An employee steered his scooter along a corridor of the new Google office in Munich this past fall.
(Uwe Lein/Associated Press)
Business Intelligence
The stated mission of Google Inc. is to "organize the world's information and make it universally accessible and useful."
But media moguls from around the world converged on Harvard Business School recently to learn more about Google's unstated mission which, as Harvard professor Thomas R. Eisenmann put it, is to "sell targeted advertising in every medium everywhere."
Eisenmann, who teaches entrepreneurial management, authored a case study on the Internet search giant in November 2006. He updated his findings for a three-day Harvard executive education program titled "Effective Strategies for Media Companies," a cohort that tends to regard Google with a mix of envy and dread.
"The biggest enemy of everyone in this room is Google," suggested Koos Bekker, managing director of Naspers Ltd., a multimedia conglomerate in South Africa. No one disagreed.
Google's galaxy has expanded since Eisenmann wrote his case study. The study, which foreshadowed Google's push into fields like business software and e- commerce, lists the Mountain View, Calif., company as having $2 billion in operating income on $6.1 billion in revenue in 2005. It's now on track to post 2007 operating income of nearly $5 billion on revenue of nearly $16 billion. It has more than 6,000 employees, from the Googleplex in Silicon Valley to Kendall Square in Cambridge to high-tech outposts around the planet.
And it's continuing to grow, determined to dominate the Internet-hosting screens of the future, especially cellphones and televisions, as well as desktop and notebook computers.
Google's secret, Eisenmann told the media execs, lies in a "positive feedback loop," whereby more users draw more advertisers to its search result pages, and more advertisers attract more users. More users and advertisers also boost the revenue per page that Google can offer to its affiliates, including media companies, in a secondary loop that lets Google sell advertising on, and share revenue with, other sites that pull in still more users and advertisers.
Google has moved beyond search, of course. Its software applications pose a challenge to rivals Microsoft Corp. and IBM Corp. in the small-business and education markets. Last week, it rolled out its captivating Street View feature on Google Maps for Boston and a dozen other cities. But search remains the linchpin of Google's business, and its search market share climbed from 37 to 57 percent in the past two years despite intensified competition from Microsoft and Yahoo Inc.
When he polled his class of media bosses, representing companies ranging from Dubai Media to the Washington Post Co., for predictions on whether Google's share in search would slide back to 37 percent, hold steady at 57 percent, or keep rising to 77 percent in the next two years, Eisenmann got these results: Thirty-six class members said it would jump to 77 percent, 11 said it would stay around 57 percent, and only three said it would return to 37 percent.
Eisenmann sided with the majority, though he admitted he wouldn't have made that forecast when he wrote the case study last year. "For years I've been puzzling over Google's share gain," he said. Eisenmann said he initially thought that most companies achieving "winner-take-all" status in their markets, like Microsoft with its Windows operating system or eBay Inc. with its auction platform, enjoyed a stronger "network effect," in which the network's value to each user grows with the number of users. Google's network effect, the fruit of its feedback loops, has proved stronger than he anticipated.
The genius of Google has been to couple search and advertising more effectively than anyone else. Its key word and contextual ad placements - mimicked by other Internet companies - have been nibbling away at the revenue base of traditional print and broadcast media as advertisers shift more of their budgets online.
"Any competition for the advertising dollar becomes directly or indirectly a threat," warned Anne McNamara, vice president of Astral Media, which owns French language radio stations in Quebec.
Google and three other search engines (Yahoo, MSN, and AOL) already are taking more than $6 billion annually in advertising revenue from print and broadcast media, with Google grabbing by far the most, estimated Chuck Richard, vice president and lead analyst for research firm Outsell Inc. That number is projected to rise.
Media companies also pick up advertising revenue when search engines drive traffic to their sites, though not enough to offset the losses. "Google giveth and it taketh away," Richard said. "Traditional media rely on people using search engines to access their content. But Google's growth is coming out of print, television, and radio."
Not everyone in traditional media is running for cover. Phil Pikelny, vice president of the Dispatch Printing Co. in Columbus, Ohio - among 21 companies representing more than 400 newspapers that have agreed to collectively tap advertising in an alliance with Yahoo - insisted that newspapers' websites retain a key competitive advantage because they "attract the most eyeballs in any community."
Google, well aware of the sciatic nerve it's touched in the media world, is taking the howls from its media scolds in stride.
"The Internet has created new ways for people to access and interact with information," said Google spokesman Brandon McCormick, citing its partnerships with media outlets. "It has also created new opportunities for companies to distribute information and connect with consumers through innovative and relevant advertising.
"Consumers still rely on multiple forms of media to access information," McCormick said, "And, working with our partners, we believe we can grow the overall pie by helping content partners, publishers, and advertisers succeed in the Internet age."
But many of the media executives gathered at Harvard Business School questioned whether they can afford to rely on the kindness of Google. "People are scared," Bekker conceded, "because the world is changing, and there's no greater change agent than Google. Its market value is big enough for it to buy all the newspapers, all the radio stations, and all the television stations in the United States."
Whether it wants to do that is another matter. "A full attack on newspapers is way down on Google's list of priorities," said Eisenmann.
One scenario that may be more likely, though no more comforting to traditional media, is that Google takes ever larger bites out of the advertising dollar while investing in Internet video and mobile phone applications rather than news and entertainment.
Robert Weisman can be reached at weisman@globe.com.
© Copyright 2007 Globe Newspaper Company.
