Algorithms that dont add up

Its simple maths really. If Googles UK advertising revenues are doubling every year, as they are, and television ad revenues are receding (the y axis), there has to be a point in the near future (the x axis) where the lines on the graph cross. But it took Andy Duncan to spell this message out in headline-grabbing language we can all understand. As early as this year, Google will have overtaken Channel 4, the TV channel he heads, by as much as 100m in advertising revenue.

It’s simple maths really. If Google’s UK advertising revenues are doubling every year, as they are, and television ad revenues are receding (the y axis), there has to be a point in the near future (the x axis) where the lines on the graph cross. But it took Andy Duncan to spell this message out in headline-grabbing language we can all understand. As early as this year, Google will have overtaken Channel 4, the TV channel he heads, by as much as £100m in advertising revenue.

What made Duncan come up with this startling apercu when he did can only be a matter of speculation. But it certainly wasn’t by accident. Perhaps because he is far from being a TV lifer himself, he has proved adept at ‘seeing round the corner’ of events. He, more than anyone else, was associated with Freeview while at the BBC. So it?s no surprise to find that he has been popping into Google HQ in Mountain View, California, to sound out senior management on a content deal with Channel 4. If you can’t beat them…

Then again, C4 is currently lobbying Ofcom and the government over financial aid to bridge a £100m gap created by the digital switchover. If focusing official minds on something far from their top priority was Duncan’s objective, then he has just come up with the most masterly sound bite for the media to feast upon. Another straw in the wind is Duncan’s curious, almost simultaneous, reappearance as a candidate for the top ITV job, in which he had previously foresworn interest.

This may be entirely coincidental; or the product of some ITV executive?s overexcited imagination. But let’s imagine for a moment it is neither of these. Taken at face value, Duncan?s admonitions about complacency and structural change mark him out as a statesman-like figure, just the sort ITV needs in its present plight. Cometh the hour, cometh the man…

From rhetoric to reality

Moving from the messenger to the message, though: how much of this is crowd-pleasing rhetoric? To be sure, Google overtaking C4 (still more so ITV) has enormous symbolic importance. As WPP chief executive Sir Martin Sorrell pointed out recently, online now accounts for about 13% of a £12.2bn advertising market, and in his opinion at least, that figure may grow to over 20% – roughly in line with internet usage among the UK population.

This trend is clearly having a depressing effect upon the rest of the media family, which will be accentuated if Sorrell’s prediction comes to pass. Google, Yahoo and MSN are reckoned to account for three quarters of all spending on UK online campaigns, and among these, Google has far and away the biggest pulling power. It’s a monster.

But wait a minute. If UK online advertising is mostly about Google, isn?t Google mostly about search? Indeed it is: the vast majority of its revenues come from Ad Words, which mainly sells optimised advertising insertions, and Ad Sense, which syndicates the same on affiliated, or third-party, sites. It’s our old friend classified advertising by a new and more sophisticated name. And it works extremely well when the consumer already knows, roughly, what he or she wants.

Where Google and its online rivals are weaker is in the areas classically served by effective display advertising, particularly television. For example, brand building, or launching a product. Just because there is a certain novelty in online advertising and advertisers are currently diverting money from their mainstream budget does not mean such needs, which are integral to marketing, will disappear.

For the moment, Google is the world’s best mousetrap and it is not surprising that everyone – advertisers especially – should want to buy into it. But there are good reasons for supposing its exponential growth will slow and saturation set in. The YouTube acquisition perhaps offers a backdoors route into advertisers? display needs through the manipulation of content. On the other hand, it could simply be a colossal mistake if things go the Napster way. There is also the unsettling possibility of someone inventing a better mousetrap. In which case, all the fun can start again.

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