Chapter 18 Google in Three Parts: Search, Online Advertising, and an Alphabet of Opportunity 18.1 Introduction LEARNING OBJECTIVES 1. Understand the extent of Google’s rapid rise and its size and influence when compared with others in the media industry. 2. Recognise the shift away from traditional advertising media to Internet advertising. 3. Gain insight into the uniqueness and appeal of Google’s corporate culture. It’s hard to match Google for societal impact. The largest division of the massive tech conglomerate much a one-trick pony. Now as tricks go, this one’s pretty exquisite. Google’s “trick” is matchmaking—pairing Internet surfers with advertisers and taking a cut along the way. This cut is substantial, as some 90 percent of Alphabet’s $75 billion in 2015 revenue came from advertising. As Wired’s Steve Levy puts it, Google’s matchmaking capabilities may represent “the most successful business idea in history.” Google has already grown to earn more annual advertising dollars than any US media company. No television network, magazine group, or newspaper chain brings in more ad revenue than Google. And none is more profitable. Google’s stated mission is “to organise the world’s information and make it universally accessible and useful”; advertising drives profits and lets the firm offer most of its services for free. Those free services have propelled the firm, now known as Alphabet, into a wide-ranging, multiform war that includes mobile, browsers, cloud infrastructure, e-mail, office apps, social media, maps, e-commerce, payments, and more. While the firm’s performance in each space varies, the success of its ad business provides a massive cash hoard, which allows the firm to fuel experimentation, constantly innovate, tolerate failure, acquire aggressively, and patiently build new markets. Android now tops the smartphone market share, and Google intends to extend the platform to PC, TV, car, home automation, and accessories such as Google Home (an Echo competitor), smart watches, virtual and augmented reality, and more. The firm also relentlessly pursues “moonshot” projects (i.e., wildly ambitious and risky multiyear research efforts). The current list includes driverless cars, smart contact lenses, and world-wrapping satellite and balloon-delivered wireless networks. Google bought eleven robotics firms in a single year for, well, the firm isn’t saying (although it may have had second thoughts on the value of earlier purchases ). And that’s just a fraction of the roughly 200 acquisitions that Google has made overall, which is more than Apple, Microsoft, Amazon, Facebook, and Yahoo!, combined. A Time magazine cover story on Google’s Calico health and aging research initiative was titled “Can Google Solve Death?” The firm’s activities are so broad that CEO Page has acknowledged it may be time for a new motto. Just a few months after that statement, Page announced a reorganisation under a holding company named Alphabet (same stock symbol), which will treat Google’s core consumer businesses (e.g., search, mail, ads, and YouTube) as separate from other efforts, such as Nest home automation, Calico longevity initiatives, disease-tackling work of Verily, the self-driving cars and other “moonshots” of X, the firm’s early-stage (GV) and later-stage growth (Capital) investment arms, and more (details were announced on the Alphabet website, http://abc.xyz). The reorganisation is thought to offer more transparency for the performance of the firm’s various businesses, and allow the company to structure compensation and job titles in a way that is competitive with start-ups taking similar risks. [11] While long-time Googler Sundar Pichai holds the title of CEO for the Google part of Alphabet, apologies if accounts in this book and chapter continue to refer to the new firm under the legacy name and leadership titles. While a risk-taker, it’s important to recognise that Google isn’t always a winner. Many of Google’s once-hyped efforts are no more. The abandoned e-mail replacement tool Google Wave, the defunct social network Google Buzz, and the firm’s flubbed acquisition of Motorola for $12.5 billion (sold for $2.91 billion two years later) are just some of Google’s more high-profile busts. [12] Nobody bats 1.000, but ad profits give Google the financial stamina to keep coming to the plate and swinging for the fences. Figure 18.1 Google has evolved into Alphabet, a diverse holding company investing in a wide-ranging array of potentially high-impact endeavours. That profit graph keeps moving up and to the right. As more people spend more time online, advertisers are shifting spending away from old channels to the Internet, and Google is swallowing the lion’s share of this funds transfer. [13] Add to that Google’s lucrative ad network that serves ads to apps and websites ranging from small-time bloggers to the New York Times, plus Google ad-serving properties like YouTube, Gmail, Google Finance, and Google Maps, and the firm controls about a third of all online advertising dollars. Facebook, Bing, Yahoo!, AOL, Twitter—add up all their advertising revenue and combined they’re less than half of Google’s. Add in China’s giants Baidu (number three worldwide), Alibaba (number four), and Tencent (number nine) and you’re still not even close to Google’s total. [14] Google has one of the world’s strongest brands [15] (its name is a verb—just Google it). It is regularly voted among the best firms to work for in America (topping Fortune’s list six times). While rivals continue to innovate (see the box “Search: Google Rules, but It Ain’t Over” in Section 10), Google continues to dominate the search market. Figure 18.2 US Advertising Spending Percentages (by Media) Over the past several years, online advertising represents the only advertising category that is consistently trending with positive share growth. Source: Data retrieved via eMarketer.com June 2014, 2014-2018 are estimates. Wall Street has rewarded this success. Even before the firm’s Alphabet reorg, the firm’s market capitalisation (market cap), the value of the firm calculated by multiplying its share price by the number of shares, made Google the most valuable media company on the planet. The firm’s founding duo, Sergey Brin and Larry Page, are billionaires, regularly appearing near the top of the Forbes 400 list of wealthiest Americans. Within five years of going public, Google’s market cap was greater than that of News Corp (which includes all of the Fox Networks, and the Wall Street Journal), Disney (including ABC, ESPN, theme parks, and Pixar), Time Warner (Fortune, Time, Sports Illustrated, CNN, and Warner Bros.), Viacom (MTV, VH1, and Nickelodeon), CBS, and the New York Times—combined! Just six years after its IPO, Google had become one of the twenty most profitable firms in the United States and was the youngest firm on the list—by far. Not bad for a business started by two twenty-something computer science graduate students. Figure 18.3 US Search Market Share (Volume of Searches, April 2016) Source: Adapted from Statistia, Source: Adapted from Statistia, “Share of search queries handled by leading US search engine providers as of April 2016." Genius Geeks and Plum Perks Brin and Page have built a talent magnet. At the Googleplex, the firm’s Mountain View, California, headquarters, geeks are lavished with perks that include on-site laundry, massage, carwash, bicycle repair, free haircuts, state of the art gyms, and Wi-Fi equipped shuttles that ferry employees around Silicon Valley and the San Francisco Bay area. The Googleplex is also pretty green. The facility gets 30 percent of its energy from solar cells, at the time of its deployment it was the largest corporate installation of its kind. [16] The firm’s quirky tech-centric culture is evident everywhere. A T-Rex skeleton looms near the volleyball court. Hanging from the lobby ceiling is a replica of SpaceShipOne, the first commercial space vehicle. And visitors to the bathroom will find “testing on the toilet,” coding problems or other brainteasers to keep gravy matter humming while seated on one of the firm’s $800 remote-controlled Japanese commodes. Staff also enjoy an A-list lecture series attracting luminaries ranging from celebrities to heads of state. And of course there’s the food—all of it free. The firm’s founders felt that no employee should be more than 100 feet away from nourishment, and a tour around Google offices will find espresso bars, snack nooks, and fully stocked beverage refrigerators galore. There are eleven gourmet cafeterias on-site, the most famous being “Charlie’s Place,” first run by the former executive chef for the Grateful Dead. Chairman and former CEO Eric Schmidt said the goal of all this is “to strip away everything that gets in our employees’ way.” [17] And the perks, culture, and sense of mission have allowed the firm to assemble one of the most impressive rosters of technical talent anywhere. The Googleplex is like a well-fed Manhattan project, and employee ranks have included a gaggle of geniuses that helped invent critical technologies such as the Macintosh user interface, the Python programming language, the XML standard, and even the protocols that underlie the Internet itself. Engineers find Google a particularly attractive place to work, in part due to a corporate policy of offering “20 percent time,” the ability to work the equivalent of one day a week on new projects that interest them. It’s a policy that has fuelled innovation. Roughly half of Google products got their start in 20 percent time. [18] Why Study Google? Google is without a doubt one of the most influential and impactful firms of the modern era. You’d be hard-pressed to find an organisation in any country where Google operates that isn’t impacted by the firm’s reach, be it in workforce empowerment (search, apps, software, devices); promotion (organic search and paid ads); or infrastructure (cloud). Studying Google gives us a platform for understanding online promotion and advertising, as well as a living case on how quickly technology-fuelled market disruptions can happen, and how deeply these disruptions penetrate various industries. The chapter will allow us to study technical issues such as distributed computing, customer profiling, and more. We’ll study the chapter within the context of learning the technologies and business issues across the online ad landscape, including search, display, and mobile. We’ll also apply strategic thinking to understand current competition and illuminate the landscape for the battles ahead. The transition to the Alphabet corporate structure will be one watched for years—is this a viable model for large firms to break out and nurture new initiatives that create growth through genuine disruptive innovation? You can consider this chapter as consisting of three extended sections. The first part (Section 15.2 “Understanding Search”) covers Google Search, the firm’s core product and introduces how search works. The second part (Section 15.3 “Understanding the Increase in Online Ad Spending” through Section 15.9 “Search Engines, Ad Networks, and Fraud”) covers how the firm makes most of its money—advertising. By reading this section you’ll get a solid introduction to various types of online advertising, how customer profiling works, and issues of online privacy and fraud. The last section (Section 15.10 “The Battle Unfolds”) covers the firm’s evolving strategy, its competition with disparate rivals, and the opportunities and challenges the firm faces going forward. KEY TAKEAWAYS • Online advertising represents the only advertising category that, over the last several years, has been consistently trending with positive growth. • Google dominates Internet search volume and controls the lion’s share of the Internet search advertising business and online advertising dollars. The firm also earns more total advertising revenue than any other firm, online or off. • Google’s market cap makes it the most valuable media company in the world; it has been rated as having one of the world’s strongest brands, and it ranks among the most profitable firms in the United States. 18.2 Understanding Search LEARNING OBJECTIVES 1. Understand the mechanics of search, including how Google indexes the Web and ranks its organic search results. 2. Examine the infrastructure that powers Google and how its scale and complexity offer key sources of competitive advantages. Before diving into how the firm makes money, let’s first understand how Google’s core service, search, works. Perform a search (or query) on Google or another search engine, and the results you’ll see are referred to by industry professionals as organic or natural search. Search engines use different algorithms for determining the order of organic search results, but at Google the method is called PageRank (a bit of a play on words, it ranks Web pages, and was initially developed by Google cofounder Larry Page). Google does not accept money for placement of links in organic search results. Instead, PageRank results are a kind of popularity contest. Web pages that have more pages linking to them are ranked higher (while organic search results can’t be bought, firms do pay for preferred placement in some Google products, including Google Shopping, Hotels, and Flight Search). [1] Figure 18.4 The query for “Toyota Prius” triggers organic search results, flanked top and right by advertisements. The process of improving a page’s organic search results is often referred to as search engine optimisation (SEO). SEO has become a critical function for many marketing organisations since if a firm’s pages aren’t near the top of search results, customers may never discover its site. Google is a bit vague about the specifics of precisely how PageRank has been refined, in part because many have tried to game the system. In addition to in-bound links, Google’s organic search results also consider some two hundred other signals, and the firm’s search quality team is relentlessly analysing user behaviour for clues on how to tweak the system to improve accuracy. The less scrupulous have tried creating a series of bogus websites, all linking back to the pages they’re trying to promote (this is called link fraud, and Google actively works to uncover and shut down such efforts—see the “Link Fraudsters” sidebar). Link Fraudsters, Be Prepared to Experience Google’s “Death Penalty” JCPenney is a big retailer, for sure, but not necessarily the first firm to come to mind when you think of most retail categories. So the New York Times suspected that something fishy was up when the retailer’s site came out tops for dozens of Google searches, including the phrases “skinny jeans,” “dresses,” “bedding,” “area rugs,” “home decor,” “comforter sets,” “furniture,” and “table cloths.” The phrase “Samsonite carry-on luggage” even placed JCPenney ahead of Samsonite’s own site! The Times reported that “someone paid to have thousands of links placed on hundreds of sites scattered around the Web, all of which lead directly to JCPenney.com.” And there was little question it was blatant link fraud. Phrases related to dresses and linking back to the retailer were coming from such nondress sites as nuclear.engineeringaddict.com, casino-focus.com, and bulgariapropertyportal.com. One SEO expert called the effort the most ambitious link farming attempt he’d ever seen. Link fraud undercuts the credibility of Google’s core search product, so when the search giant discovers a firm engaged in link farming they drop the hammer. In this case Google both manually demoted JCPenney rankings and launched tweaks to its ranking algorithm. Within two hours JCPenney organic results plummeted, in some cases from first to seventy-first (the Times calls this the organic search equivalent of the “death penalty”). Getting a top spot in Google search results is a big deal. On average, 34 percent of clicks go to the top result, about twice the percentage that goes to number two. Google’s punishment was administered despite the fact that JCPenney was also a large online ad customer, at times paying Google some $2.5 million a month for ads. JCPenney isn’t the first firm busted. When Google discovered so-called black-hat SEO was being used to push BMW up in organic search rankings, Google made certain BMW sites virtually unfindable in its organic search results. JCPenney claims that they were the victim of rogue behaviour by an SEO consultant (who was promptly fired) and that the retailer was otherwise unaware of the unethical behaviour. But it is surprising that the retailer’s internal team didn’t see their unbelievably successful organic search results as a red flag that something was amiss, and this case highlights the types of things managers need to watch for in the digital age. JCPenney outsourced SEO, and the fraud uncovered in this story underscores the critical importance of vetting and regularly auditing the performance of partners throughout a firm’s supply chain. While Google doesn’t divulge specifics on the weighting of inbound links from a given website, we do know that links from some websites carry more weight than others. For example, links from websites that Google deems “influential” have greater weight in PageRank calculations than links from run-of-the-mill sites. For searches performed on mobile devices, Web pages that meet Google’s criteria for being “mobile friendly” will be ranked higher than those that don’t have an option for mobile devices (Google does offer testing tools to see if your pages are compliant). Additionally, different users may not see identical organic search results. Google defaults to a mix of rankings that includes individual user behaviour and, for those users searching while logged into Google accounts, social connections (although displaying generic results remains an option). Spiders and Bots and Crawlers—Oh My! When performing a search via Google or another search engine, you’re not actually searching the Web. What really happens is that you’re searching something that amounts to a copy of the Web that major search engines make by storing and indexing the text of online documents on their own computers. Google’s index considers over one trillion URLs. [7] Google starts to retrieve results as soon as you begin to type, and a line above each Google query shows you just how fast a search takes, and how many pages were considered. To create these massive indexes, search firms use software to crawl the Web and uncover as much information as they can find. This software is referred to by several different names—spiders, Web crawlers, software robots—but they all pretty much work the same way. The spiders ask each public computer network for a list of its public websites (for more on this see DNS in Chapter 16 “A Manager’s Guide to the Internet and Telecommunications”). Then the spiders go through this list (“crawling” a site), following every available link until all pages are uncovered. Google will crawl frequently updated sites, like those run by news organisations, as often as several times an hour. Rarely updated, less popular sites might only be re-indexed every few days. The method used to crawl the Web also means that if a website isn’t the first page on a public server, or isn’t linked to from another public page, then it’ll never be found. [8] In addition, each search engine also offers a page where you can submit your website for indexing. While search engines show you what they’ve found on their copy of the Web’s contents that Google has cache on its own servers, clicking a search result will direct you to the actual website, not the copy. Sometimes you’ll click a result only to find that the website doesn’t match what the search engine found. This is rare, but it happens if a website was updated before your search engine had a chance to re-index the changes. But what if you want the content on your website to remain off limits to search engine indexing and caching? Organisations have created a set of standards to stop the spider crawl, and all commercial search engines have agreed to respect these standards. One way is to put a line of HTML code invisibly embedded in a Web page that tells all software robots to stop indexing a page, stop following links on the page, or stop offering old page archives in a cache. Users don’t see this code, but commercial Web crawlers do. For those familiar with HTML code (the language used to describe a website), the command to stop Web crawlers from indexing a page, following links, and listing archives of cached pages looks like this: 〈META NAME=“ROBOTS” CONTENT=“NOINDEX, NOFOLLOW, NOARCHIVE”〉 There are other techniques to keep the spiders out, too. Website administrators can add a special file (called robots.txt) that provides similar instructions on how indexing software should treat the website. And a lot of content lies inside the “dark Web,” either behind corporate firewalls or inaccessible to those without a user account—think of private Facebook updates no one can see unless they’re your friend—all of that is out of Google’s reach. What’s It Take to Run This Thing? Sergey Brin and Larry Page started Google with just four scavenged computers. [9] But in a decade, the infrastructure used to power the search sovereign has ballooned to the point where it is now the largest of its kind in the world. [10] Google doesn’t disclose the number of servers it uses, but by some estimates, it runs over 1.4 million servers in over a dozen so-called server farms worldwide. [11] Google has been known to spend over $2 billion a quarter on data centres. [12] Building massive server farms to index the ever-growing Web is now the cost of admission for any firm wanting to compete in the search market. This is clearly no longer a game for two graduate students working out of a garage. Tour a Google Data Centre At this video link, watch a tour of a Google data centre. Or visit http://www.google.com/about/datacenters/inside/streetview to explore one of Google’s data centres using the firm’s Street View technology. The size of this investment not only creates a barrier to entry, it influences industry profitability, with market-leader Google enjoying huge economies of scale. Firms may spend the same amount to build server farms, but if Google has roughly two-thirds of this market while Microsoft’s search draws just a fraction of this traffic, which do you think enjoys the better return on investment? The hardware components that power Google aren’t particularly special, but they are custom built to contain just what Google needs and eliminate everything it doesn’t (e.g., no graphic cards, since servers aren’t attached to monitors, or enclosures, since all servers are rack-mounted). In most cases the firm uses the kind of Intel or AMD processors, low-end hard drives, and RAM chips that you’d find in a desktop PC. These components are housed in racks, slotted like very tight shelving. Each server is about 3.5 inches thick yet contains processors, RAM memory, and hard drives. Google buys so many components for its custom-built servers that it, not a PC manufacturer, is Intel’s fifth largest customer. In some cases, Google mounts racks of these servers inside standard-sized shipping containers, each with as many as 1,160 servers per box. A given data centre may have dozens of these server-filled containers all linked together. Redundancy is the name of the game. Google assumes individual components will regularly fail, but no single failure should interrupt the firm’s operations (making the setup what geeks call fault-tolerant). If something breaks, a technician can easily swap it out with a replacement. Each server farm layout has also been carefully designed with an emphasis on lowering power consumption and cooling requirements. Instead of using big uninterrupted power supply (UPS) systems common in most data centres, Google put smaller battery backups next to each server. These cost less; are more efficient, because they leak about 15 percent less energy than big units; and don’t have heavy cooling costs. Employees usually wear shorts inside the data centre since the “cool aisle” in the front of machines is around 80 °F. The hot aisles venting out the back and cooled via constantly circulating, heat-absorbing water coils can get up to 120 °F. That’s hotter than most corporate data centres, but Google learned that its systems could take the heat. These practices allow Google to set the bar high for energy efficiency. The standard used to measure data centre efficiency is PUE—power usage effectiveness. 1.0 is a perfect score—it means all the power a facility draws is put to use. Everyone loses power; 2.0 (meaning half the power drawn is wasted) is considered a “reasonable number.” Google’s PUE is 1.2—astonishingly high. Saving energy helps the firm meet its green goals—the firm is formally committed to being carbon neutral and offsetting its fossil fuel energy needs—but the data centres also help meet other “green” goals: massive cash savings. The firm’s infrastructure chief claims that the savings through the firm’s ultra-efficient data centre designs are vital to keeping costs low enough to keep services like Gmail free. [16] Google also uses artificial intelligence to monitor data centre performance. If it finds that one of its predicted outcomes doesn’t match a current finding (e.g., the temperature is higher than what formulas suggest), this acts as a sort of data centre equivalent of a car’s “check engine light.” AI will then suggest a course of action, like clean an air filtering heat exchanger or check other systems. The firm’s custom software (much of it built upon open source products) allows all this equipment to operate as the world’s largest grid computer. Web search is a task particularly well suited for the massively parallel architecture used by Google and its rivals. For an analogy of how this works, imagine that working alone (the human equivalent of a single-server effort), you need to try to find a particular phrase in a hundred-page document. That’d take a while. Next, imagine that you can distribute the task across five thousand people, giving each of them a separate sentence to scan (that’s the human equivalent of a multiserver grid). The speed difference between a single searching entity and a search involving many entities simultaneously focused on a subset of the same task gives you a sense of how search firms use massive numbers of servers and the divide-and-conquer approach of grid computing to quickly find the needles you’re searching for within the Web’s haystack. (For more on grid computing, see Chapter 5 “Moore’s Law and More: Fast, Cheap Computing, and What This Means for the Manager” and for more on the server farms employed by cloud computing providers, see Chapter 14 “Software in Flux: Open Source, Cloud, Virtualised and App-driven Shifts”) All this server farm tech helps Google index over 20 billion Web pages a day and serve up results from over 3 billion daily search queries, in most cases with answers coming before you’re even done typing. But not all Google-served data comes to you straight from Google’s own server farms. The firm also scatters racks of servers in scores of spots all over the world so that it can quickly get you copies of high-value rich media content, like trending YouTube videos. These racks of Google content are tucked away, sometimes within data centres run by big telecom firms like Comcast or AT&T, or kept inside colos (colocation facilities), big warehouse-like facilities where several telecom companies come together to exchange traffic. Figure 18.5 The Google Search Appliance is a hardware product that firms can purchase in order to run Google search technology within the privacy and security of an organisation’s firewall. Google will even sell you a bit of its technology so that you can run your own little Google in-house without sharing documents with the rest of the world. Google’s line of search appliances are rack-mounted servers that can index documents within the servers on a corporation’s own network, even managing user password and security access on a per-document basis. Selling hardware isn’t a large business for Google, and other vendors offer similar solutions, but search appliances can be vital tools for law firms, investment banks, and other document-rich organisations. KEY TAKEAWAYS • Ranked search results are often referred to as organic or natural search results. PageRank is Google’s algorithm for ranking search results. PageRank orders organic search results based largely on the number of websites linking to them, and the “weight” of each page as measured by its “influence.” • Search engine optimisation (SEO) is the process of improving a website’s organic search ranking. The scope and influence of search has made SEO an increasingly vital marketing function. • Users don’t really search the Web; they search an archived copy stored on a search firm’s computers. A firm creates these copies by crawling and indexing discoverable documents. • Google operates from a massive network of server farms containing hundreds of thousands of servers built from standard, off-the-shelf parts. The cost of the operation is a significant barrier to entry for competitors. Google’s share of search suggests the firm realises economies of scale over rivals required to make similar investments while delivering fewer results (and hence ads). • Website owners can hide pages from popular search engine Web crawlers using a number of methods, including HTML tags, a no-index file, or ensuring that websites aren’t linked to other pages and haven’t been submitted to websites for indexing.   18.3 Understanding the Increase in Online Ad Spending LEARNING OBJECTIVES 1. Understand how media consumption habits are shifting. 2. Be able to explain the factors behind the growth and appeal of online advertising. For several years, Internet advertising has been the only major media ad category to show significant growth. There are three factors driving online ad growth trends: (1) increased user time online, (2) improved measurement and accountability, and (3) targeting. Americans (and citizens in many other nations) spend more time on mobile devices than they do watching TV. Even senior citizens spend more time online than they do listening to reading magazines, newspapers, or listening to the radio. So advertisers are simply following the market. Online channels also provide advertisers with a way to reach consumers at work—something that was previously much more difficult to do. Many advertisers have also been frustrated by how difficult it’s been to gauge the effectiveness of traditional ad channels such as TV, print, and radio. This frustration is reflected in the old industry saying, “I know that half of my advertising is working—I just don’t know which half.” Well, with the Internet, now you know. While measurement technologies aren’t perfect, advertisers can now count ad impressions (the number of times an ad is shown on a Web site), whether a user clicks on an ad, and the product purchases or other website activity that comes from those clicks.And as we’ll see, many online ad payment schemes are directly linked to ad performance. Various technologies and techniques also make it easier for firms to target users based on how likely a person is to respond to an ad. In theory a firm can use targeting to spend marketing dollars only on those users deemed to be its best prospects. Let’s look at a few of these approaches in action. KEY TAKEAWAYS • Three key reasons for the increase in online ad growth are: (1) increasing user time online, (2) improved measurement and accountability, and (3) targeting. • Digital media is decreasing time spent through traditional media consumption channels (e.g., radio, TV, newspapers), potentially lowering the audience reach of these old channels and making them less attractive for advertisers. • Measurement techniques allow advertisers to track the performance of their ads—indicating things such as how often an ad is displayed, how often an ad is clicked, where an ad was displayed when it was clicked, and more. Measurement metrics can be linked to payment schemes, improving return on investment (ROI) and accountability compared to many types of conventional advertising. • Advertising ROI can be improved through targeting. Targeting allows a firm to serve ads to specific categories of users, so firms can send ads to groups it is most interested in reaching, and those that are most likely to respond to an effort.   18.4 Search Advertising LEARNING OBJECTIVES 1. Understand Google’s search advertising revenue model. 2. Know the factors that determine the display and ranking of advertisements appearing on Google’s search results pages. 3. Be able to describe the uses and technologies behind geotargeting. The practice of running and optimizing search engine ad campaigns is referred to as search engine marketing (SEM). SEM is a hot topic in an increasingly influential field, so it’s worth spending some time learning how search advertising works on the Internet’s largest search engine. Over two-thirds of Google’s revenues come from ads served on its own sites, and the vast majority of this revenue comes from search engine ads.During Google’s early years, the firm actually resisted making money through ads. In fact, while at Stanford, Brin and Page even co-authored a paper titled “The Evils of Advertising.” But when Yahoo! and others balked at buying Google’s search technology (offered for as little as $500,000), Google needed to explore additional revenue streams. It wasn’t until two years after incorporation that Google ran ads alongside organic search results. That first ad, one for “Live Mail Order Lobsters,” appeared just minutes after the firm posted a link reading “See Your Ad Here.” Google regularly experiments with incorporating video and image ads into search (you’ll see images, for example, in paid-product search results), but for the most part, the ads you’ll see to the right (and sometimes top) of Google’s organic search results are text ads. These ads are keyword advertising, meaning they’re targeted based on the words in a user’s search query. Advertisers bid on the keywords and phrases that they’d like to use to trigger the display of their ad. Linking ads to search was a brilliant move, since the user’s search term indicates an overt interest in a given topic. Want to sell hotel stays in Tahiti? Link your ads to the search term “Tahiti Vacation.” Google ads show up when many users have some sort of purchasing intent. This makes Google search ads far more effective than standard display ads like those on Facebook (see Chapter 11 “Facebook: A Billion-plus users, the High-Stakes Move to Mobile, and Big Business from the Social Graph”). Google’s ability to tie advertising to purchasing intent (or to some other action that advertisers are willing to pay for) is the main reason the firm’s ads are so valuable. Not only are search ads highly targeted, advertisers only pay for results. Text ads appearing on Google search pages are billed on a pay-per-click (PPC) basis, meaning that advertisers don’t spend a penny unless someone actually clicks on their ad. Note that the term pay-per-click is sometimes used interchangeably with the term cost-per-click (CPC). If an advertiser wants to display an ad on Google search, they can set up a Google AdWords advertising account in minutes, specifying just a single ad, or multiple ad campaigns that trigger different ads for different keywords. Advertisers also specify what they’re willing to pay each time an ad is clicked, how much their overall ad budget is, and they can control additional parameters, such as the timing and duration of an ad campaign. If no one clicks on an ad, Google doesn’t make money, advertisers don’t attract customers, and searchers aren’t seeing ads they’re interested in. So in order to create a winning scenario for everyone, Google has developed a precise ad ranking formula that rewards top performing ads by considering three metrics: the maximum CPC that an advertiser is willing to pay (sometimes referred to as an ad’s bid value), the advertisement’s quality score—a broad measure of ad performance, and the expected impact of extensions (e.g., added info like a phone number, address, store rating) and ad formats (in some cases images or video may be expected to perform higher). Create high-quality ads and your advertisements might appear ahead of competition, even if your competitors bid more than you. But if ads perform poorly they’ll fall in rankings or even drop from display consideration. Below is the rough formula used by Google to determine the rank order of sponsored links appearing on search results pages. Ad Rank = f(Maximum CPC, Quality Score, expected impact of extensions and formats) Google is deliberately vague about precisely how quality score is calculated, and the firm’s metrics are regularly tweaked, but factors that determine an ad’s quality score have included an ad’s click-through rate (CTR), or the number of users who clicked an ad divided by the number of times the ad was delivered (the impressions). The CTR measures the percentage of people who clicked on an ad to arrive at a destination-site. Factors that have also appeared in the quality score weighting include things like the overall history of click performance for the keywords linked to the ad, the relevance of an ad’s text to the user’s query, and Google’s automated assessment of the user experience on the landing page—the Web page displayed when a user clicks on the ad. Ads that don’t get many clicks, ad descriptions that have nothing to do with query terms, and ads that direct users to generic pages that load slowly or aren’t strongly related to the keywords and descriptions used in an ad will all lower an ad’s chance of being displayed. In general, the more relevant your ad, and the better the experience of the consumer who clicks that ad, the higher your quality score, and the higher your quality score, the better your ad’s position and the less you’ll have to pay per click. Google provides tools that firms can use to identify popular words and phrases for selecting keywords to associate with an ad, and for assessing ad quality score. And Google also offers dynamic search ads, where the firm will automatically generate ads based on your website. This is useful if you have a constantly changing and updating inventory or are having difficulty tracking the ever-evolving search terms that may be relevant to users looking for products and services that your site offers. When an ad is clicked, advertisers don’t actually pay their maximum CPC; Google discounts ads to the minimum necessary to maintain an ad’s position on the page. So if you bid one dollar per click, but your overall ad rank is so good that you could have beat the ad ranked below yours even if you bid just ninety cents, then you’ll pay just ninety cents if the ad is clicked. Discounting was a brilliant move. No one wants to get caught excessively overbidding rivals, so discounting helps reduce the possibility of this so-called bidder’s remorse. And with this risk minimised, the system actually encouraged higher bids! Ad ranking and cost-per-click calculations take place as part of an automated auction that occurs every time a user conducts a search. Advertisers get a running total of ad performance statistics so that they can monitor the return on their investment and tweak promotional efforts for better results. And this whole system is automated for self-service—all it takes is a credit card, an ad idea, and you’re ready to go. How Much Do Advertisers Pay per Click? Google rakes in billions on what amounts to pocket change earned one click at a time. Most clicks bring in between thirty cents and one dollar. However, costs can vary widely depending on industry and current competition. Since rates are based on auctions, top rates reflect what the market is willing to bear. As an example, law firms, which bring in big bucks from legal fees, decisions, and settlement payments, often justify higher customer acquisition costs. Bids for certain legal phrases, such as those referring to structured settlements (a term often referring to payment terms of a legal settlement), or mesothelioma (a type of cancer-associated asbestos and the subject of several big money lawsuits) have been known to go for hundreds of dollars.And firms that see results will keep spending. Los Angeles–based Chase Law Group has said that it brings in roughly 60 percent of its clients through Internet advertising. Top Google advertisers among larger, consumer firms include Amazon, Quicken Loans, State Farm, Home Depot, Apple, Sears, Expedia, Capital One, Walmart, JCPenney, BestBuy, and eBay. IP Addresses and Geotargeting Geotargeting occurs when computer systems identify a user’s physical location (sometimes called the geolocation) for the purpose of delivering tailored ads or other content. On Google AdWords, for example, advertisers can specify that their ads only appear for Web surfers located in a particular country, state, metropolitan region, or a given distance around a precise locale. They can even draw a custom ad-targeting region on a map and tell Google to only show ads to users detected inside that space. Ads in Google Search (as well as in Maps and many other offerings) can be geotargeted based on IP address. Every device connected to the Internet has a unique IP address assigned by the organisation connecting the device to the network. Normally you don’t see your IP address. It’s likely a set of four numbers, from 0 to 255, separated by periods (e.g., 136.167.2.220), but this standard (known as IPv4) is gradually being replaced by the IPv6 standard, which offers far more potential addresses. IP addresses are used in targeting because the range of IP addresses “owned” by major organisations and Internet service providers (ISPs) is public knowledge. In many cases it’s possible to make an accurate guess as to where a computer, laptop, or mobile phone is located simply by cross-referencing a device’s current IP address with this public list. For example, it’s known that all devices connected to the Boston College network contain IP addresses starting with the numbers 136.167. If a search engine detects a query coming from an IP address that begins with those two numbers, it can be fairly certain that the person using that device is in the greater Boston area. Figure 18.6 In this geotargeting example, the same search term is used at roughly the same time on separate computers located in Silicon Valley area (Figure 18.5) and Boston (Figure 18.6). Note how geotargeting impacts the search results and that the Boston-based search includes a geotargeted ad that does not show up in the Palo Alto search. Figure 18.7 IP addresses will change depending on how and where you connect to the Internet. Connect your laptop to a hotel’s Wi-Fi when visiting a new city, and you’re likely to see ads specific to that location. That’s because your Internet service provider has changed, and the firm serving your ads has detected that you are using an IP address known to be associated with your new location. Geotargeting via IP address is fairly accurate, but it’s not perfect. For example, some Internet service providers may provide imprecise or inaccurate information on the location of their networks. Others might be so vague that it’s difficult to make a best guess at the geography behind a set of numbers (values assigned by a multinational corporation with many locations, for example). And there are other ways locations are hidden, such as when Internet users connect to proxy servers, third-party computers that pass traffic to and from a specific address without revealing the address of the connected users. What’s My IP Address? While every operating system has a control panel or command that you can use to find your current IP address, there are also several websites that will quickly return this value (and a best guess at your current location). One such site is WhatIsMyIPaddress.com. Visit this or a similar site with a desktop, laptop, and mobile phone. Do the results differ and are they accurate? Why? Geotargeting Evolves Beyond the IP Address There are several other methods of geotargeting. Firms like Skyhook Wireless/TruePosition, Apple, and Google can identify a location based on mapping Wi-Fi hotspots and nearby cell towers. Many mobile devices come equipped with global positioning system (GPS) chips (identifying location via the GPS satellite network). And if a user provides location values such as a home address or zip code to a website, then that value might be stored and used again to make a future guess at a user’s location. Many firms build and maintain accurate location databases by regularly collecting location information from smartphones and using this data to refine maps. Phones submit data anonymously; however, this process can be controversial. Mobile Apps and the Challenge for Google Search US mobile users spend roughly three hours each day on smartphones and tablets. While most online desktop time happens via the Web browser, on mobile, mobile users spend an estimated 86 percent of their time in apps and only 14 percent on the Web. This shift concerns Google. When you search for restaurant reviews in Google’s search engine, it can serve you ads and continue to build your user profile. But if you search via Yelp’s app on an iPhone, Google can’t see you at all. Yelp is thought to have earned about $550 million in ad revenue 2015, up over by 45 percent from the prior year and with the vast majority coming from mobile.The growing list of context-specific apps that siphon users away from Google’s Web search include Kayak and TripAdvisor for travel, Shazam for music, and even Amazon for shopping. And Apple’s Siri is delivering results directly from its partners, making it the search broker, not Google. This fragmenting of mobile is having an impact on Google’s share of mobile advertising. App owners are becoming even more useful advertisers with the rise of so-called deep linking. Deep linking allows an advertisement to launch an app and call up requested information, say, clicking a Pinterest link for a vintage handbag and jumping immediately to bag vendor’s page within the Etsy app. And, of course, this app-to-app advertising cuts out Google even further. In 2012, Google had an 82.8 percent share of mobile searches, but research firm eMarketer estimates that when you consider the long tail of app-based searches that are occurring, Google’s share was around 65.7 percent in 2014. The app-based niche searches like those mentioned previously have grown from 5.4 percent of mobile search to 22.9 percent in just two years. Even though Google’s percentage of mobile search ad revenue is declining, the firm’s mobile search ad revenue is still going up. That’s because the search ad pie is getting bigger as more users conduct more searches online. But the trends underscore how mobile is different (for more on the challenges of mobile see Chapter 11 “Facebook: A Billion-plus users, the High-Stakes Move to Mobile, and Big Business from the Social Graph”). Google has offered additional features to give users a reason to stick with its search and map products. Examples include a new hotel format offers the ability to see high-quality photos, hotel ratings and book a hotel right from within a Google listing. A new car format allows a panoramic scroll through the car, the ability to “build and price” a car, and find a dealer. A mortgage format allows for side-by-side comparisons.And a new restaurant format can directly summon a food delivery service via deep link. Making Google more relevant, especially on mobile, makes sense, but the new functionality comes with risks. Google’s move into travel booking is upsetting some of the firm’s biggest customers. Priceline spends over $1.5 billion advertising with Google each year. Expedia spends over $1 billion. Just these two firms account for about a 5 percent chunk of Google revenue. If Google can create increased ad revenue directly from hotels, airlines, and other travel providers, this might help make up the difference, but that’s a serious bit of channel pressure and market shift that would need to happen. More troubling are potential legal issues. Priceline and Expedia are also members of FairSearch.org, a group that accuses Google of using its dominance in search and other products to favour its own services above those of rivals. KEY TAKEAWAYS • More than two-thirds of Google’s revenues come from ads served on its own sites, and the vast majority of this revenue comes from search engine ads. • Search ads on Google are both more effective (in terms of click-through rate) and more sought after by advertisers, because they are often associated with a user’s purchasing intent. • Advertisers choose and bid on the keywords and phrases that they’d like to use to trigger the display of their ad. • Advertisers pay for cost-per-click advertising only if an ad is clicked on. Google makes no money on CPC ads that are displayed but not clicked. • Google determines ad rank by multiplying CPC by Quality Score. Ads with low ranks might not display at all. • Advertisers usually don’t pay their maximum CPC. Instead, Google discounts ads to just one cent more than the minimum necessary to maintain an ad’s position on the page—a practice that encourages higher bids. • Geotargeting occurs when computer systems identify a user’s physical location (sometimes called geolocation) for the purpose of delivering tailored ads or other content. • Google uses IP addresses to target ads. • Geotargeting can also be enabled by the satellite-based global positioning system (GPS) or based on estimating location from cell phone towers or Wi-Fi hotspots. • The rise of apps as an alternative to search is a threat to Google and has shrunk the firm’s percentage of mobile search. Deep linking allows websites and apps to link directly with content in other sites and apps, bypassing Google altogether. However, its revenues continue to rise as more users conduct more searches online. • Google offers web and app deep-linking, and new ad formats give the ability to do more in search and maps (e.g. compare and book hotel rooms, car shop). However, offering these services may alienate advertisers, some which spend $1 billion or more with Google. It also adds to concerns that Google uses its dominance in search and other categories to favour its products and services over those of rivals.   18.5 Ad Networks—Distribution beyond Search LEARNING OBJECTIVES 1. Understand ad networks, and how ads are distributed and served based on website content. 2. Recognise how ad networks provide advertiser reach and support niche content providers. 3. Be aware of content adjacency problems and their implications. 4. Know the strategic factors behind ad network appeal and success. Google runs ads not just in search, but also across a host of Google-owned sites like Gmail, Google News, and Blogger. It will even tailor ads for its map products and for mobile devices. But about over 20 percent of Google’s revenues come from running ads on websites and apps that the firm doesn’t even own. Next time you’re surfing online, look around the different websites that you visit and see how many sport boxes labelled “Ads by Google.” Those websites are participating in Google’s ad network, which means they’re running ads for Google in exchange for a cut of the take. Participants range from small-time bloggers to some of the world’s most highly trafficked sites. Google lines up the advertisers, provides the targeting technology, serves the ads, and handles advertiser payment collection. To participate, content providers just sign up online, put a bit of Google-supplied HTML code on their pages, and wait for Google to send them cash (websites typically get about seventy cents for every AdSense dollar that Google collects). Google originally developed AdSense to target ads based on keywords automatically detected inside the content of a website. A blog post on your favourite sports team, for example, might be accompanied by ads from ticket sellers or sports memorabilia vendors. Ads can also be targeted based on other criteria, such as the profile of the user visiting a web page. And Google will also serve ads to be displayed inside apps, as well. AdSense and similar online ad networks provide advertisers with access to the long tail of niche websites by offering both increased opportunities for ad exposure as well as more-refined targeting opportunities. Figure 18.8 The images show advertising embedded around a story on the New York Times website. The page runs several ads provided by different ad networks. For example, the WebEx banner ad above the article’s headline was served by the AOL Advertising network. The “Ads by Google” box appeared at the end of the article. Note how the Google ads are related to the content of the Times article. Some 65 percent of the top 200 ad-supported websites use AdSense for at least a portion of their ad revenue. Google’s AdSense program forks over more than $7 billion a year to more than 2 million publishers. There are now quite a few AdSense millionaires. Running ads on your website is by no means a guaranteed path to profits. The Internet graveyard is full of firms that thought they’d be able to sustain their businesses on ads alone. But for many websites, ad networks can be like oxygen, sustaining them with revenue opportunities they’d never be able to achieve on their own. AdSense content publishers ranging from the history buff behind HistoryOrb.com to the green-thumbed, silver-haired schoolteacher heading MooseysCountryGarden.com have quit their day jobs and now live off of their AdSense-fuelled businesses. Handyman column writer Tim Carter saw his first-year AdSense income leap to more than $350,000. AdSense even provided early revenue for the multimillion-dollar TechCrunch media empire (now owned by AOL, which itself is owned by Verizon). Figure 18.9 Tim Carter’s Ask the Builder website runs ads from Google and other ad networks. Note different ad formats surrounding the content. Video ads are also integrated into many of the site’s video tutorials. Beware the Content Adjacency Problem Contextual advertising based on keywords is lucrative, but like all technology solutions it has its limitations. Vendors sometimes suffer from content adjacency problems when ads appear alongside text they’d prefer to avoid. In one particularly embarrassing example, a New York Post article detailed a gruesome murder where hacked up body parts were stowed in suitcases. The online version of the article included contextual advertising and was accompanied by…luggage ads. To combat embarrassment, ad networks provide opportunities for both advertisers and content providers to screen out potentially undesirable pairings based on factors like vendor, website, and category. Advertisers can also use negative keywords, which tell networks to avoid showing ads when specific words appear (e.g., setting negative keywords to “murder” or “killer” could have spared luggage advertisers from the embarrassing problem mentioned above). Ad networks also refine ad-placement software based on feedback from prior incidents (for more about content adjacency problems, see Chapter 11 “Facebook: A Billion-plus users, the High-Stakes Move to Mobile, and Big Business from the Social Graph”). Google bundles its third-party AdSense partners in with its own content properties (e.g., YouTube, Google Finance, Blogger, Gmail), calling this big pool of distribution for your ads the Google Display Network. And Google is by no means the only company to run an ad network; nor was it the first to come up with the idea. Rivals include Yahoo! and AOL’s Advertising.com. Advertisers also aren’t limited to choosing just one ad network. In fact, many websites will serve ads from several ad networks (as well as exclusive space sold by their own sales force), oftentimes mixing several different offerings on the same page. Ad Networks and Competitive Advantage While advertisers can use multiple ad networks, there are several key strategic factors driving the industry. For Google, its ad network is a distribution play. The ability to reach more potential customers across more websites attracts more advertisers to Google. And content providers (the websites that distribute these ads) want there to be as many advertisers as possible in the ad networks that they join, since this should increase the price of advertising, the number of ads served, and the accuracy of user targeting. If advertisers attract content providers, which in turn attract more advertisers, then we’ve just described network effects! It also doesn’t hurt that Google’s search ad business is a great way to gain exposure for its other ad offerings, as well. More participants bringing in more revenue also help the firm benefit from scale economies—offering a better return on investment from its ad technology and infrastructure. All this has worked to help Google build an ad network that serves nearly four times the ads of its nearest rival. No wonder Google’s been on such a tear—the firm’s loaded with assets for competitive advantage! 18.6 More Ad Formats and Payment Schemes LEARNING OBJECTIVES 1. Know the different formats and media types that Web ads can be displayed in. 2. Know the different ways ads are sold. 3. Know that games can be an ad channel under the correct conditions. Online ads aren’t just about text ads paid for on a cost-per-click (CPC) basis. Ads running through the Google Display Network, or on most competitor networks can be displayed in several formats and media types, and can be billed in different ways. The specific ad formats supported depend on the ad network but can include the following: display (or image) ads (such as horizontally oriented banners, smaller rectangular buttons, and vertically oriented “skyscraper” ads); rich media ads (which can include animation or video and sometimes encourage user engagement or interaction); and interstitials (ads that run before a user arrives at his or her intended destination in a website or app). There are also various formats for other forms of digital advertising, as such video and in-app ads. The industry trade group, the Internet Advertising Bureau (IAB), sets common standards for display ads so that a single creative (the design and content of the advertisement) can run unmodified across multiple ad networks and websites. And there are lots of other ways ads are sold besides cost-per-click. Most graphical display ads are sold according to the number of times the ad appears (the number of impressions). Ad rates are quoted in CPM, meaning cost per thousand impressions (the M representing the Roman numeral for one thousand). Display ads sold on a CPM basis are often used as part of branding campaigns targeted more at creating awareness than generating click-throughs. Such techniques often work best for promoting products like soft drinks, toothpaste, or movies. Cost-per-action (CPA) ads pay whenever a user responds to an ad by performing a specified activity such as signing up for a service, requesting material, or making a purchase. Affiliate programs are a form of cost-per-action, where vendors share a percentage of revenue with websites that direct purchasing customers to their online storefronts. Amazon runs the world’s largest affiliate program, and referring sites can earn 4 percent to 15 percent of sales generated from these click-throughs. Purists might not consider affiliate programs as advertising (rather than text or banner ads, Amazon’s affiliates offer links and product descriptions that point back to Amazon’s website), but these programs can be important tools in a firm’s promotional arsenal. And rather than buying targeted ads, a firm might sometimes opt to become an exclusive advertiser on a site. For example, a firm can purchase all ads served on a site’s main page; it could secure exclusive access to a region of the page (such as the topmost banner ad); or it may pay to sponsor a particular portion or activity on a website (say a parenting forum, or a “click-to-print” button). Such deals can be billed based on a flat rate, CPM, CPC, or any combination of metrics.   18.7 Customer Profiling and Behavioural Targeting LEARNING OBJECTIVES 1. Be familiar with various tracking technologies and how they are used for customer profiling and ad targeting. 2. Understand why customer profiling is both valuable and controversial. 3. Recognise steps that organisations can take to help ease consumer and governmental concerns. Advertisers are willing to pay more for ads that have a greater chance of reaching their target audience, and online firms have a number of targeting tools at their disposal. Much of this targeting occurs whenever you visit a website, where a behind-the-scenes software dialogue takes place between Web browser and Web server that can reveal a number of pieces of information, including IP address, the type of browser used, the computer type, its operating system, and unique identifiers, called cookies. And remember, any server that serves you content can leverage these profiling technologies. You might be profiled not just by the website that you’re visiting (e.g., nytimes.com), but also by any ad networks that serve ads on that site (e.g., Google, AOL, Yahoo!/Bing). IP addresses are leveraged extensively in customer profiling. An IP address not only helps with geolocation, it can also indicate a browser’s employer or university, which can be further matched with information such as firm size or industry. IBM has used IP targeting to tailor its college recruiting banner ads to specific schools, for example, “There Is Life After Boston College, Click Here to See Why.” That campaign garnered click-through rates ranging from 5 to 30 percent compared to average rates that are currently well below 1 percent for untargeted banner ads. DoubleClick once even served a banner that included a personal message for an executive at then-client Modem Media. The ad, reading “Congratulations on the twins, John Nardone,” was served across hundreds of sites, but was only visible from computers that accessed the Internet from the Modem Media corporate network. The ability to identify a surfer’s computer, browser, or operating system can also be used to target tech ads. For example, Google might pitch its Chrome browser to users detected running Internet Explorer, Firefox, or Safari; while Apple could target Mac ads just to Windows users. But perhaps the greatest degree of personalisation and targeting comes from cookies. Visit a website for the first time, and in most cases, a dialogue between server and browser takes place that goes something like this: Server: Have I seen you before? Browser: No. Server: Then take this unique string of numbers and letters (called a cookie). I’ll use it to recognise you from now on. The cookie is just a line of identifying text assigned and retrieved by a given Web server and stored on your computer by your browser. Upon accepting this cookie your browser has been tagged, like an animal. As you surf around the firm’s website, that cookie can be used to build a profile associated with your activities. If you’re on a portal like Yahoo! you might type in your zip code, enter stocks that you’d like to track, and identify the sports teams you’d like to see scores for. The next time you return to the website, your browser responds to the server’s “Have I seen you before?” question with the equivalent of “Yes, you know me,” and it presents the cookie that the site gave you earlier. The site can then match this cookie against your browsing profile, showing you the weather, stock quotes, sports scores, and other info that it thinks you’re interested in. Google and others provide a service called remarketing (also called retargeting), where site operators can tag users according to which page they visit on their site. They can then use this info to serve up tailored ads and special offers to that user as they browse the Web. Visited a scuba suit page on an e-commerce site? That same website can target you with special promotions, custom ads, or even dynamically generated ads when searching Google or visiting any site in the Google Display Network. Cookies are used for lots of purposes. Retail websites like Amazon use cookies to pay attention to what you’ve shopped for and bought, tailoring websites to display products that the firm suspects you’ll be most interested in. Sites also use cookies to keep track of what you put in an online “shopping cart,” so if you quit browsing before making a purchase, these items will reappear the next time you visit. And many websites also use cookies as part of a “remember me” feature, storing user IDs and passwords. Beware this last one! If you check the “remember me” box on a public Web browser, the next person who uses that browser is potentially using your cookie, and can log in as you! An organisation can’t read cookies that it did not give you. So businessweek.com can’t tell if you’ve also got cookies from forbes.com. But you can see all of the cookies in your browser. Take a look and you’ll almost certainly see cookies from dozens of websites that you’ve never visited before. These are third-party cookies (sometimes called tracking cookies), and they are usually served by ad networks or other customer profiling firms. By serving and tracking cookies in ads shown across partner sites, ad networks can build detailed browsing profiles that include sites visited, specific pages viewed, duration of visit, and the types of ads you’ve seen and responded to. And that surfing might give an advertising network a better guess at demographics like gender, age, marital status, and more. Visit a new parent site and expect to see nappy ads in the future, even when you’re surfing for news or sports scores! Figure 18.10 The Preferences setting in most Web browsers allows you to see its cookies. This browser has received cookies from several ad networks, media sites, and the University of Minnesota Carlson School of Management. But What If I Don’t Want a Cookie! If all of this creeps you out, remember that you’re in control. The most popular Web browsers allow you to block all cookies, block just third-party cookies, purge your cookie file, or even ask for your approval before accepting a cookie. Of course, if you block cookies, you block any benefits that come along with them, and some website features may require cookies to work properly. Also note that while deleting a cookie breaks a link between your browser and that website, if you supply identifying information in the future (say by logging into an old profile), the site might be able to assign your old profile data to the new cookie. While the Internet offers targeting technologies that go way beyond traditional television, print, and radio offerings, none of these techniques is perfect. Since users are regularly assigned different IP addresses as they connect and disconnect from various physical and Wi-Fi networks, IP targeting can’t reliably identify individual users. Cookies also have their weaknesses. They’re assigned by browsers and associated with a given user’s account on that computer. That means that if several people use the same browser on the same computer without logging on to that machine as separate users, then all their Web surfing activity may be mixed into the same cookie profile. (One solution is to create different log-in accounts on that computer. Your PC will then keep separate cookies for each account.) Some users might also use different browsers on the same machine or use different computers. Unless a firm has a way to match up these different cookies assigned across browsers (say by linking cookies on separate machines to a single log-in used at multiple locations), then a site may be working with multiple, incomplete profiles. Big Data Analytics: Even for the Little Guy In order to help arm firms with the insight needed for SEO, SEM, improved website design, and effective online marketing and promotion, Google offers a suite of tracking and analysis tools via a service it calls Google Analytics. The base service is offered free to websites of all sizes, with premium offerings and support available for a fee. Using analytics, a content provider can collect statistics on their website or app’s traffic, traffic sources (search engine, website, app, geographic origin, or even e-mail or .pdf link), user behaviour on site (new/returning visitor stats, pages visited, etc.), sales and advertising success, social media analysis, and more. Analytics typically involve harvesting data that browsers and servers produce on their own, along with data from pages and apps that a firm will tag in advance and data from tracking cookies used to identify users. Google Analytics has more than an 80 percent market share. Sample Screens from Google Analytics Reports Source: Google. Apps, Mobile Browsing, and Default Settings: The Shifting Landscape of Profiling Technology Mobile apps don’t use cookies, as they’re a Web-based technology. The technologies for providing a cookie-like feature in mobile apps continue to be developed. Google offers an in-app tracking scheme called Advertising ID; Apple’s is called IDFA (Identifier for Advertisers). These technologies are critical for tracking things like ad impression views and click-throughs, but the two schemes behave differently and standards for both schemes have changed in just the past year. Apple’s Safari browser also disables third-party cookies by default. This is a big deal because while Android holds a much larger market share than iOS, Apple users browse way more than anyone else, and Safari holds more than 50 percent share of mobile browser usage.Microsoft has also disabled cookies as the default option for Internet Explorer.When these settings are in effect, traditional cookie-based user profiling by ad networks simply isn’t possible. Apple has also shut down another way mobile users were being tracked using the MAC (media access control) address. The MAC address is a permanent and unique identifier baked into every network-connected device (think of it as an unchanging IP address). All desktop, laptop, tablets, and smartphones have a MAC address. Many retailers were using MAC addresses on Wi-Fi enabled phones to surreptitiously track store foot traffic. In iOS8, Apple began randomizing the MAC number when these sorts of “Wi-Fi probe” requests were made, making it impossible to rely on any reported MAC number as a unique identifier for a repeat visitor. Apple is promoting a new location-based tracking system called iBeacon, which uses Bluetooth and (unlike MAC address snooping) can be turned off by users who wish to stay anonymous. Taken collectively, these developments show that tracking technologies remain in flux, what works on the desktop doesn’t necessarily work on mobile, and that default settings may be changed over time in ways that make life difficult for Google and other firms that rely on digital ad revenue. One analyst suggests that about half of all digital advertising spending leverages third-party cookies, and the shifts previously mentioned put these dollars in jeopardy. [8] Anyone with a stake in the digital advertising world—that is, advertisers, content operators, ad networks, even employees, investors, and regulators—will need to continually monitor the shifting landscape. It’s not an understatement to say that billions in revenues are at stake. KEY TAKEAWAYS • The communication between Web browser and Web server can identify IP address, the type of browser used, the computer type, its operating system, time and date of access, and duration of Web page visit, and can read and assign unique identifiers, called cookies—all of which can be used in customer profiling and ad targeting. • An IP address not only helps with geolocation; it can also be matched against other databases to identify the organisation providing the user with Internet access (such as a firm or university), that organisation’s industry, size, and related statistics. • A cookie is a unique line of identifying text, assigned and retrieved by a given Web server and stored on a computer by the browser, that can be used to build a profile associated with your Web activities. • The most popular Web browsers allow you to block all cookies, block just third-party cookies, purge your cookie file, or even ask for your approval before accepting a cookie. • Retargeting, or remarketing, allows advertisers to serve targeted ads to consumers who may have viewed a product page but did not buy that product. Google and other ad networks support retargeting. • Cookies are a web-based technology, so they don’t work in apps. Firms like Google and Apple have app-based tracking technology to help monetise ads (tracking click and impressions), but these technologies differ across platforms. • Apple and Microsoft have also limited the use of cookies in their browser and mobile products. Apple has also shut off the ability of third parties to reach the MAC address, a unique number that many used to track mobile users. All these developments suggest that the future of profiling and ad technology is in flux, and managers who have a stake in this game will need to pay attention to future developments.   18.8 Profiling and Privacy LEARNING OBJECTIVES 1. Understand the privacy concerns that arise as a result of using third-party or tracking cookies to build user profiles. 2. Be aware of the negative consequences that could result from the misuse of third-party or tracking cookies. 3. Know the steps Google has taken to demonstrate its sensitivity to privacy issues. 4. Know the kinds of user information that Google stores, and the steps Google takes to protect the privacy of that information. While AdSense has been wildly successful, contextual advertising has its limits. For example, what kind of useful targeting can firms really do based on the text of a news item on North Korean nuclear testing? [1] For more accurate targeting, Google offers what it calls “interest-based ads,” which is based on a third-party cookie that tracks browsing activity across Google properties and AdSense partner sites. AdSense builds a profile, identifying users within dozens of broad categories and over six hundred subcategories.Of course, there’s a financial incentive to do this too. Ads deemed more interesting should garner more clicks, meaning more potential customer leads for advertisers, more revenue for websites that run AdSense, and more money for Google. Click-throughs and online purchases are great, but online ads influence offline sales, too. Deloitte Consulting estimates that in 2014, some 28 percent of sales in stores, or $970 billion, was influenced by mobile devices. That’s more than three times the overall online sales figure of roughly $300 billion that year.If Google can prove its ads drive in-store sales, it can make the case for greater online ad spending. In a scheme similar to Facebook’s, Google is partnering with Axciom, a firm that collect information on customer e-mail addresses. If the Google cookie can be matched to a user’s e-mail address, then we can identify that a user has seen an ad. If that user walks into a store, buys something, and the vendor can match their e-mail address to that purchase (perhaps they gave it to receive e-mail coupons, a loyalty card, or they’ve previously bought online), then a trail from “Saw the ad” to “bought the product” can be drawn. To avoid a total user creep-out, the user-tracking is collected and reported in aggregate and anonymously, and that in this system, no identifying information on users is stored or reported. It’s also far from a completely representative system. On Android phones Google’s partners can connect just 15 to 20 percent of mobile ads to a customer account, and far fewer for harder-to-track iPhones, but for some retailers, that’s enough of a sample to demonstrate ROI on ad spending. Home Depot’s VP of Online Marketing says the data “confirmed our commitment” to search ads on smartphones.Target execs claim that one-third of Target’s mobile-search ads led to a user visiting one of its stores during the 2014 holiday season. While targeting can benefit Web surfers, users will resist if they feel that they are being mistreated, exploited, or put at risk. Negative backlash might also result in a change in legislation. The US Federal Trade Commission has already called for more transparency and user control in online advertising and for requesting user consent (opt-in) when collecting sensitive data. Mishandled user privacy could curtail targeting opportunities, limiting growth across the online advertising field. And with less ad support, many of the Internet’s free services could suffer. Figure 18.11 Here’s an example of one user’s interests, as tracked by Google’s “Interest-based Ads” and displayed in the firm’s “Ad Preferences Manager.” Google’s roll-out of interest-based ads shows the firm’s sensitivity to these issues. The firm has also placed significant control in the hands of users, with options at program launch that were notably more robust than those of its competitors.Each interest-based ad is accompanied by an “Ads by Google” link that will bring users to a page describing Google advertising and which provides access to the company’s “Ads Preferences Manager.” This tool allows surfers to see any of the hundreds of potential categorisations that Google has assigned to that browser’s tracking cookie. Users can remove categorisations, and even add interests if they want to improve ad targeting. Some topics are too sensitive to track, and the technology avoids profiling race, religion, sexual orientation, health, political or trade union affiliation, and certain financial categories. Google also allows users to install a cookie that opts them out of interest-based tracking. And since browser cookies can expire or be deleted, the firm has gone a step further, offering a browser plug-in that will remain permanent, even if a user’s opt-out cookie is purged. Google, Privacy Advocates, and the Law Google’s moves are meant to demonstrate transparency in its ad targeting technology, and the firm’s policies may help raise the collective privacy bar for the industry. While privacy advocates have praised Google’s efforts to put more control in the hands of users, many continue to voice concern over what they see as the increasing amount of information that the firm houses. For an avid user, Google could conceivably be holding e-mail (Gmail), photos (Picasa), social media activity (Google+), a Web surfing profile (AdSense and DoubleClick), location (Google Maps), appointments (Google Calendar), music and other media (Google Play), files stored in the cloud (Google Drive), transcripts of phone messages (Google Voice), work files (Google Docs), and more. Google insists that reports portraying it as a data-hoarding Big Brother are inaccurate. Data is not sold to third parties. Any targeting is fully disclosed, with users empowered to opt out at all levels.Google has introduced several tools, including Google Dashboard and Google Ad Preferences Manager, that allow users to see information Google stores about them, clear their browsing history, and selectively delete collected data.But critics counter that corporate intentions and data use policies (articulated in a website’s Terms of Service) can change over time, and that a firm’s good behaviour today is no guarantee of good behaviour in the future. Google has modified its policy several times in the past, including changes that now allow the firm to link search history to ad targeting. It has also unified its privacy policy in a way that allows for greater profiling, sharing, and tailored services across Google offerings. Google does enjoy a lot of user goodwill, and it is widely recognised for its unofficial motto “Don’t Be Evil.” However, some worry that even though Google might not be evil, it could still make a mistake, and that despite its best intentions, a security breach or employee error could leave data dangerously or embarrassingly exposed. Gaffes have repeatedly occurred. A system flaw inadvertently shared some Google Docs with contacts who were never granted access to them. When the firm introduced its now-scuttled Google Buzz social networking service, many users were horrified that their most frequently used Gmail contacts were automatically added to Buzz, allowing others to see who you’re communicating with. As one report explained, “Suddenly, journalists’ clandestine contacts were exposed, secret affairs became dramatically less secret, and stalkers obtained a new tool to harass their victims. Oops.” Google admitted that some of its “Street View” cars, while driving through neighbourhoods and taking photos for Google maps, had inadvertently collected personal data, including e-mails and passwords.Google scrambled to plug a hole that could potentially allow hackers to access the contacts, calendars, and photos on Android phones connecting to the Internet over open Wi-Fi networks.A rogue employee was fired for violating the firm’s strict guidelines and procedures on information access.In addition, the firm has been accused of bypassing privacy settings in Apple’s Safari Web browser in order to better track users. Privacy advocates also worry that the amount of data stored by Google serves as one-stop shopping for litigators and government investigators—a concern that gained even more attention following the disclosure of the US government’s Prism surveillance program. The counterargument points to the fact that Google has continually reflected an aggressive defence of data privacy in court cases. Following Prism disclosures, Google asked the US Foreign Intelligence Surveillance Court to rescind a gag order barring the firm from revealing government information requests. When Viacom sued Google over copyright violations in YouTube, the search giant successfully fought the original subpoena, which had requested user-identifying information. Google has also resisted Justice Department subpoenas for search queries, while rivals have complied.Google has also claimed that it has been targeted by some foreign governments that are deliberately hacking or interfering with the firm’s services in order to quash some information sharing and to uncover dissident activity. Google is increasingly finding itself in precedent-setting cases where the law is vague. Google’s Street View, for example, has been the target of legal action in the United States, Canada, Japan, Greece, and the United Kingdom. Varying legal environments create a challenge to the global rollout of any data-driven initiative. European courts have ruled that EU citizens have the so-called right to be forgotten and can demand that search engines remove links to information deemed “inadequate, irrelevant or no longer relevant, or excessive in relation to the purposes for which they were processed.”Does this sound vague? Enforcement of this ruling may be challenging for Google. And rivals are ready to cast Google as a voracious data tracker. Apple has begun to play up the firm’s contrast with Google, claiming “You are not our product.” Ad targeting brings to a head issues of opportunity, privacy, security, risk, and legislation. Google is now taking a more active public relations and lobbying role to prevent misperceptions and to be sure its positions are understood. While the field continues to evolve, Google’s experience will lay the groundwork for the future of personalised technology and provide a case study for other firms that need to strike the right balance between utility and privacy. Despite differences, it seems clear to Google, its advocates, and its detractors that with great power comes great responsibility. KEY TAKEAWAYS • Possible consequences resulting from the misuse of customer tracking and profiling technologies include user resistance and legislation. Mishandled user privacy could curtail targeting opportunities and limit growth in online advertising. With less ad support, many of the Internet’s free services could suffer. • Google has taken several steps to protect user privacy. The firm offers several tools that enable users not only to see information that Google collects but also to delete, pause, or modify data collection and profiling terms. • Google’s “Ads Preferences Manager” allows surfers to see, remove, and add to any of the categorisations that Google has assigned to that browser’s tracking cookie. The technology also avoids targeting certain sensitive topics. The firm’s Privacy Dashboard provides additional access to and user control over Google’s profiling and data collection. • Google allows users to install a cookie or plug-in that opts them out of interest-based tracking. • Google has begun to partner with third-party firms to tie together its data on consumer ad viewership to in-store visits. While not perfect, the data has shown that many users who view online ads go on to make in store purchases. Google’s data is reported in aggregate, and not on any individual user. • Some privacy advocates have voiced concern over what they see as the increasing amount of information that Google and other firms collect. Apple is among the firms that have contrasted their approach to products, privacy, and business models with Google’s ad-driven, profiling methods. • Even the best-intentioned and most competent firms can have a security breach that compromises stored information. Google has suffered privacy breaches from product flaws and poorly planned feature rollouts, as well as deliberate hacks and attacks. The firm has also changed policies regarding data collection and privacy as its services have evolved. Such issues may lead to further investigation, legislation, and regulation.   18.9 Search Engines, Ad Networks, and Fraud LEARNING OBJECTIVES 1. Be able to identify various types of online fraud, as well as the techniques and technologies used to perpetrate these crimes. 2. Understand how firms can detect, prevent, and prosecute fraudsters. There’s a lot of money to be made online, and this has drawn the attention of criminals and the nefarious. Online fraudsters may attempt to steal from advertisers, harm rivals, or otherwise dishonestly game the system. But bad guys beware—such attempts violate terms-of-service agreements and may lead to prosecution and jail time. Studying ad-related fraud helps marketers, managers, and technologists understand potential vulnerabilities, as well as the methods used to combat them. This process also builds tech-centric critical thinking, valuation, and risk assessment skills. Some of the more common types of fraud that are attempted in online advertising include the following: • Enriching click fraud—when site operators generate bogus ad clicks to earn CPC income. • Enriching impression fraud—when site operators generate false page views (and hence ad impressions) in order to boost their site’s CPM earnings. • Depleting click fraud—clicking a rival’s ads to exhaust their CPC advertising budget. • Depleting impression fraud—generating bogus impressions to exhaust a rival’s CPM ad budget. • Rank-based impression fraud—on sites where ad rank is based on click performance, fraudsters repeatedly search keywords linked to rival ads or access pages where rival ads appear. The goal is to generate impressions without clicks. This process lowers the performance rank (quality score) of a rival’s ads, possibly dropping ads from rank results, and allowing fraudsters to subsequently bid less for the advertising slots previously occupied by rivals. • Disbarring fraud—attempting to frame a rival by generating bogus clicks or impressions that appear to be associated with the rival, in hopes that this rival will be banned from an ad network or punished in search engine listings. • Link fraud (also known as spamdexing or link farming)—creating a series of bogus websites, all linking back to a page, in hopes of increasing that page’s results in organic search. • Keyword stuffing—packing a website with unrelated keywords (sometimes hidden in fonts that are the same colour as a website’s background) in hopes of either luring users who wouldn’t normally visit a website, or attracting higher-value contextual ads. • Social influence fraud—generating fake followers, likes, +1s, retweets, shares, or YouTube views. Disturbing stuff, but firms are after the bad guys and they’ve put their best geeks on the case. Widespread fraud would tank advertiser ROI and crater the online advertising market, so Google and rivals are diligently working to uncover and prosecute the crooks. Busting the Bad Guys On the surface, enriching click fraud seems the easiest to exploit. Just set up a website, run CPC ads on the page, and click like crazy. Each click should ring the ad network cash register, and a portion of those funds will be passed on to the perpetrating site owner—ka ching! But remember, each visitor is identified by an IP address, so lots of clicks from a single IP make the bad guys easy to spot. So organised crime tried to raise the bar, running so-called click farms to spread fraud across dozens of IP addresses. The Times of India uncovered one such effort where Indian housewives were receiving up to twenty-five cents for each ad click made on fraudster-run websites.But an unusually large number of clicks detected as coming from Indian IP addresses foiled these schemes as well. Fraudsters then moved on to use botnets or zombie networks—hordes of surreptitiously infiltrated computers, linked and controlled by rogue software.To create botnets, hackers exploit security holes, spread viruses, or use so-called phishing techniques to trick users into installing software that will lie dormant, awaiting commands from a central location. The controlling machine then sends out tasks for each bot (or zombie), instructing them to visit websites and click on ads in a way that mimics real traffic. The ZeroAccess botnet is said to have infected over 9 million PCs worldwide that were used in click fraud schemes, among other scams. Figure 18.12 Spread of the ZeroAccess Botnet Source: Sophos, http://nakedsecurity.sophos.com/2012/09/19/zeroaccess-botnet-uncovered. Scary, but this is where scale, expertise, and experience come in. The more activity an ad network can monitor, the greater the chance that it can uncover patterns that are anomalous. Higher click-through rates than comparable sites? Caught.Too many visits to a new or obscure site?Caught.Clicks that don’t fit standard surfing patterns for geography, time, and day?Caught. Sometimes the goal isn’t theft, but sabotage. Google’s Ad Traffic Quality Team backtracked through unusual patterns to uncover a protest effort targeted at Japanese credit card firms. Ad clicks were eventually traced to an incendiary blogger who incited readers to search for the Japanese word kiyashinku (meaning cashing credit, or credit cards), and to click the credit card firm ads that show up, depleting firm search marketing budgets. Sneaky, but uncovered and shut down, without harm to the advertisers. Social influence fraud is used for many things: ego stroking (my follower count is bigger than yours), attempts at creating social proof (e.g., with so many followers this must be legitimate), attempts at making a post seem popular in hopes it will be highlighted and promoted to others (e.g., trending, among "top tweets"), and trying to influence search results (since Google and Bing take social media into account when computing organic rankings). Among the well-known accused of social influence fraud: Pepsi, Coca-Cola, Mercedes-Benz, and Louis Vuitton, 50 Cent, Paris Hilton, Mitt Romey,and even the US State Department.A New Republic piece on “farms” for creating fake social influence included a photograph of one Philippines-based boss of bogusness pictured lounging on hundreds of brick-like stacks of SIM cards used by his extensive staff to create the perception that social accounts are the work of individual users on separate phones. Search firm and ad network software can use data patterns and other signals to ferret out most other types of fraud, too, including rank-based impression fraud, spamdexing, keyword stuffing, and social influence fraud. While many have tried to up the stakes with increasingly sophisticated attacks, large ad networks have worked to match them, increasing their anomaly detection capabilities across all types of fraud. [8] Here we see another scale and data-based advantage for Google. Since the firm serves more search results and advertisements than its rivals do, it has vastly more information on online activity. And if it knows more about what’s happening online than any other firm, it’s likely to be first to shut down anyone who tries to take advantage of the system. The tech behind fraud busting is impressive. Tech Google developed in house, called PowerDrill, has been described as “a freak computer system” capable of processing a half trillion cells of data in less than five seconds.The system looks for fraud patterns and also spits out graphical representations for human inspection. A sort of Turing test emerges from the data. If what turns up doesn’t follow patterns you’d expect from human–for example, if clicks look too evenly distributed or concentrated in certain places (e.g., uniformly around the edges of some ads instead of being distributed like most other ads), then that’s a give-away. Click Fraud: How Bad Is It? The rise in ad fraud botnets has come about because other security is getting stronger. Despite repeated high-profile data breaches, banks are tougher to hack, and credit cards are becoming more secure. AdAge claims ad fraud is “the most lucrative endeavour a cybercriminal can undertake today,” and, says one expert interviewed, “We're at a point now where malware is being used principally for ad fraud.”Accounts on the actual rate of click fraud vary widely. A study by the Association of National Advertisers and the anti-fraud consultancy, White Ops, pegs ad fraud losses in 2015 at an estimated $6.3 billion.Some third-party firms contend that nearly one in five clicks is fraudulent. But Google adamantly disputes these headline-grabbing numbers, claiming that many such reports are based on logs that reflect false data from conditions that Google doesn’t charge for (e.g., double counting a double click, or adding up repeated use of the browser back button in a way that looks like multiple clicks have occurred). The firm also offers monitoring, analytics, and reporting tools that can uncover this kind of misperceived discrepancy. Google contends that all invalid clicks (mistakes and fraud) represent less than 10 percent of all clicks, that the vast majority of these clicks are filtered out, and that Google doesn’t charge advertisers for clicks flagged as mistakes or suspicious. In fact, Google says their screening bar is so high and so accurate that less than 0.02 percent of clicks are reactively classified as invalid and credited back to advertisers. So who’s right? While it’s impossible to identify the intention behind every click, the market ultimately pays for performance. And advertisers are continuing to flock to CPC ad networks (and to Google in particular). While that doesn’t mean that firms can stop being vigilant, it does suggest that for most firms, Google seems to have the problem under control. KEY TAKEAWAYS • Fraud can undermine the revenue model behind search engines, ad networks, and the ad-based Internet. It also threatens honest competition among rivals that advertise online. • There are many forms of online fraud, including enriching fraud (meant to line the pockets of the perpetrators), depleting fraud (meant to waste the ad budgets of rivals), disbarring fraud (meant to frame the innocent as fraudsters), and methods to lower rival ad rank performance, or gain search engine ranking algorithms. • While fraudsters have devised ingenious ways to exploit the system (including click farms and botnets), IP addresses and detailed usage pattern monitoring increasingly reveal bogus activity. • Fraud rates are widely disputed. However, it is clear that if widespread fraud were allowed to occur, advertisers would see lower ROI from online ad efforts, and Internet business models would suffer. The continued strength of the online advertising market suggests that while fraud may be impossible to stop completely, most fraud is under control.   18.10 The Battle Unfolds LEARNING OBJECTIVES 1. Understand the challenges of maintaining growth as a business and industry mature. 2. Recognise how technology is a catalyst, causing the businesses of many firms in a variety of industries to converge and compete, and that as a result of this, Google is active on multiple competitive fronts. 3. Critically evaluate the risks and challenges of businesses that Google, Microsoft, and other firms are entering. 4. Appreciate the magnitude of this impending competition, and recognise the competitive forces that will help distinguish winners from losers. Google has been growing like gangbusters, but the firm’s twin engines of revenue growth—ads served on search and through its ad networks—will inevitably mature. And it will likely be difficult for Google to find new growth markets that are as lucrative as these. Emerging advertising outlets such as social networks and mobile have lower click-through rates than conventional advertising,and Google has struggled to develop a presence in social media—trends suggesting that Google will have to work harder for less money. Google’s reorganisation as a holding firm named Alphabet with a Google subsidiary breaks many of the new, smaller, riskier but potentially growth-oriented efforts into separate businesses. Says co-founder Page, the firm chose the name alpha-bet as a bet on the financial term alpha, which refers to “investment return above benchmark.”An additional way to think of this is that Google is hoping to be the first (alpha) big player to double-down (bet) on risky but promising new markets. To understand what can happen when maturity hits, look at Microsoft. The house that Gates built is more profitable than Google (roughly $22 billion versus about $14.5 billion in 2014) and continues to dominate the incredibly lucrative markets served by Windows and Office. But these markets haven’t grown much for over a decade. In industrialised nations, most Windows and Office purchases come not from growth, but when existing users upgrade or buy new machines. And without substantial year-on-year growth, the stock price doesn’t move. Figure 18.13 A Comparison of Stock Price Change—Google (GOOG) versus Microsoft (MSFT) [4] For big firms like Microsoft and Google, pushing stock price north requires not just new markets, but billion-dollar ones. Adding even $100 million in new revenues doesn’t do much for firms bringing in nearly $87 billion and $66 billion a year, respectively. That’s why you see Microsoft swinging for the fences, investing in the uncertain but potentially gargantuan markets of video games, mobile phone software, cloud computing (see Chapter 14 “Software in Flux: Open Source, Cloud, Virtualised and App-driven Shifts”) music, video, virtual and augmented reality, and of course, search and everything else that fuels online ad revenue. Finding new billion-dollar markets is wonderful, but rare. Apple seems to have done it with the iPhone and iPad. But trying to unseat a dominant leader possessing strategic resources can be ferociously expensive, with unclear prospects for success. Microsoft’s Bing group lost over $2 billion over just nine months, winning almost no share from Google despite the lavish spend. Search: Google Rules, but It Ain’t Over PageRank is by no means the last word in search, and offerings from Google and its rivals continue to evolve. Google supplements PageRank results with news, photos, video, and other categories. Yahoo! is continually refining its search algorithms and presentation. And Microsoft’s third entry into the search market, the “decision engine” Bing, sports nifty tweaks for specific kinds of queries. Restaurant searches in Bing are bundled with ratings stars, product searches show up with reviews and price comparisons, and airline flight searches not only list flight schedules and fares, but also a projection on whether those fares are likely to go up or down. Apple’s Siri service delivers search results from Bing, not Google, offering a potentially key new channel for pumping up Bing search volume. Apple is also aggressively cutting deals with category players like Yelp and the Weather Channel, and iOS has empowered app firms to integrate Siri into their own offerings, as well, all of which further cut Google out of new emerging channels for search. Google is the default search in iOS, but that costs Google $1 billion, plus a percentage of resulting search revenue. Alternative tools like the Wolfram Alpha “knowledge engine” move beyond Web page rankings and instead aggregate data for comparison, formatting findings in tables and graphs. Websites are also starting to wrap data in invisible tags that can be recognised by search engines, analysis tools, and other services. If a search engine can tell that a number on a restaurant’s website is, for example, a street address, an average entrée price, or the seating capacity, it will be much easier for computer programs to accurately categorise, compare, and present this information. This is what geeks are talking about when they refer to the semantic Web. Google has begun to draw from several resources on the Web to build its own semantic Web classifications. If you search for “Taj Mahal” on the Web, it presents a summary of the famous Indian landmark, but it also asks if you’d like to see results regarding the Grammy Award-winning musician or the New Jersey casino that also share that same name. And with the Google Now app, the firm is trying to deliver results to you before you even ask for them. Google Now will send you personalised information throughout the day—calendar reminders, weather updates. But it will also take a guess at what you might be interested in—reviews of nearby restaurants if it’s lunchtime, train timetables if you’re at a station, flight info if you’re at an airport. Land in a new city? Google will send hotel and rental car info based on confirmation messages sent to Gmail. Users have to give Google permission to access data from other services, but one can immediately see how on-demand information could be served up not only via phone but also via other products, like Google Glass or Android TV. If imitation is the sincerest form of flatter, then Apple’s Siri has been giving Google some complements. The latest version of the iOS (and its integrated voice assistant) mimics many of the predictive features of Google Now. Looks like users are the winners as constant, deep-pocketed competition creates an imperative for lightning innovation. Figure 18.14Google Goggles returns search results by photographing objects. It can even translate foreign-language text. Source: Google. And who says you need to use words to conduct a search? Google voice search challenges Siri in Android devices and in Google apps. Google Goggles uses the camera in your mobile phone to “enter” search criteria. Snap a picture of a landmark, book, or piece of artwork, for example, and Google will use that image to retrieve search results. The product can even return translations of foreign text. All signs point to more innovation, more competition, and an increasingly more useful Internet! Both Google and Microsoft are on a collision course. But there’s also an impressive roster of additional firms circling this space, each with the potential to be competitors, collaborators, merger partners, or all of the above. While wounded and shrinking, Yahoo! is still a powerhouse, ranking ahead of Google in some overall traffic statistics. Google’s competition with Apple in the mobile phone business prompted Google’s then CEO Eric Schmidt to resign from Apple’s board of directors. Google’s three-quarters-of-a-billion-dollar purchase of the leading mobile advertiser AdMob was quickly followed by Apple snapping up number two mobile ad firm Quattro Wireless for $275 million. Now Google and Apple seem to compete in most markets, with each offering web-based office suites, consumer cloud storage, music systems, TV devices, wearables, home automation software, auto platforms, and more. Add in Amazon, Facebook, eBay, Twitter, Salesforce.com, Netflix, the video game industry, telecom and mobile carriers, cable firms, and the major media companies, and the next few years have the makings of a big, brutal fight. Strategic Issues As outlined earlier, Google enjoys major scale advantages in search, and network effects in advertising. The firm’s dominance helps grow a data asset that can be used in service improvement, all while its expertise in core markets continues to grow over time. Google’s competitive position outside of its core markets is much less clear. Within Google’s ad network, there are switching costs for advertisers and for content providers. Google partners have set up accounts and are familiar with the firm’s tools and analytics. Content providers would also need to modify websites to replace Google-served ads with those from rivals. But choosing Google doesn’t cut out the competition. Many advertisers and content providers participate in multiple ad networks, making it easier to shift business from one firm to another. This likely means that Google will have to keep advertisers by offering superior value rather than relying on lock-in. Facebook’s ad network may pose an especially worrisome threat, as some suggest that Facebook’s profiles contain more accurate demographics than Google collects. Another vulnerability may exist with search consumers. While Google’s brand is strong, switching costs for search users are incredibly low. Move from Google.com to Bing.com and you actually save two letters of typing! Still, there are no signs that Google’s search leadership is in jeopardy. So far users have been creatures of habit; no rival has offered technology compelling enough to woo away the Googling masses. Defeating Google with some sort of technical advantage will be difficult since Web-based innovation can often be quickly imitated. Google now rolls out over 550 tweaks to its search algorithm annually, with many features mimicking or outdoing innovations from rivals. After a multi-year run where Google paid the Mozilla Foundation hundreds of millions of dollars to be featured as the default browser in Firefox, Google has been bumped in favour of Yahoo. Google has shown that if it can’t buy its way into a distribution channel, it can create one. The firm’s Web browser, Chrome, has beaten out Internet Explorer to become the number one product used by Web surfers worldwide. How Big Is Too Big? Microsoft’s dominance has incurred the wrath of regulators in the United States and Europe. The firm spent roughly half of its existence as a corporation battling various antitrust allegations in the United States and billions in settlement fees.European antitrust officials have taken action against Redmond’s bundling Windows Media Player and Internet Explorer with Windows, forcing the firm to offer alternatives alongside its own products and incurring additional fines. Is Google in for a similar or even worse fate? Being big isn’t enough to violate US antitrust laws. Harvard Law School Professor Andrew Gavil says, “You’ve got to be big, and you have to be bad. You have to be both.”While Google has many critics, the firm also has a history of being a relentless supporter of open computing standards. And as mentioned earlier, there’s no forcing users to stick with Google—the firm must continue to win this market on its own merits. That said, a big firm is a big target for attracting serious scrutiny in the United States and abroad. For example, Google was forced to abandon a search advertising partnership with Yahoo! after the Department of Justice indicated its intention to block the agreement (Yahoo! and Microsoft have since inked a deal to share search technology and ad sales). Among the more serious questions: Does Google have an unfair advantage, favouring its own properties, like Maps, YouTube, Google+, and Zagat over rivals? Results from these properties are integrated with Google search, and the toolbar that appears across the top of most Google websites also provides preferred access to Google rather than rival properties. The firm’s regulatory outlook seems to differ by region. In the United States, after a nearly two-year probe, one of the biggest investigations in history (generating over 9 million pages in testimony), the Federal Trade Commission (FTC) has essentially said “no,” at least for now. The FTC voted unanimously to close its antitrust investigation without bringing charges. The ruling concluded that Google’s practices improved search for the benefit of users and that “any negative impact on actual or perceived competitors was incidental to that purpose.” Google does face some minor concessions from the FTC’s work. Firms like Yelp can opt out of having their results scraped by Google and incorporated into search results. Google will stop offering contractual restrictions preventing ad customers from advertising on competing search platforms. And Google must allow firms (including rivals) to license some of its key mobile patents when offered fair compensation. The situation in Europe looks decidedly different. The European Union has accused Google of violating antitrust laws, displaying Google-provided results such as shopping, travel, and insurance, over rival products. Google’s share of the search market in Europe is actually even larger than in the United States, averaging around 90 percent in most countries.The European Union is also investigating Google’s Android business, including tactics requiring hardware firms to comply with the exclusive pre-installation or bundling of Google’s apps and services, and restricting modifications or forks of the Android operating system. Fines have the potential to top $6.5 billion.And as concerns in Europe and elsewhere heat up, there’s no guarantee that continued Google dominance might once again cause the Department of Justice to consider whether Google’s size and practices disadvantage others. Increased antitrust scrutiny is a downside that comes along with the advantages of market-dominating scale. More Ads, More Places, More Formats Google has been a champion of increased Internet access. But altruism aside, more net access also means a greater likelihood of ad revenue. Google’s effort to catalyse Internet use worldwide comes through on multiple fronts. In the United States, Google has supported (with varying degrees of success) efforts to offer free Wi-Fi. Google announced it would offer high-speed, fibre-optic net access to homes in select US cities, with Kansas City, Kansas; Kansas City, Missouri; Provo, Utah; and Austin, Texas chosen for the first roll-outs.The experimental network offers competitively priced Internet access of up to 1 GB per second—that’s one hundred times faster than many Americans have access to today. The networks are meant to be open to other service providers and Google hopes to learn and share insights on how to build high-speed networks more efficiently. Google will also be watching to see how access to ultrahigh-speed networks impacts user behaviour and fuels innovation. Broadband competition from Google seems to be helping even those consumers who don’t choose it, with many competitors matching Google on increased speeds and lower prices.Globally, Google is also a major backer (along with Liberty Global and HSBC) of the O3b satellite network. O3b stands for “the other three billion” of the world’s population who currently lack Internet access. O3b has begun launching multiple satellites circling the globe, blanketing underserved regions with low latency (low delay), high-speed Internet access.Google’s experimental Project Loon hopes to bring the Internet to even more underserved, by blanketing regions with twelve-mile-high balloons that act as floating Internet relay points. If balloons aren’t enough, maybe solar-powered drones beaming Internet access while orbiting continuously at heights that put them above clouds and inclement weather might do the trick. Google’s purchase of Titan Aerospace is reportedly targeted at exactly that prospect.And the firm is experimenting with delivering Internet throughout South Africa via unused or “white” space in the nation’s television broadcast spectrum. Google’s Project Link initiative has also built massive fiberoptic networks in Ghana and Uganda. Instead of selling directly to consumers, Project Link leases Google-built fibre infrastructure to local ISPs and MNOs who then compete to provide lower-cost, higher-capacity coverage to their customers.With Moore’s Law dropping computing costs as world income levels rise, Google hopes to empower the currently disenfranchised masses to start surfing. Good for global economies, good for living standards, and good for Google. For US consumers, Google can also be your wireless provider. Project Fi offers low-cost mobile data plans with unlimited talk, text, and international data roaming with no added fee in 120 countries worldwide, access to hot spots, and a usage-based pricing model where customers receive a refund for the unused data portion of their bill.Google isn’t building its own network Instead it’s becoming an MVNO (Mobile Virtual Network Operator), licensing capacity from T-Mobile and Sprint at a discount for resale under its own brand and plans.Google has said “we don’t intend to be a carrier at scale” but instead will use the network for experimental services and pricing models, influencing telecom firms by example. Initial users will need a Google Nexus 6 phone. Efforts like this mean that for some users, Google will be one of the most vertically integrated tech firms the world has seen, offering OS, services, software, hardware, stores, broadband, and mobile. Google has also successfully lobbied the US government to force wireless telecom carriers to be more open, dismantling what are known in the industry as walled gardens. Before Google’s lobbying efforts, mobile carriers could act as gatekeepers, screening out hardware providers and software services from their networks. Today, paying customers of carriers that operate in the United States have access to a choice of hardware and less restrictive access to websites and services. Android Everywhere Another way Google can lower the cost of surfing is by giving away an operating system and other software. That’s the thinking behind the firm’s Android offering, which started on smartphones and has now extended way beyond your pocket. With Android, Google provides hardware firms with a Linux-based operating system, supporting tools, standards, and an application marketplace akin to Apple’s App Store. Android itself isn’t ad-supported—there aren’t Google ads embedded in the OS. But the hope is that if manufacturers don’t have to write their own software, the cost of various devices will go down. And cheaper devices mean that more users will have access to the Internet. For mobile and tablet users this, of course, means more ads. Android is now the world’s most popular mobile operating system by a long shot—it holds an 80 percent share of the smartphone OS market, according to one survey.Google already controls 97 percent of fast-growing paid search on mobile devices.One analyst estimated that Android brings in $10 per handset in search advertising, helping Google deliver that rare, new billion-dollar growth opportunity sought by large, maturing firms. Android has the largest market share in the tablet OS market.Android Wear is targeted at watches and other wearables. At the launch of Android Auto, some forty car makers signed up to sell vehicles integrated with the OS. After stutter steps with earlier TV initiatives, Android TV (which can be embedded into TVs or sold via a separate box) will bring apps to your living room with a particular emphasis on game play. Android apps are also on Google’s Chromebook, the lightweight laptop that moves much of the hard drive to the cloud—that is Google’s cloud, which further strengthens the switching costs that bind Android users to Big G. So do you think Chromebooks are still a niche? They’ve consistently been the best-selling laptops on Amazon, outpacing Macs and Windows. NPD estimates Chromebooks took 30 percent of US notebook sales in the first half of 2015, a number that may grow now that Chromebooks can run Android apps. Google’s $3.2 billion purchase of Nest, bringing Nest-founder and former Apple iPod Chief Tony Fadell into the Google family, has offered a glimpse of how Android could run your life. For example, when your Android car approaches your empty home, Android could automatically turn on the heat or A/C. Google has even taken a very Android swipe at Facebook’s Oculus VR purchase when it gave out foldable Google Cardboard to developers at the Google I/O conference. Fold it into VR goggles, strap in your Android phone with the included Velcro, look through the embedded lenses to skew the view, and you’ll see Larry and Sergey give a cheeky poke to Zuckerberg’s $2 billion baby.The expansion of apps, hardware, and other offerings in the Android ecosystem strengthens network effects through ever-increasing complementary benefits. Taken in concert, the free OS looks like a clear money maker. Android isn’t without challenges. Since Google doesn’t control hardware sales, Android is a fragmented platform, where only a small fraction of devices upgrade to the latest OS offerings. This hurts Android developers since there are more devices to code and test for (see “Is This Good for Innovation?” in Chapter 8 “Understanding Network Effects: Strategies for Competing in a Platform-Centric, Winner-Take-All World”). It also complicates things for consumers, who may see different user experiences across devices.Amazon uses Android in its various Kindle Fire offerings (i.e., phone, tablet) and TV but has altered the OS so much that many Android apps don’t run on these platforms. Amazon also diverts customers to its own app store rather than Google Play.Google has had similar “forking” squabbles with Samsung and others, and a firm named Cyanogen has raised money from a series of well-known investors, plus Twitter, to build an open source, “Google-free” version of Android. In Case of Emergency, Wear Glass Google Glass, the firm’s wearable headset technology with a tiny screen in the upper right-hand corner, has endured lots of ridicule. Some cite the unfashionable dork factor, calling the product a “Segway for your face.”Others lament creepy “Glassholes” (a term even Google used in a dos and don’ts doc). Several establishments and governments have sought to ban or limit the device’s use (e.g., in casinos, movie theatres, gyms, and bars) since the device has a video camera.Some have questioned Glass’s future as a consumer device, especially after the firm cancelled its Glass Explorer sales program. However, transfer of the unit from Google’s experimental X group to the division where Nest lives may help. While Google Glass doesn’t have a killer app yet, it looks like it’s got a few life-saving ones. Boston’s Beth Israel Deaconess is the first US hospital to employ Google Glass for everyday medical care. The hospital has posted unique, patient-specific QR codes on patient room doorways, with each code linked to a patient’s medical records. Doctors look up and scan the QR code with Glass before entering the room, providing access on the device’s display. Early tests have expanded to the entire emergency department, with doctors donning Glass at the start of their shifts. In one example of impact, a patient with a brain bleed told an ER doctor that he was allergic to blood pressure medications but wasn’t sure which ones. The doctor was able to access the patient’s records on Glass, speeding the administration of life-saving treatment. Figure 18.15 A doctor at Boston’s Beth Israel uses Glass to verify patient info prior to a visit. Glass in the medical community has made a successful breakout. Surgeons at the Indiana University Health Methodist Hospital in Indianapolis have used Glass during an operation to remove an abdominal tumour. “Voice commands enabled the doctors to call up the patient’s MRI scans and keep the images in their field of vision for easy reference, without having to put down a scalpel.”At the University of California Irvine Medical Centre, Glass-wearing residents stream live videos to experienced mentors so they can share their field of view. That facility announced it would be the first in the country to hand out Google Glass to all incoming residents.A Cambridge, Massachusetts, firm named Twiage is developing Glass apps for EMTs so they can use voice commands to snap photos of patient injuries, dictate notes, and send them along to the nearest ER. The firm’s cofounder states this is “the holy grail of hospital IT.” Researchers in the UK are testing Glass for patients with Parkinson’s, using the device’s motion sensors to track symptoms and motor movements and providing reminders for taking medication. Firefighters are also using Google Glass to map and provide video feeds of the insides of burning buildings. A growing list of firms has also found different uses: streaming repair information to technicians, guiding soldiers, providing heads-up service reports in the hospitality industry, and more. Maybe Glass isn’t ready for the fashion-forward hipster crowd, but it’s starting to look like it offers a real and measurable impact across several industries. YouTube It’s tough to imagine any peer-produced video site displacing YouTube. Users go to YouTube because there’s more content, while amateur content providers go there seeking more users (classic two-sided network effects). This critical advantage was the main reason why Google paid $1.65 billion for what was then just a twenty-month-old start-up. In terms of query volume alone, YouTube, not Bing or Yahoo!, is the Internet’s second largest search engine. But mobile video competition is heating up. Facebook now serves as many streams as YouTube,Twitter’s Periscope offers real-time video streaming, and Twitter’s Vine and Facebook-owned Instagram battle to be the preferred platform for snippets of socially shared video. While the mobile upstarts attack at the low end of the Internet video market with shorter, mostly webcam-made videos, YouTube is looking to move a portion of its content beyond online amateur hour. The site now “rents” hundreds of TV shows and movies at prices ranging from $.99 to $3.99, and also offers YouTube Red, a $10/month advertisement-free video service offering exclusive programming and a vast selection of music. It’s also been offering seed grants of several million dollars to producers of original content for YouTube.YouTube even poached a senior Netflix executive to help grow the premium content businessand, in the firm’s first major content deal, is backing a series based on the “Step Up” movie, which will feature Channing Tatum. Google says YouTube’s prime-time audience is bigger than the 10 biggest US TV shows, combined. However, YouTube’s popularity comes at a price. Even with falling bandwidth and storage costs, at three hundred hours of video uploaded to YouTube every minute, the cost to store and serve this content would, for most firms, seem cripplingly large.The good news is that YouTube brought in an estimated $9 billion in revenue in 2015.While still not profitable, that’s enough to put YouTube at “roughly break even” after adding infrastructure and content costs.YouTube head Susan Wojcicki has been busy on multiple fronts. Moves to compete in live offerings against Facebook Live and Twitter Periscope, and a challenge to Amazon’s Twitch video game-focused video stream all promise new revenue and growth. A deal with the NFL, a YouTube-branded music streaming service, and improved targeting integration with the rest of Google might collectively act to further boost YouTube’s appeal and bring in more revenue. The YouTube Millionaires AdSense has helped content providers worldwide earn a living off the printed word. Now it’s YouTube’s turn. The Wall Street Journal profiled several YouTube millionaires who bring in a seven-figure check in a given year. The list is eclectic and includes the Swedish Felix Kjellberg (a.k.a., PewDiePie”), a twenty-something goofball who plays and is a commenter for video games. His 35 million-plus subscribers bring in an estimated $7.5 million in ad revenue a year. Michelle Phan, another twenty-something, parlayed a college YouTube assignment into an online following for her makeup tutorials (now, north of 7.7 million YouTube subscribers ) and impressed YouTube so much that they offered her a $1 million grant to create twenty hours of content.Phan has used YouTube fame to build Ipsy, a beauty sampling service that now has 100 employees and $120 million a year in sales, putting it roughly on par with venture-backed Birchbox. Figure 18.16 Video game commenter Felix Kjellberg (a.k.a., PewDiePie) and makeup vlogger (video blogger) Michelle Phan are entrepreneurs who have leveraged YouTube fame into multimillion-dollar careers. Android Pay Android Pay is another example of how the search giant is looking to deliver value through mobile devices. The service allows phones to replace much of the “stuff” inside your wallet. It can be used to pay for goods, store gift cards, collect and redeem coupons and special offers, and manage loyalty programs. Android Pay represents yet another try at payments, coming after a prior effort, Google Wallet, had struggled for four years, and after the firm’s online effort, Google Checkout, was shuttered. Like Apple Pay (and Google Wallet before it), Android Pay will leverage NFC (near field communication), a payment technology finally making its way into retailer point-of-sale systems. Android Pay and Apple Pay both use a process called tokenisation that essentially sends temporary, one-time-use codes for payment, and which credit card companies map to actual cards behind the scenes. Even if tokens are stolen, thieves can’t use it for anything. This should prevent damage from major credit card hacks that have occurred at Home Depot and Target.Google will also support fingerprint scanning on phones to make payment one-tap, with 700,000 retailers supporting the system at roll-out, including many of those already on board with Apple. Google should be able to leverage Android Pay in many ways that dovetail with advertising offerings. The new system will work on websites, too, removing the need for data entry in online ordering.This may be a boon to efforts to bake a “Buy” button into Google ads. Tap from your mobile and it’s yours, no data entry required.Integration between ads, loyalty programs, and coupons might also create new products for Google. Android Pay will even automatically prompt you to use a loyalty card or gift card if you have one.One challenge Google faces: unlike Apple, it doesn’t own most hardware, so it’ll need partners to introduce Android Pay-compatible handsets, and it’ll need consumers to buy these. And remember, payments are a two-sided market, with consumer handsets and retailer point-of-sale terminals both necessary for in-store transactions to work. While 700,000 storefronts at launch is a good start, the vast majority of storefronts will need to be on Android Pay for you to be willing to leave your plastic and cash at home. Google and Social Google’s success in social media has been mixed. Its two biggest successes—YouTube and Blogger—were both acquired from other firms. Internally-developed Orkut had for years ranked as the top social network in Brazil but is unheard of throughout most of the rest of the world; and Google-hatched Buzz and Wave were both dismal failures. Google+ hasn’t captured anywhere near the user loyalty of Facebook, Twitter, Snapchat, Instagram, or other services, and many have wondered if the service’s days are numbered.However, to Google’s credit, the service has spawned several successful products and updates that have been given stand-alone status outside their initially tight tie-in with Google+. Among them, Hangouts is a video chat service that can support groups, and enables screen sharing and group document editing. Photos, which evolved from Picasa into Google+, has since been broken out into an incredibly robust product, offering unlimited storage and incredibly robust tools that leverage Google artificial intelligence for photo editing, auto-select of best picture (who’s smiling and has eyes open), gallery creation and more.Gaining more social sharing via Google’s platform could eventually help the firm serve more ads; grow additional revenue lines; and gain additional data and insight that can be used to help in search, content recommendations, and ad targeting. However, as the firm has learned, competing in winner-take-most markets where network effects dominate is tough, even when you bring deep pockets and a stable of existing, successful products to the battle. While its own social networking efforts have yet to take off, Google has incorporated timeliness into search, striking a partnership to surface tweets in organic results. What’s Google Up To? With all this innovation, it’s tough to stay current with Google’s cutting edge product portfolio. But the company does offer “beta” releases of some projects and invites the public to try out and comment on its many experiments. To see a current list of many of the firm’s offerings, check out http://www.google.com/about/products. Experimentation and innovation are deeply ingrained in Google’s tech-centric culture, and this can produce both hits and misses. While Google introduces scores of products each year, it has also cancelled several along the way, including Jaiku (which couldn’t beat Twitter); Google Video (which was superseded by the YouTube acquisition); the aforementioned social flops Wave and Buzz; the payments-offering Checkout; and a bunch more you’ve likely not heard of, like Dodgeball, Notebook, Catalog Search, and Mashup Editor.But the firm’s relentless commitment to developing new products and services, coupled with wildly profitable core businesses, allows Google to survive the flops and push the edge of what’s possible. The firm’s secretive lab, Google X, is the home of Google’s driverless car project, the Project Loon balloon initiative, and Google Glass. The group is working on all sorts of other gee-whiz offerings, including space elevators, smart contact lenses, and refrigerators that can order your groceries when they run low. Google X has several bold projects cooking, including self-driving cars, now navigating the streets of the firm’s home in Mountain View, California and beyond. Apps, Cloud, and the Post-Hard-Drive World Google’s “apps” are mostly Web-based software-as-a-service offerings. Apps include an Office-style suite that sports a word processor, presentation tool, and spreadsheet, all served through a browser. While initially clunky, the products are constantly being refined. The spreadsheet product, for example, had been seeing new releases every two weeks, with features such as graphing and pivot tables inching it closer in capabilities to desktop alternatives.And new browser standards, such as HTML 5, make it even easier for what lives in the browser to mimic what you’re currently using on your desktop, even allowing apps to be used offline when Internet access isn’t available. That’ll be critical as long as Internet access is less reliable than your hard drive, but online collaboration is where these products can really excel (no pun intended). Most Google apps allow not only group viewing, but also collaborative editing, common storage, and version control. And it seems Google isn’t stopping at Office files, video, and photos—Google’s cloud will hold your music and other media, too. Google’s Play service allows you to upload thousands of the tracks that you already own to what some have called a sort of “locker in the sky.” Users can stream the tracks over the Internet, sync frequently played songs and albums for offline play, and even share tracks with friends via Google+ (friends usually get one full listen for free).And Google Drive offers several gigabytes of free cloud-based storage that can be shared and synced across computers. Photos are the ultimate keepsake, and by offering unlimited storage for the new Google Photos, Larry and Sergei have bolted your memories tightly onto their firm. Unknown is how much money Google will make off all of this. Consumers and small businesses have free access to these products, with usage for up to fifty users funded by in-app ads. But is there much of a market serving ads to people working on spreadsheets? Enterprises can gain additional, ad-free licenses for a fee. While users have been reluctant to give up Microsoft Office, many have individually migrated to Google’s Web-based e-mail and calendar tools. Google’s enterprise apps group will now do the same thing for organisations, acting as a sort of outsourcer by running e-mail, calendar, and other services for a firm and all while handling upgrades, spam screening, virus protection, backup, and other administrative burdens. Virgin America, Jaguar, National Geographic, Genentech, and scores of school districts and universities are among the Google partners that have signed on to make the firm’s app offerings available to thousands. Google Play doesn’t just hold your music; it’s also an iTunes-like marketplace where you can buy all sorts of media: movies, TV shows, books, and apps. Google Drive is free (the first 15 GB is shared between Drive, and Gmail), but if you want more, you’ll have to pay. And of course, Microsoft won’t let Google take this market without a fight. Microsoft has experimented with offering simplified, free, ad-supported, Web-based, online options for Word, Excel, PowerPoint, and OneNote; Office 365 offers more robust online tools, ad free, for a low monthly subscription cost; and Microsoft can also migrate an organisation’s applications like e-mail and calendaring off corporate computers and onto Microsoft’s server farms. Apple continues to build billion-dollar data centres and has introduced iWork Cloud, browser versions of its word processor, spreadsheet functionality, and presentation apps that have leapfrogged Google with products that are nearly as feature rich as desktop offerings. Amazon is also offering free, unlimited photo storage for Prime members. As the cloud becomes the new hard drive, don’t look for anyone to yield ground soon. Google’s Global Reach, Censorship, and Other Challenges Google has repeatedly and publicly clashed with the government of China, a nation that many consider to be the world’s most potentially lucrative market (already tops worldwide in sales of Apple’s iPhone ). For four years at the request of the Chinese government, Google had censored results returned from the firm’s google.cn domain (e.g., an image search on the term “Tiananmen” showed kite flying on google.cn, but protesters confronting tanks on google.com). However, when reports surfaced of Chinese involvement in hacking attempts against Google and at least twenty other US companies and human rights dissidents, the firm began routing google.cn traffic outside the country. The days that followed saw access to a variety of Google services blocked within China, restricted by what many call the government’s “Great Firewall of China.” Even Gmail is blocked in China. Speaking for Google, the firm’s deputy counsel Nicole Wong states, “We are fundamentally guided by the belief that more information for our users is ultimately better.” But even outside of China, Google continues to be challenged by its interest in providing unfettered access to information on one hand, and the radically divergent laws, regulations, and cultural expectations of host nations on the other. Google has been prompted to block access to its services at some point in at least twenty-five of one hundred countries the firm operates in. The kind of restriction varies widely. French, German, and Polish law requires Google to prohibit access to Nazi content. A Spanish law mandating that online news aggregators pay compensation to Internet publishers for the use of even headlines (media firms couldn’t waive their right to the fee) effectively shut down Google News in Spain. French regulators are claiming that French law applying to Google shouldn’t just be applied to Google’s .fr (French) domains, but should also be reflected across all Google properties, giving French law a global reach, with hefty fines if Google doesn’t comply. Turkish law requires Google to block access to material critical of the nation’s founder. Access in Thailand is similarly blocked from content mocking that nation’s king. In India, Google has been prompted to edit forums or remove comments flagged by the government as violating restrictions against speech that threatens public order or is otherwise considered indecent or immoral. At the extreme end of the spectrum, Vietnam, Saudi Arabia, and Iran have aggressively moved to restrict access to wide swaths of Internet content. Google usually waits for governments to notify it that offensive content must be blocked. This moves the firm from actively to reactively censoring access. Still, this doesn’t isolate the company from legal issues. Italian courts went after YouTube executives after a video showing local teenagers tormenting an autistic child remained online long enough to garner thousands of views. In the United States, Google’s organic results often reveal content that would widely be viewed as offensive. In the most extreme cases, the firm has run ads alongside these results with the text, “Offensive Search Results: We’re disturbed about these results as well. Please read our note here.” Other Internet providers have come under similar scrutiny, and technology managers will continue to confront similar ethically charged issues as they consider whether to operate in new markets. But Google’s dominant position puts it at the centre of censorship concerns. The threat is ultimately that the world’s chief information gateway might also become “the Web’s main muzzle.” One needs to consider all of Google’s offerings to get a sense of what Google has the potential to achieve. It’s possible that increasing numbers of users worldwide will adopt light, cheap netbooks and other devices powered by free Google software (Android, Google’s Chrome browser, Google TV, and Chrome OS). Productivity apps, e-mail, calendaring, and collaboration tools will all exist in the cloud, accessible through any browser, with files stored on Google’s servers in a way that minimises hard drive needs. Google will entertain you, help you find the information you need, help you shop, handle payment, and more. And the firms you engage online may increasingly turn to Google to replace their existing hardware and software infrastructure with corporate computing platforms like Google Apps Engine (see Chapter 14 “Software in Flux: Open Source, Cloud, Virtualised and App-driven Shifts”). All of this would be based on open standards, but switching costs, scale, and increasing returns from expertise across these efforts could yield enormous advantages. Studying Google allowed us to learn about search and the infrastructure that powers this critical technology. We’ve studied the business of ads, covering search advertising, ad networks, and ad targeting in a way that blends strategic and technology issues. And we’ve covered the ethical, legal, growth, and competitive challenges that Google and its rivals face. Studying Google (or Alphabet, if you’re inclined to use the ‘new’ name) in this context should not only help you understand what’s happening today, it should also help you develop critical thinking skills for assessing the opportunities and threats that will emerge across industries as technologies continue to evolve. KEY TAKEAWAYS • For over a decade, Google’s search business has been growing rapidly, but that business is maturing. • Slower growth will put pressure on the firm’s stock price, so a firm Google’s size will need to pursue very large, risky, new markets—markets that are also attractive to well-financed rivals, smaller partners, and entrepreneurs. • Rivals continue to innovate in search. However, those who choose to compete with Google using technology should recognise that it is often easy for a firm to mimic the innovations of a pioneer with a substitute offering, and Google has additional strategic resources, such as brand, scale, and network effects, that will make it a challenge to displace. • European and US regulators have investigated Google for antitrust violations and, at least initially, have reached different results, demonstrating the challenges dominant firms face as they grow globally. • Google is investing heavily in methods that promote wider Internet access. These include offering free software to device manufacturers and several telecommunications and lobbying initiatives meant to lower the cost of getting online. The firm hopes that more users spending more time online will allow it to generate more revenue through ads and perhaps other services. • Google Glass has struggled to achieve consumer acceptance, but several applications have demonstrated broad impact across various industries, improving productivity, lowering costs, speeding delivery time, and potentially even saving lives. • Android Pay uses NFC communications to allow mobile phones to make credit and debit card payments, manage loyalty programs, redeem coupons, and more. The service leverages tokenisation to mask actual credit card numbers, potentially making it more secure to use than conventional credit cards. In order to receive broad adoption, Android Pay will need a critical mass of users with compatible handsets and retailers with hardware capable of taking these kinds of payments. • Google continues to struggle in social networking and Google+ significantly lags behind Facebook and Twitter in user engagement and overall users, despite Google’s attempts to integrate the service into its core offerings. Some efforts that have been part of Google+, such as Hangouts and Photos have been allowed to operate as stand-alone products. • YouTube demonstrates how a firm can create a large and vastly influential business in a short period of time but also that businesses that host and serve large files of end-user content can be costly. Like AdSense, YouTube channels have become a launching pad for content entrepreneurs. • Google, Microsoft, and smaller rivals are also migrating applications to the Web, allowing Office-style software to execute within a browser, with portions of this computing experience and storage happening off a user’s computer, “in the cloud” of the Internet. Revenue models for this business are uncertain. • With scale and influence comes increased governmental scrutiny. Google has increasingly become a target of antitrust regulators. The extent of this threat is unclear. Google’s extreme influence is clear. However, the firm’s software is based on open standards; competitors have a choice in ad networks, search engines, and other services; switching costs are relatively low; users and advertisers aren’t locked into exclusive contracts for the firm’s key products and services; and there is little evidence of deliberate, predatory pricing or other “red-flag” activity that usually brings government regulation.