he aphorism "a rising tide lifts all boats" was made popular by John F. Kennedy when defending his tax cuts to fellow Democrats. His colleagues didn't like the fact that the cuts included the wealthy. In a June 1963 speech, Kennedy said, "As they say on my own Cape Cod, a rising tide lifts all the boats." He got the phrase from the letterhead of The New England Council, a chamber of commerce type organization and applied it to politics, but the phrase has been widely used to describe ebbs and flows in many other walks of life.
The concept is important to understanding what's really taking place with Internet advertising, because it reveals a significant weakness in the efforts of traditional media companies to transition to a Web-based business model. We see the money moving. We know we need to "be there." We try lots of things, but so far, the big revenue numbers have generally escaped us.
This is because we think that merely getting into the game will lift our boat and produce significant revenues. While there certainly is a rising tide effect, it's mostly illusionary, because this rising tide is actually caused, in large part, by the presence of another entity in the sea.
Ashkan Karbasfrooshan at HipMojo has taken revenue numbers for the first half of 2007 from Google and overall ad numbers in a new report (.pdf) from the Interactive Advertising Bureau (IAB) and come to the remarkable conclusion that Google now accounts for 40 percent of all Web advertising in the U.S. That's four of every ten online ad dollars in this country going to Google.
The caveat is that these numbers come from two different sources, so the belief that the IAB's figures include Google's actual reported numbers is an assumption. It's one, however, that I'm comfortable accepting in an effort to make a point.
Using Ashkan's calculations, Eric Shoenfeld at TechCrunch reveals that the real strength of Google is not in its ad share but in its growth.
Google's share of 39.8 percent in the first half of 2007 compares to 34.6 percent in the first half of 2006, so its actual revenue growth is significantly outpacing that of all other Web companies combined. Google's revenues grew 45.7 percent year-over-year, compared to 26.5 percent for total online revenues. However, the total figure includes Google, so if you remove them, everybody else's growth is paltry in comparison.
Revenue Growth 1H06-1H07
Overall = 26.5%
Google = 45.7%
Others = 15.4%
So Google is like an enormous mountain rising up from the bottom of Lake Advertising, its mere presence raising the water level and giving the appearance of a rising tide that's lifting all the other boats. It's not. Google is a textbook disruptive innovation that's attacking the advertising industry. The more Madison Avenue tries to assert its paradigms, the more the people at Google smile, because they know that traditional advertising methods are insignificant (and ineffective) in the wide open world of the Web. This is something that traditional media companies — who live (and die) by hardcore reliance on the traditional methods of Madison Avenue — are unable to see, much less grasp.
Google's revenues — indeed, all search revenues — should not be included in IAB reports about Web advertising, because the two are completely unrelated. Moreover, including Google in the mix gives a false impression of the work the IAB represents — Madison Avenue's traditional models moved to the Web. The two are simply different species.
Jeff Jarvis notes that we shouldn't blame Google for leaving everybody else behind:
Big, old media handed them this opportunity on a platter. Google was the one company that truly understood the economics of the open network. It understood that it could grow much bigger enabling than controlling. We in media should have followed that model. We should have asked WWGD. What would Google do?
This whole business with the illusionary rising tide is driven by our mistaken belief that the disruption is one of new forms of media, and that has produced strategic errors in our response. We emphasize multi-platform distribution, but that does nothing to stop a hundred forms of Google. It's not about our output; it's about our input. The real disruption is in advertising, that which supports media.
This is so critical for us to understand as local media companies, because the Holy Grail in all of this is local advertising. Is Google Maps a local application? You bet it is, as are all forms of search. Is MySpace a local application? Absolutely! While its reach may be global, its use is local — a way for local young people to stay in touch with each other and share their lives.
Google begins the day with the assumption that people come to the Web, because they're looking for something. We begin the day with the assumption that people are looking for us. In our minds, we are the ones who control growth, because everything has to happen on what we view as our property. In the collective mind of Google, the people who make up the network that is the Web control the growth by their actions, and Google's ad mechanism doesn't care where that takes place. As the network grows, so grows Google. Not so for local media.
In our world, content drives consumers. In Google's world, content isn't nearly as important as behavior. As Jeff Jarvis noted, Google is simply an enabler of that behavior.
We must get our hands around what I call "the Local Web," because that's where our future lies. If we're serving the Local Web, its growth is our growth. The problem is that this requires extremely proactive efforts — not so much resources as plain old hard work. Our applications must feed that growth. We must build it assuming they will come.
This is strikingly different than most local Web strategies, which generally examine revenue sources and go after them with conventional reach/frequency methodologies. The situation simply demands that we do more, because if we don't do something quickly, local online advertising will default to the pureplays, most notably Google. Remember that the disruption is in advertising, not media, and as long as it continues without our efforts to offer alternatives, it won't make any sense for advertisers to put there money anywhere else.
As I've written previously, the media world views Google as a media company, while Google views itself as an advertising application. CEO Eric Schmidt gave a clear picture of that in an interview with Wired Magazine:
Think of it (Google) first as an advertising system. Then as an end-user system -- Google Apps. A third way to think of Google is as a giant supercomputer. And a fourth way is to think of it as a social phenomenon involving the company, the people, the brand, the mission, the values -- all that kind of stuff.
So in order to compete with Google at the local level, we also must become an advertising system. There are a variety of ways to go about this, but here are five things that are required for making it happen:
- Define and identify the Local Web. This is job one for us, because the result will outline the market that we are trying to serve. Only until we know its scope and nuances will we be able identify how best to serve it. We must view ourselves as undergirding the whole infrastructure, for the Web is a world of user empowerment — the best position we can hope for is as THE enabler of the Local Web.
- Organize the Local Web. This is the real work, because this organization doesn't currently exist, and it won't happen by itself. It requires legwork, handshaking, and tons of research. The objective isn't to surround the Local Web in the conventional sense; it's more a sales challenge — to let everyone know that they are part of something more definable than "the Internet."
- Provide tools to help it grow. While there already exist tools for any local business to use the Web to help their business, the reality is that the vast majority of merchants and companies know nothing about this. We cannot accomplish the mission without participation by local merchants, and that may mean actually building websites — or ad widgets — for many people.
- Serve it by enabling commerce across the network. Our mission is to help the business community use the Web to conduct business, and advertising is our tool. But this is not advertising as we know it, for the Web isn't so much about building brands as it is about direct sales and marketing. Hence, our sophisticated ad software will put people directly in the path of messages from merchants.
But perhaps a more important element here is that the enabling of commerce puts us in the business-to-business advertising world for the first time. This is a lucrative growth area in Web advertising and one in which we've not been invited to play, because our emphasis has always been on consumers.
- Sell the concept to the community. This is perhaps the most difficult of all for traditional media companies, who are used to having it the other way around. A television spot sale doesn't generally involve selling the medium, because the local ad community is familiar with the paradigm. The Web is so new that few people understand, much less participate in, this world. We must be proactive here, because to do nothing means that the efforts of the pureplays will reach local advertisers without any alternatives, and that would be suicidal.
I know I sound like a broken record on this, but these efforts should ideally involve all members of the traditional media in each community. It just makes sense for media players to attack this as a problem that impacts everybody and one that requires a combined approach. That is not likely to happen, however, so what's left is an incredible opportunity for one entity in each market.
The problems we face as institutional media are enormous, but they're made more difficult by factors that hide or disguise the real causes of the problems. In the end, we have two choices with Google. We can either let them have the local market and work with them to ensure that we get a piece. Or we can take the position that we can better serve the commerce needs of the Local Web at the local level and use our mass marketing reach to sidestep the encroachment of the all the pureplays.
One way or the other, the Local Web will be served.