speaker 1: a video arcade and a couple of software companies, and
Speaker 1: an audio equipment company and more. But in the late nineties,
Speaker 1: Gross wanted to solve the same problem that Page and
Speaker 1: Brinn had been working on or would be working on, actually,
Speaker 1: because Gross's solution would come out first. He wanted to
Speaker 1: be able to create a search engine that would return
Speaker 1: better search results than a lot of the competitors that
Speaker 1: were on the market. But he took a different approach
Speaker 1: from what Brin and Page were looking at. So instead
Speaker 1: of building out a system meant to assess the value
Speaker 1: of every page that's on the Internet, he figured he
Speaker 1: could deliver better search results by having companies pay him
Speaker 1: in order to have their search result rank higher on
Speaker 1: the list. So here's the basic idea. Now, as I
Speaker 1: mentioned earlier, one of the big problems with early search
Speaker 1: engines is that a lot of web administrators were trying
Speaker 1: to game the system. So it really wasn't unusual for
Speaker 1: web designer to just stuff a page full of keywords
Speaker 1: that didn't actually apply to the page's content itself. So
Speaker 1: clever designers would do this in a way that wasn't
Speaker 1: obvious to the visitor, right because otherwise you would just
Speaker 1: like I said, you would scroll down a page and
Speaker 1: you see like a word jumble of a bunch of
Speaker 1: unrelated words at the end of a page, and it
Speaker 1: just looked like a mess. Clever web administrators would choose
Speaker 1: to make the text the same color as the page's
Speaker 1: background at the bottom, so you wouldn't even see it
Speaker 1: like it might be that the page seems unusually long
Speaker 1: with no content toward the bottom of it, but in
Speaker 1: fact there would be content. It's just it was the
Speaker 1: same color as the background, so you couldn't see it.
Speaker 2: However, while you.
Speaker 1: Couldn't see it, a search engine could. The search engine
Speaker 1: would still see the keywords there even though you wouldn't,
Speaker 1: and that's why this page that doesn't seem to be
Speaker 1: related at all to the thing you were searching for
Speaker 1: would pop up in search results. Meanwhile, you had legitimate
Speaker 1: sites out there, some connected to established brands, that would
Speaker 1: very much like to rank high in search in order
Speaker 1: to drive more traffic to their sites, but with all
Speaker 1: these junk sites out there, that could be hard to do.
Speaker 1: So they might be in a position where they're able
Speaker 1: to and willing to pay to jump to the head
Speaker 1: of the line if it meant that folks would actually
Speaker 1: find their stuff online. And so Gross launched a company
Speaker 1: called go to dot com Incorporated. His strategy included a
Speaker 1: pay per click arrangement, which is exactly what it sounds like.
Speaker 1: The advertiser agrees to pay a certain amount every time
Speaker 1: someone clicks on the ad, so typically you aggregate clicks
Speaker 1: by the thousands, so each click is really just worth
Speaker 1: you usually fractions of a penny. Gross's logic was that
Speaker 1: the garbage sites out there couldn't and wouldn't pay for
Speaker 1: positioning because their entire strategy relied on using keywords in
Speaker 1: bulk that had no application to the actual site. So
Speaker 1: if they wanted to try and do that the same
Speaker 1: way with Gross's strategy, they would have to pay for
Speaker 1: all these different keywords that didn't actually apply to them,
Speaker 1: and it would bankrupt them because people would be clicking
Speaker 1: on those sites over and over again on the search results,
Speaker 1: and they'd have to pay every time that happened, or
Speaker 1: at least every time every thousand times it happened. So
Speaker 1: you would be paying go To for all this traffic.
Speaker 1: You wouldn't be making that money back through the ad
Speaker 1: revenue you generated on your site. There's no way you'd
Speaker 1: be making more money through say, web advertising, than you
Speaker 1: were paying out to go To. So whamo, you end
Speaker 1: up with a search engine that delivers better results, or
Speaker 1: at least more relevant results. Since you can't guarantee that
Speaker 1: the entities that actually do pay for their positioning are
Speaker 1: in fact the best ones out there, but chances are
Speaker 1: there better than the junk sites. Gross launched goo to
Speaker 1: dot com in nineteen ninety eight. In fact, he launched
Speaker 1: it before Page and brend got Google off the ground.
Speaker 1: And while go to only saw modest success in the
Speaker 1: grand scheme of things, that revenue generation model stood out,
Speaker 1: and when it came time to determine a way for
Speaker 1: Google to make money, the go to became well, well,
Speaker 1: it became the go to model. So Google would introduce
Speaker 1: a pair of strategies in two thousand that would bring
Speaker 1: the company into the advertising space. Now, according to a
Speaker 1: Google SEC filing from two thousand and four, quote, in
Speaker 1: the first quarter of two thousand, we introduced our first
Speaker 1: advertising program through our direct sales force. We offered advertisers
Speaker 1: the ability to place text based ads on our websites
Speaker 1: targeted to our users search queries under a program called
Speaker 1: Premium Sponsorships. Advertisers paid us based on the number of
Speaker 1: times their ads were displayed on users search results pages,
Speaker 1: and we recognized revenue at the time these ads appeared
Speaker 1: end quote.
Speaker 2: So with this.
Speaker 1: Strategy, Google would collect a certain amount of money every
Speaker 1: time someone saw a particular ad in their search results.
Speaker 1: Clicking on the ad wasn't necessarily a requirement. Just getting
Speaker 1: the ad in front of folks was enough to warrant
Speaker 1: to the charge of the ad. As for how much
Speaker 1: the advertisers were actually paying, I saw one site where
Speaker 1: a client said their rate was around forty dollars per
Speaker 1: one thousand impressions or views, so every thousand times this
Speaker 1: ad was seen they would pay out forty dollars. And
Speaker 1: Google was rapidly rising in popularity, and when you think
Speaker 1: of all the different potential ads the company could sell
Speaker 1: against different search terms, it really starts to add up.
Speaker 1: The premium sponsorship ads would appear at the top of
Speaker 1: the search results, so the very first search result would
Speaker 1: actually be an AD, so there was a decent chance
Speaker 1: that unobservant folks would just click on the ad, assuming
Speaker 1: it was the best result for their query. Because it
Speaker 1: was at the top of the search results page. Google
Speaker 1: did have the foresight to place a shaded background behind
Speaker 1: the link, which set it apart from the actual search results.
Speaker 1: I suppose folks of the company understood that unless they
Speaker 1: made the effort to differentiate the paid advertising spot from
Speaker 1: the legitimate return results, they could get into some real
Speaker 1: trouble there with regulators like the FTC, which absolutely demanded
Speaker 1: that search engine companies make differentiation between sponsored results and
Speaker 1: search results.
Speaker 2: All Right, we're gonna talk.
Speaker 1: More about how Google did that, plus other strategies Google
Speaker 1: got into in the advertising space, but first we actually
Speaker 1: need to take a break for our own advertisers.
Speaker 2: We'll be right back, okay.
Speaker 1: So when we broke off for ads, we were just
Speaker 1: talking about how Google needed to separate their sponsored results
Speaker 1: from their actual search results, and to follow along that
Speaker 1: for a second.
Speaker 2: This is going to just be a little bit of
Speaker 2: a tangent.
Speaker 1: Over the years, Google has changed up how it tags
Speaker 1: or labels ads versus search results. So example, in two
Speaker 1: thousand and seven, the company changed the background color from
Speaker 1: being blue to yellow. In twenty ten, it went to
Speaker 1: a very kind of light green background. Actually in the
Speaker 1: example I saw it looked more teeled to me. But
Speaker 1: then it went back to yellow. And going back to
Speaker 1: yellow became kind of a thing. Over the following years,
Speaker 1: Google would experiment and changed to different colors, but would
Speaker 1: come back to yellow over and over again. In twenty thirteen,
Speaker 1: Google went with a very pale yellow, which, depending upon
Speaker 1: how your settings are on your mind or you may
Speaker 1: not even be able to see, but that same year.
Speaker 1: That was when the US Federal Trade Commission really issued
Speaker 1: a war learning to search engines in general about a
Speaker 1: quote decline in compliance end quote with those rules that
Speaker 1: all search engines were supposed to follow, that they were
Speaker 1: supposed to make it clear that certain entries were ads
Speaker 1: versus legitimate search results. So Google would end up placing
Speaker 1: an AD tag next to ads in search results to
Speaker 1: make it more clear that they were in fact advertisings. However,
Speaker 1: this AD tag actually appeared below the hyperlink text, so
Speaker 1: you'd get the hyperlink text first, and then that little description,
Speaker 1: that block of text and stuff that would describe the
Speaker 1: link that appears below it. Next to that, you would
Speaker 1: have this little AD tag. The company switched up how
Speaker 1: that looked a few times. They would use different shaded
Speaker 1: backgrounds on the tag and whatnot in an effort to
Speaker 1: comply with the rules, while you know, not complying too hard,
Speaker 1: because ideally you still get people clicking on those ads,
Speaker 1: and it's easier to do that if the people don't
Speaker 1: notice at first that it is an AD, which has
Speaker 1: certainly happened to me. I know, I've been guilty of
Speaker 1: it a few times. So I did a search just
Speaker 1: now to see what looks like these days, And depending
Speaker 1: on what I'm searching for, it may bring up different things.
Speaker 1: Like I searched for a refrigerator, and in that case,
Speaker 1: it brought up a bunch of sponsored links to where
Speaker 1: I could buy a new refrigerator. But then I did
Speaker 1: a different search and what I got were a couple
Speaker 1: of search results at the top that had the label
Speaker 1: sponsored appearing before the hyperlink. So you had a little
Speaker 1: highlighted sponsored and then the hyperlink and then the text.
Speaker 1: And I feel like that's fairly clear that it's an
Speaker 1: advertisement as opposed to just a regular search result. So
Speaker 1: props to Google in that case, because I think that's
Speaker 1: a reasonable approach. It's not beating you over the head
Speaker 1: with it, but I feel like it's noticeable. Anyway, Premium
Speaker 1: sponsorships really started Google's ad revenue journey, but as mentioned,
Speaker 1: Google's direct sales team was responsible at this time for
Speaker 1: selling that adspace, and that means that the sales team
Speaker 1: was reaching out to advertisers with this offer and trying
Speaker 1: to convince them to agree to plunk down cash in
Speaker 1: return for thousands of impressions per ad So it was
Speaker 1: a strong start, but not nearly the strategy that would
Speaker 1: propel Google into becoming one of the largest, most powerful
Speaker 1: tech companies out there. Instead, that development would wait a
Speaker 1: whole two or three months because that same year, in
Speaker 1: two thousand, Google would not just introduce premium sponsorships, they
Speaker 1: also introduced a little offering that at the time was
Speaker 1: called AdWords. So unlike premium sponsorships, prospective advertisers could actually
Speaker 1: sign up for AdWords at a link, you know, self
Speaker 1: service style. They didn't have to be reached by a
Speaker 1: direct sales representative. They would just go to a link
Speaker 1: and say, okay, yes, I want to purchase some AdWords.
Speaker 2: And that wasn't the only.
Speaker 1: Difference between AdWords and premium sponsorships. Another was that adword
Speaker 1: results appeared not at the top of search results. Instead,
Speaker 1: it would appear to the right of search results. Originally
Speaker 1: in what we used to call, or still call, I guess,
Speaker 1: the right hand rail. I just don't hear much about
Speaker 1: it anymore because I'm not in those meetings anymore, which
Speaker 1: is fine by me. But the right hand rail is
Speaker 1: you can think of that as like the right margin
Speaker 1: of a web page. So in the old web banner days,
Speaker 1: not that web banners are gone, but they certainly aren't
Speaker 1: the dominant form of advertising anymore. In the old web
Speaker 1: banner days, there were a few places where you would
Speaker 1: typically put a web banner, and you might charge different
Speaker 1: amounts depending upon the location. So the really popular one
Speaker 1: was at the top of the page, right like at
Speaker 1: the very top of the page you have a web
Speaker 1: banner ad that advertises for something, But another would be
Speaker 1: in the margins, either along the left or the right.
Speaker 1: Very rarely you might put one at the bottom. Those
Speaker 1: were often the least valuable ones, or at least the
Speaker 1: least expensive ones, because the common thought was that people
Speaker 1: just didn't scroll all the way to the bottom of
Speaker 1: the page. But anyway, the right rail is where the
Speaker 1: adword results originally would appear, So starting in August two
Speaker 1: thousand or so, searching for something on Google would bring
Speaker 1: up premium sponsorship ads at the top of your results
Speaker 1: and a couple of AdWords ads set off to the right.
Speaker 1: The AdWords ads also had a sponsored link label on them,
Speaker 1: so they did indicate to the user that they were advertising.
Speaker 1: They were not an official search result, so that label
Speaker 1: was there from the beginning. From the advertiser side, buying
Speaker 1: AdWords was pretty straightforward. The advertiser identified which keyword or
Speaker 1: keywords they wanted, They then submitted the ad and bammed.
Speaker 1: Their ad would show up wherever anyone searched for that
Speaker 1: particular keyword. It was pretty simple stuff, and of course
Speaker 1: they also paid a certain amount of money. They were
Speaker 1: kind of doing a pay per click as opposed to
Speaker 1: pay per impression, meaning that in this case, it wasn't
Speaker 1: enough that someone saw the ad, they needed to have
Speaker 1: clicked on it for it to count toward how much
Speaker 1: Google would charge the advertiser. Things held steady for a
Speaker 1: couple of years, but in two thousand and three, Google
Speaker 1: made a decision that would shake things up. They decided
Speaker 1: to phase out premium sponsorships and actually replace them with AdWords,
Speaker 1: and the direct sales angle wouldn't be necessary anymore, at
Speaker 1: least not for this, and AdWords would migrate from the
Speaker 1: right hand rail to being above the search results. So essentially,
Speaker 1: they were saying the AdWords approach seemed to be the
Speaker 1: most successful, most lucrative, the one that was giving the
Speaker 1: most satisfaction to advertisers as well as to Google, so
Speaker 1: that was what they were going to switch to. They
Speaker 1: were going to make that the dominant form of ad
Speaker 1: revenue generation. In addition, adwards clients would receive charges based
Speaker 1: on those number of clicks the ads got, Like I said,
Speaker 1: not the number of impressions, which is nice, right, because
Speaker 1: someone just seeing your ad that might not mean very much,
Speaker 1: but if they click on your ad, that's a much
Speaker 1: bigger deal. However, this also meant that Google would like
Speaker 1: the cost of those ads. They wouldn't charge that forty
Speaker 1: dollars per one thousand impressions. Now it'd be much higher now.
Speaker 1: I'm not sure how much more Google was demanding, because
Speaker 1: when I was looking at discussions of this online, no
Speaker 1: one was really giving hard figures, but based on some
Speaker 1: fairly obtuse articles from the time, it sounds like it
Speaker 1: was a pretty significant increase, and I'm sure it more
Speaker 1: than balanced out the shift from impressions to clicks. Also,
Speaker 1: in two thousand and three, Google launched ad Sense. Now,
Speaker 1: this product works within websites that belong on the Google network. So,
Speaker 1: for example, a blog on Blogger, which Google also acquired
Speaker 1: in two thousand and three, would count. It's part of
Speaker 1: the Google network. So you create a blog on say Blogger,
Speaker 1: your blog would belong to the Google network and you
Speaker 1: could enroll in ad sense. And the way ad sense
Speaker 1: works is that Google will place ads on websites and
Speaker 1: those ads will be contextually relevant to whatever the content
Speaker 1: of the site is itself. So let's say that you
Speaker 1: write a blog about travel and it's a pretty popular blog. Well,
Speaker 1: Google could serve up ads that relate to stuff like
Speaker 1: travel agencies or airlines or hotels, and it would be
Speaker 1: less likely to serve up ads about you know, I
Speaker 1: don't know, underwear or kitchen appliances. Ad Sense was viewed
Speaker 1: with some skepticism early on because a few advertisers voice
Speaker 1: concerns that a consumer would be far more likely to
Speaker 1: act on an AD if they're actively searching for information
Speaker 1: through a web search rather than if they are just
Speaker 1: casually visiting a website, Because, as it would turn out,
Speaker 1: ad sense would end up making Google a hang on,
Speaker 1: let me let me look up this figure. Yeah, a
Speaker 1: butt load of money. So this was a really popular
Speaker 1: offering once you get past the initial launch phase, and
Speaker 1: content creators get a cut of that cash. By the way,
Speaker 1: so choosing to monetize a site means the person creating
Speaker 1: the content gets some of that money. Google gets some
Speaker 1: of it and the advertisers get eyeballs. It's not that
Speaker 1: different from the way advertising works on YouTube, which no
Speaker 1: big surprise, you know Google owns YouTube as well, right Like,
Speaker 1: you can choose to monetize your channel and you get
Speaker 1: some of the money from the commercials that run on
Speaker 1: your channel, and Google gets all the rest of it.
Speaker 1: So very similar in that way. So Google was officially
Speaker 1: in the ad business starting in two thousand, really ramping
Speaker 1: up by the end of two thousand and three. Beginning
Speaker 1: of two thousand and four. In two thousand and six,
Speaker 1: it tried an experiment. Google made a proposal to newspapers
Speaker 1: in the United States suggesting that Google would offer Internet
Speaker 1: based clients the chance to bid on unsold newspaper ad space,
Speaker 1: So the newspapers would be able to sell inventory that
Speaker 1: otherwise would just go to way, and the ad clients
Speaker 1: would potentially reach a new audience that traditionally they might
Speaker 1: not have because they just weren't in the newspaper advertising business.
Speaker 1: So around sixty six newspapers agreed to the pilot experiment.
Speaker 1: Google would put up the ad space for each newspaper
Speaker 1: and then open it up to bidding, and around one
Speaker 1: hundred different advertisers would compete with one another to bid
Speaker 1: on that ad space, and so the winning bid would
Speaker 1: fork over the cash and then place whichever ad they
Speaker 1: wanted in that slot. Google said the experiment was a
Speaker 1: smashing success, but newspaper said, we're not really sure how
Speaker 1: this really benefits us just yet. It seemed really good
Speaker 1: for advertisers and their clients, It seemed great for Google,
Speaker 1: but newspapers weren't totally sold on it. In fact, The
Speaker 1: New York Times said that their plan was to forge
Speaker 1: relationships with these smaller advertisers and ultimately to create a
Speaker 1: direct relationship with them, eventually cutting Google out of the equation,
Speaker 1: and that they were very upfront about this, like it
Speaker 1: wasn't even on the slide. They're like, no, this was
Speaker 1: our plan, We've told Google. Google was actually doing something
Speaker 1: similar with radio stations. Like with the newspapers, the strategy
Speaker 1: was to secure unsold ad inventory on radio stations and
Speaker 1: then auction that space off to advertisers who otherwise wouldn't
Speaker 1: have the opportunity to secure radio spots. And no big
Speaker 1: surprise here. Google would then go on to try and
Speaker 1: do the same thing with television. In two thousand and seven,
Speaker 1: Google would secure an agreement with clear Channel Communications to
Speaker 1: sell ads across their stations. And here's a fun fact.
Speaker 1: Clear Channel Communications would eventually transform into iHeartMedia, So I
Speaker 1: figured I should mention that since you know I worked
Speaker 1: for iHeart podcasts. But the radio experiment would only last
Speaker 1: for about three years because in two thousand and nine
Speaker 1: Google pulled the plug on it, and the print advertising
Speaker 1: experiment as well. The push to extend web advertising strees
Speaker 1: to the quote unquote real World appeared to be mostly
Speaker 1: a bust. It just didn't have a level that was sustainable.
Speaker 1: The initial success was really promising, but it didn't last.
Speaker 1: Fun side fact, audio ads would actually make a return
Speaker 1: many many years later in twenty twenty, but this time
Speaker 1: the audio ads were not designed.
Speaker 2: To play on the radio.
Speaker 1: Instead, they were designed to play against YouTube. The idea
Speaker 1: was that more folks were listening to YouTube content while
Speaker 1: not necessarily actively watching it. They might listen to it
Speaker 1: while they do other tasks like cooking or cleaning, or
Speaker 1: trying to find out exactly what is making that eerie
Speaker 1: whaling sound beneath the floorboards. You hear it right anyway.
Speaker 1: In twenty twenty two, Google would open up audio ads
Speaker 1: to all advertisers who wanted to take advantage of listener
Speaker 1: habits as they used YouTube to listen to stuff like
Speaker 1: streaming music or podcasts. So audio ads are back. Maybe
Speaker 1: they're just not the same thing as they were back
Speaker 1: in two thousand and six. But speaking of that, let's
Speaker 1: get back into the history of Google advertising. So in
Speaker 1: two thousand and seven, Google would introduce pay per action ads.
Speaker 1: So pay per click is a type of pay per action, right.
Speaker 1: The action in that case is clicking on the ad.
Speaker 1: The advertiser only has to pay when users take the
Speaker 1: action of clicking on the ad itself. If they just
Speaker 1: see it, there's no charge. However, that's not the only
Speaker 1: type of action you could monetize. The action could be
Speaker 1: something else. For example, maybe you set up an ad
Speaker 1: deal where you will only pay if the user not
Speaker 1: just clicks through, but signs up to say, subscribe to
Speaker 1: a newsletter, or maybe you only pay if the user
Speaker 1: will click through and make a purchase on the target site.
Speaker 1: As you might imagine, the ad rates on those types
Speaker 1: of ads can get pretty expensive because very few people
Speaker 1: in general, like in the grand scheme of things, are
Speaker 1: going to take those actions, but the ones who do
Speaker 1: are going to be very valuable. So the AD rates
Speaker 1: are going to be much higher for those kinds of actions,
Speaker 1: but at the same time, they're not going to happen
Speaker 1: as frequently as someone who just say clicks on an
Speaker 1: AD or just looks in an AD. Google also experimented
Speaker 1: with a tool that could display how many times users
Speaker 1: search particular keywords. Obviously that's really important, right, Like, if
Speaker 1: you're sitting there trying to determine which keywords you want
Speaker 1: to target for your ads, it's helpful to know which
Speaker 1: keywords are really popular versus which ones aren't. Let's say
Speaker 1: you're an advertiser representing a sporting goods company, and so
Speaker 1: you take a look to see which keywords are really trending,
Speaker 1: and you're looking at phishing rod and you see a
Speaker 1: lot of folks are searching for phishing rod, but very
Speaker 1: few are actually searching for rod and real. So if
Speaker 1: you're only going to target one of those sets of keywords,
Speaker 1: you're probably going to want to target the phishing rod
Speaker 1: one because those are the folks who are targeting more people.
Speaker 1: More people are going to see her ad because that's
Speaker 1: what most people are searching for You could argue that
Speaker 1: if more people are serious about phishing and they're using
Speaker 1: rod and Real, maybe you want to target that one instead. Yeah,
Speaker 1: there are fewer people who are searching for it, but
Speaker 1: the ones who are searching are really serious about getting
Speaker 1: into fishing. There are a lot of decisions that had
Speaker 1: to be made, but in order to make those decisions,
Speaker 1: you need the analytical tools in the first place. Okay,
Speaker 1: when we come back, we're going to talk about probably
Speaker 1: the biggest change for Google's advertising strategy, or at least
Speaker 1: the most impactful one.
Speaker 2: I would argue.
Speaker 1: But before we do that, let's take another break to
Speaker 1: think our sponsors. Okay, I would argue that the biggest
Speaker 1: move Google made in two thousand and seven was a
Speaker 1: three point one billion with a B dollar acquisition of
Speaker 1: a little company called double Click. So Dwight Merriman and
Speaker 1: Kevin O'Connor came up with the idea for double Click
Speaker 1: way back in the nineties, and it had its humble
Speaker 1: beginnings as a web banner ad business. They figured that
Speaker 1: the web would give them the chance to track ad
Speaker 1: performance in a way that other media just couldn't do. Right,
Speaker 1: Like you can buy ads for television or magazines or whatever,
Speaker 1: but you're never really sure how much of your audience
Speaker 1: actually saw or paid attention to the ad that you've
Speaker 1: placed in front of them. With banner ads, you could
Speaker 1: tell how many people actually took action, right, because you
Speaker 1: could count how many people clicked on the ad. Plus
Speaker 1: you would also still know how many impressions the ad
Speaker 1: got whether anyone clicked on it or not, so you
Speaker 1: would have that information too. The co creators met up
Speaker 1: with a bunch of other folks who got involved, and
Speaker 1: they merged their idea with another company that was kind
Speaker 1: of struggling to do something similar, and they got to
Speaker 1: work and double Click forged a path by using online
Speaker 1: cookies to track user behaviors, which meant the company could
Speaker 1: do better paid advertisements. They could pair ads with specific users.
Speaker 1: So targeted advertising was starting to become a thing, and
Speaker 1: it was really onto something. Double Click was really kind
Speaker 1: of zeroing in on what the future of online advertising
Speaker 1: was going to be. So another company called Hellman and
Speaker 1: Friedman bought double Click in two thousand and five. They
Speaker 1: spent a cool one point one billion dollars, and it
Speaker 1: was from them that Google would purchase double Click in
Speaker 1: two thousand and seven for the three point one billion dollars.
Speaker 1: The FTC took a look at this deal to make
Speaker 1: sure everything was copasetic, and they said, it doesn't look
Speaker 1: like a problem to us.
Speaker 2: Now. I seriously wonder.
Speaker 1: If the deal were to happen today, if our current
Speaker 1: FTC would have objected to it, because I bet they
Speaker 1: would have. But that was not how the world turned
Speaker 1: back in two thousand and seven. Two thousand and seven,
Speaker 1: if you wanted to get a massive merger through chances
Speaker 1: are the FTC would be like, Yeah, it's fine. These days,
Speaker 1: they FTC is more like, eh, that looks a little
Speaker 1: scary to me. So double click became part of the
Speaker 1: Google Empire, and Google began to take advantage of double
Speaker 1: clicks technologies, and that would really accelerate Google's ability to
Speaker 1: leverage ads. In two thousand and eight, Google introduced a
Speaker 1: new dashboard to allow advertisers to buy ad space across
Speaker 1: different types of media. Keep in mind, this was still
Speaker 1: when Google was in print and radio and TV before
Speaker 1: they would pull the plug on all that, but at
Speaker 1: this time they were really selling ad space through AdWords
Speaker 1: across multiple platforms, whether that was the Web or newspapers
Speaker 1: or magazines. All the magazine thing really only lasted a
Speaker 1: brief time, or radio or television. And we know that
Speaker 1: this would start to collapse in two thousand and nine
Speaker 1: because that's when Google would shut down its print and
Speaker 1: radio ad operations. But in two thousand and eight, the
Speaker 1: plan was to create a kind of integrated user interface
Speaker 1: for advertisers, to give them all the options in the
Speaker 1: world to have their ad place wherever they felt would
Speaker 1: work best. So it was a neat idea. It just
Speaker 1: turned out that Google really had not nailed how to
Speaker 1: integrate with these other pre existing forms of media. So
Speaker 1: Google also opened up the opportunity for advertisers to use
Speaker 1: third party advertising tags to track their ad performance across
Speaker 1: Google's content network. So again, this would only apply to
Speaker 1: ad Sense ads. You know, ad sets only works on
Speaker 1: Google's network of content sites. They weren't selling ad Sense
Speaker 1: for just generic sites that weren't part of Google's network.
Speaker 1: But it meant that advertisers didn't have to rely solely
Speaker 1: upon Google's own integrated internal analytics to see how their
Speaker 1: ads were doing. So that was good, right because you know,
Speaker 1: you worry when Google is the only source of information
Speaker 1: about how well your ads are doing, because you don't
Speaker 1: know if they're telling the truth. But then with these
Speaker 1: third party tags, suddenly the advertisers were able to to
Speaker 1: monitor ad performance independently of Google and make sure that
Speaker 1: everything is going well, or if it's something's not going well,
Speaker 1: that they can swap things out. In two thousand and nine,
Speaker 1: while shutting down print and radio advertising projects, Google made
Speaker 1: another acquisition. This time it was a company called ad
Speaker 1: Mob or ad Mob as it might turn out to be,
Speaker 1: and this specialized in ads on mobile platforms. Now, in
Speaker 1: my opinion, this was an incredibly savvy move on Google's
Speaker 1: part because just keep in mind, in two thousand and seven,
Speaker 1: Apple proved that there was a market for a consumer smartphone,
Speaker 1: particularly in the United States, they launched an iPhone. It
Speaker 1: starts to sell incredibly well. Google follows suit by introducing
Speaker 1: the Android operating system several months later, and then we
Speaker 1: would see habits shift dramatically as people began to use
Speaker 1: smartphones more frequently to access the web. So entire websites
Speaker 1: were scrambling to adopt new mobile friendly strategies they never
Speaker 1: had to worry about before. So it stands to reason
Speaker 1: that Google wanted to leverage a company that specialized in
Speaker 1: mobile advertising, rather than having to reinvent the wheel themselves,
Speaker 1: they went and got a company that was already focused
Speaker 1: on this sort of thing, and they could kind of
Speaker 1: get ahead of this growing trend of the mobile web
Speaker 1: becoming the dominant form of people accessing the web. Google
Speaker 1: would continue to refine its ad tools over the years, so,
Speaker 1: for example, in twenty eleven, the company gave advertisers the
Speaker 1: chance to optimize which ads to display based on conversion
Speaker 1: rates rather than through click through rates. So if you're
Speaker 1: wondering what does that mean, Well, first, most advertisers will
Speaker 1: have a whole bunch of ads for the same client, right.
Speaker 1: They might have twenty or thirty different ads they're running
Speaker 1: that are all about trying to move the same product
Speaker 1: or service for the same client. But they have different images,
Speaker 1: or different wording or different calls to action, but they're
Speaker 1: all designed to try and get the same resist right
Speaker 1: to sell.
Speaker 2: This product or service.
Speaker 1: Ideally, as an advertiser, you want to see which of
Speaker 1: your ads are having the best impact, and when you
Speaker 1: see that, you might want to start shifting to rely
Speaker 1: more on that ad versus all the other ones you're
Speaker 1: running for the same product or service, and you could
Speaker 1: optimize it a couple different ways. If you optimize via
Speaker 1: click through rate, what you're prioritizing are the ads that
Speaker 1: get the most clicks on them. But click through isn't
Speaker 1: the same thing as conversion. A conversion is when you
Speaker 1: get a user to become a customer, So it's when
Speaker 1: you convince your user to take a further action, such
Speaker 1: as to make a purchase. The ads that lead to
Speaker 1: conversions might be the ones you want to emphasize. You know,
Speaker 1: maybe they don't get as many clicks as the highest
Speaker 1: click through rate ones do, but the important thing is
Speaker 1: the people who are clicking on that ad are the
Speaker 1: ones who are buying what you're selling. So Google gave
Speaker 1: advertisers the chance to automatically optimize based on whatever criteria
Speaker 1: they found to be the most important for their clients.
Speaker 1: So the advertisers could say, all right, well, if these
Speaker 1: twenty ads are running and these three ads are getting
Speaker 1: the most conversions, automatically, those three will get prioritized over
Speaker 1: the other seventeen or whatever I think I said twenty.
Speaker 1: So that would be the way that would kind of
Speaker 1: work in a broad, high level sense. Now, I'm not
Speaker 1: going to go over all the different features and changes
Speaker 1: in Google's advertising business. That would require a mini series
Speaker 1: of episodes, and I'm sure it would be interesting to
Speaker 1: some listeners, but personally, I think I would find it
Speaker 1: a little on the dull side to really go into
Speaker 1: that deep detail. But we can hit a couple of
Speaker 1: important points. For example, on July twenty fourth, twenty eighteen,
Speaker 1: AdWords got a makeover, so Google rebranded AdWords and renamed
Speaker 1: it Google Ads. So it's pretty much the same product,
Speaker 1: just with a new name. If you're Cynicle, you could
Speaker 1: say Google Ads is the product that lets an advertiser
Speaker 1: buy the top spot in search results for particular keywords.
Speaker 1: You just got to spend the money and suddenly you're
Speaker 1: at the top of the search results. You do still
Speaker 1: have that little tag that if people are paying attention,
Speaker 1: they'll see it's an ad as opposed to the top
Speaker 1: search result. But that same year, in twenty eighteen, Google
Speaker 1: grouped its Google Analytics three sixty platform with most of
Speaker 1: its double click properties and rename them the Google Marketing Platform,
Speaker 1: the double Click Ad Exchange, and the Double Click for
Speaker 1: Publishers products. Those became the Google Ad Manager so everything
Speaker 1: was sort of getting rebranded and to new names and
Speaker 1: collected together to have stuff that complemented each other become
Speaker 1: a single platform. So let's finish up with a quick
Speaker 1: talk about how much money all this advertising actually brings in. First,
Speaker 1: keep in mind how Google has an incredible grip on
Speaker 1: market share, particularly when it comes to stuff like online
Speaker 1: video and online search. So I've pulled some stuff from
Speaker 1: various statistic sites. Keep in mind everyone has their own
Speaker 1: version of analytics, and there's probably a pretty wide range
Speaker 1: of error margins here as well, but it gives us
Speaker 1: an idea, right, So let's start with desktop search. Now
Speaker 1: we're talking about laptops and like desktop computers. According to Statista,
Speaker 1: Google search takes up more than eighty percent of the
Speaker 1: market share for that, so eight out of ten web
Speaker 1: search is being done on computers are using Google. That's
Speaker 1: more than just dominant. But on mobile it gets even
Speaker 1: more dramatic. Stat Counter estimates Google to have a ninety
Speaker 1: five percent market share for mobile search. But even that
Speaker 1: gets left behind when we look at online video like
Speaker 1: streaming video. According to six Sense, YouTube has a ninety
Speaker 1: seven point seven to one percent market share. The largest
Speaker 1: competitor is JW Player, which has one point three five
Speaker 1: percent market share, So no wonder the US government suspects
Speaker 1: Google to have an anti competitive advantage. They do have
Speaker 1: an insane market share in these areas. Keep in mind
Speaker 1: that all of these are really just platforms upon which
Speaker 1: Google can serve advertising. So all that market share means
Speaker 1: that Google has ample opportunity to give ads to us.
Speaker 1: And in twenty twenty three, the company made a whopping
Speaker 1: two hundred thirty seven point eighty six billion with a
Speaker 1: B dollars in AD revenue. That was about seventy seven
Speaker 1: percent of all the revenue that the company generated last year.
Speaker 1: That's a lot of princely sums, and it is why
Speaker 1: I and lots of other people say that Google is
Speaker 1: ultimately an advertising company, not a search company, search video.
Speaker 1: These things are just methods by which Google can bring
Speaker 1: advertising to us. And obviously Google's ad strategy goes well
Speaker 1: beyond what I've covered today. As I said, to really
Speaker 1: get into detail, we would have to do a full
Speaker 1: mini series of it, but I thought it'd be interesting
Speaker 1: to just kind of take a quick look and get
Speaker 1: a surface level understanding of what's going on. It's also
Speaker 1: a reminder that if the service you're using is free,
Speaker 1: chances are you're the product, right. So like, if it's
Speaker 1: free for you to use web search, well, the reason
Speaker 1: it's free is because there's all this advertising that's playing
Speaker 1: against that web search. Your behaviors are shaping what ads
Speaker 1: are going to be sent to you, and the fact
Speaker 1: that you are spending time using these services means the
Speaker 1: services get to know more and more about you, which
Speaker 1: means they can sell that information to advertisers or leverage
Speaker 1: that information with advertisers in order to serve quote unquote
Speaker 1: better ads to you. It just becomes this system in
Speaker 1: which we, the users, are actually the products. So good
Speaker 1: thing to recall, good thing to keep in mind. Doesn't
Speaker 1: mean that you shouldn't use these things, but it's good
Speaker 1: to be aware of it and not to just be
Speaker 1: naive and think, oh, isn't it nice that Google offers
Speaker 1: this service for free. Anyway, I hope you are all well.
Speaker 1: I'm getting better every day, which is a relief, and I'll.
Speaker 2: Talk to you again really soon.
Speaker 1: Tech Stuff is an iHeartRadio production. For more podcasts from iHeartRadio,
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