Google businesses: One big star and a bunch of perpetual understudies?

Alphabet or no Alphabet, when it comes to anything beyond its core search and display advertising business, Google’s performance is pretty ‘meh.’

canHere’s an interesting news byte: Morgan Stanley estimates that Google has lost between $8 billion and $9 billion on its so-called “side projects.”

So reported the Barron’s blog this past week.

It’s the strongest signal yet that Google’s vaunted business model is spectacularly successful for its core business … but that it’s as ineffective as most other companies when it comes to building the next silver-bullet product or service.

Even Google’s YouTube business unit is likely only a break-even proposition, despite years of concentrated attention, enhancements and tweaking. According to Morgan Stanley’s Brian Nowak:

“We estimate YouTube runs at a 0% profit margin … YouTube’s profitability could [actually] be lower than we estimate, but since it likely varies significantly from quarter to quarter, and until we have more visibility into the business, we believe break-even is a safe assumption.”

umbrellaIt’s likely we wouldn’t have even these clues were it not for the recently announced creation of Alphabet, a new umbrella structure for Google’s various business segments:  search, which is an estimated 96%+ of its business volume, and then everything else.

This development is providing more “transparency” that enables investment houses like Morgan Stanley to come up with back-of-the-napkin rough figures like this:

Google Revenue and operating profit Morgan Stanley

As time goes on, it will be interesting to see if Alphabet can demonstrate that the corporation is more than a one-trick pony.

Regardless of that outcome, the way that Google has cornered a ginormous $60 billion+ chunk of the advertising business is amazing – and laudable. Fair dues on that.

… And then there were two: Facebook is nipping at YouTube’s heels.

Facebook “grows up great” to challenge YouTube for video supremacy online.

FB vs YTOnly few years ago, YouTube was pretty much the only game in town when it came to online video.  And Facebook wasn’t even in the picture.

Today, the online video landscape looks far different.

In fact, Facebook is on track to deliver more than two-thirds as many video views as YouTube this year.  And both services have a comparable number of monthly users overall.

Recently, market forecasting firm Ampere Analysis surveyed ~10,000 consumers in North America and Europe.  Approximately 15% of them had watched at least one video clip on Facebook within the past month.

While Facebook hasn’t exactly caught up with YouTube, its rise has been pretty stunning — especially when you consider the massive head-start YouTube had.  More than five years, in fact, which is a lifetime in the cyberworld.

Undoubtedly, one reason for Facebook’s success in video is its “autoplay” feature which snags viewers who might otherwise scroll by video postings.  Facebook reports that it has experienced a ~10% increase in engagement as a result of adding this functionality.

And there’s another big advantage for advertisers that Facebook possesses.  Since its viewers are always logged in, Facebook has the potential to collect far more demographic and behavioral data on its viewers that advertisers can tap into to target specific demographics.

For now at least, Facebook doesn’t offer the option for ads to run before video clips begin playing (the ads appear after the content).  Also, Facebook’s ad charges kick in after just three seconds of the ad being shown, compared to YouTube which sets the bar higher for ad charges to take effect.

[Incidentally, Twitter has the same 3-second policy as Facebook, whereas Hulu charges only for ads viewed all the way through.]

Another difference is that Facebook charges for every ad view, so if a viewer watches a video twice — even if it’s the same video in the same viewer session — Facebook counts it as two views.  On YouTube, that would be considered one view, regardless of how many times the video is watched.

Of course, these kinds of differences can be adjusted — and there’s no reason to think that Facebook won’t do just that if it determines that making those changes are in their best business interest.

Besides, advertising rates are already similar between the two platforms, which suggests that advertisers have come to place a high value on Facebook’s robust audience targeting.

Autoplay features have raised some questions as to what constitutes a true video “view.”  If video ads are being autoplayed, views are easier to get, but are they worthwhile?  Also, the fact that autoplay videos are running without sound until such time as the viewer chooses to engage is causing some advertisers to create content that “make sense” even on mute.

But the bottom line on Facebook’s foray into video seems to be that the demographic and psychographic audience targeting Facebook can deliver is of important value to advertisers.

Add the fact that YouTube is no longer the only major online video platform, and it’s easy to see how significant competition from Facebook risks the loss of advertising dollars for YouTube, along with damaging YouTube’s growth prospects over time.

This is getting interesting …

Google and the multi-billion dollar pay-per-click money tree.

moneyIt’s no secret that Google has been trying to diversify its revenue stream away from clickthrough advertising, which historically has accounted for the overwhelming majority of its income.

How else to explain Google’s shopping spree over the past decade, scooping up a veritable smorgasbord of industry players like these:

  • AdMob (mobile)
  • Adometry (attribution)
  • Channel Intelligence (product feeds)
  • DoubleClick (display)
  • Invite Media (programmatic creative and media buying)
  • Teracent (programmatic creative and media buying)
  • YouTube (video)
  • Wildfire (social)

So the next question is, “How much have these acquisitions and investments done to diversify Google’s sources of revenue?”

The answer:  Hardly anything.

Consider this statistic:  In 2011, nearly all of Google’s revenue came from online pay-per-click advertising, as reported by SEO firm WordStream.

Now let’s look at 2014 figures:  WordStream reports that the percentage of Google revenues from pay-per-click advertising is actually higher than in 2011, at 97%.

So much for the “diversifying effects of diversity.”

Within PPC advertising, a number of keyword terms are continuing to haul in the big bucks for Google.  A few years back, the priciest keyword term of all was mesothelioma, at more than $100 a click.

Mesothelioma continues to attract a lot of ad dollars, but it’s no longer commanding $100 a pop as it once did.  In fact, it’s no longer on the Top 10 most expensive keywords list.

That list looks like this now (in descending order of bid pricing, starting at over $50 per click and dropping to “only” around $45 for the #10 keyword):

  • Insurance
  • Loans
  • Mortgage
  • Attorney
  • Credit
  • Lawyer
  • Donate
  • Degree
  • Hosting
  • Claim

In developing the ranking, WordStream determined which keywords reside in the stratosphere by compiling data from its own large keyword dataset and the Google Keyword Tool (over a 90-day period) to determine the 10,000 most expensive keywords.

These were then organized into categories like “credit” and “insurance” by weighting the number of keywords in each category, estimating the monthly search volume as well as the average cost-per-click for each keyword.

Notice the preponderance of financial and legal terms – both of them key to sectors that attract and manage a ton of money.

The word degree is right up there, too, underscoring how important the educational complex has become to the ad business.

It must be pretty unappealing to be active in these industries and have to pony up such big dollars to participate in the pay-per-click advertising space.  But how else do we think Google racks up annual advertising revenues that are north of $32 billion?

How does the market sort out which keywords are worthy of commanding $40 or $50 per click?  Essentially, it boils down to this:  Invariably, the most expensive niches paying for the most costly keywords are ones with very high lifetime customer value – where the customer pay-off is high.

Think about it:  The amount of money an insurance company gets from an individual signing up for coverage makes the high cost-per-click rates – even at $50 a pop — worth it.

Business observers point to long-range trends that may make search engine marketing increasingly irrelevant as the growth of multichannel, multi-device marketing picks up steam.

But don’t hold your breath; Google will likely be earning billions off of pay-per-click advertising for years to come.

Coming Attractions: A Newly Sanitized YouTube

YouTube Cleaning up its ActThe YouTube phenomenon has been one of the biggest success stories of all in cyberspace.

Over the years, YouTube has gone from being a weird corner of the web made up of curious, strange and often forgettable video clips, to a site that attracts millions of viewers every day – some of whom have essentially ditched all other forms of video viewing in favor of mining the vast trove of material YouTube carries on its platform.

In the years since Google acquired YouTube, traffic and usage have exploded, even as the video fare has become more varied (and also more professional).

But there’s one holdover from the early years that continues to bedevil Google: YouTube is a repository of some of the most inflammatory, puerile and downright disgusting commentary that passes for “discourse,” posted by all manner of rabble.

But now, Google is signaling a strategy that has the potential to clean up the crude comments on YouTube – and in a big way.

YouTube is now strongly encouraging users to post their YouTube comments using the name identity associated with their Google+ account.

In fact, if you decline to do so after being prompted, you’ll be asked to state a reason why, underscoring the nudge away from “screen name anonymity” and towards “real-name identity.”

The notion is that people will be less likely to post flaming comments when their “true” web identity is known – that people will exude good behavior in “polite cyber-company,” as it were.

Of course, one needs to possess a Google+ account in order to link his or her identity on YouTube. But that’s for today only; some observers see YouTube’s move as just the first step toward hiding – and eventually eliminating – all comments coming from anonymous accounts.

So the new bargain will be something closer to this: “Open a Google+ account and link your YouTube account to your Google+ account … or else forfeit your ability to post any comments at all on YouTube.”

The likely result will be a much more “sanitized” YouTube – less edgy, but also less red-faced embarrassing. And that’s just what many brands, businesses and advertisers would like to see happen.

Of course, YouTube’s moves may well spur the launch of an alternative site that seeks to preserve the (nearly) anything-goes environment of the YouTube of yore.

Perhaps it could be called “YouCrude,”  But, as it happens, that handle’s already been nabbed — by a fellow WordPress blogger!

Virgin Mobile’s “Sparah” campaign: Art imitates life … or vice versa?

In recent days, American television viewers have begun to see ads about a “faux” celebrity couple — Spencer Falls and Sarah Carroll – dubbed “Sparah.” What’s up with this?

It turns out that Virgin Mobile dreamed up these entirely fictitious characters as a way to raise interest and generate “buzz” about its Android-powered phones that feature monthly “pay as you go” plans that include unlimited web, data, messaging and e-mail.

The idea is to pique the curiosity of viewers who will then interact with other consumers and go online to view a variety of videos about this “celebrity couple.”

Now, before reading this blog post any further, I’d suggest you take a moment and view the intro ad here.

The “celebrity couple” is being “given” a house in Hollywood Hills, a stylist and an agent/publicist. As their “fame” grows, the “couple” is being asked to “participate” in activities “typical” of A-list celebrities, including photo shoots, store openings and appearances at special events.

As part of their “contract” with Virgin Mobile, the “couple” will be chronicling their “activities” across a variety of social media channels, including Facebook. Twitter and FourSquare.

And of course, the consumer public is being urged to “keep up with Sparah” by following all of the “important activities” of this “celebrity couple.”

Judging from the comments being left by viewers of the “Sparah” videos on YouTube, Virgin Mobile’s campaign is having the desired effect so far. Not only is the campaign generating significant buzz, it’s near-universally positive in tone.

There’s little doubt that Virgin Mobile has come up with a clever and successful way to generate awareness and interest in its phone plans as it competes with other service providers in the market. But what’s also interesting is that Virgin Mobile is shining a light on the hyperbole and “blue smoke and mirrors” that inform so much of social media and celebrity marketing today.

The line between what’s genuine versus what’s “manufactured” in pop culture – whether news or biography or gossip – is a very fine one. That’s always been the case, of course: the successes of a Lillie Langtry or Sarah Bernhardt a century ago would not have been so impressive without it.

But in today’s world, the explosion of interactive communications creates a hothouse-like environment in which the buzz can be born and spread faster than ever. (That’s why it’s often called “going viral.”)

It’s not hard to speculate that Virgin Mobile is conducting this campaign with “tongue planted firmly in cheek.” Still, the marketing pros at the company realize that while people may laugh at the irony of the campaign, at the same time Virgin Mobile is benefiting in a major way from the very things they’re spoofing. And that’s a master stroke.

Art imitating life? Life imitating art? It’s a pointed joke for sure … but on whom?

YouTube’s Big Accomplishment

YouTube logoHere’s an interesting milestone that YouTube has just achieved: In May 2010, it surpassed the 100-video mark in the average number of videos shown monthly to its U.S. viewers.

Data released by comScore, a marketing research company that collects data for many of the Internet’s largest businesses, show that ~183 million people watched online videos during May. (By the way, that’s nearly 85% of the entire U.S. Internet audience.)

With YouTube accounting for ~14.6 BILLION videos served, it translates into 101 videos for the average viewer. The duration of the average online video shown was a little over four minutes.

How pervasive is YouTube? The May comScore stats show that it accounted for far more activity than any other video site, charting ~43% of all videos viewed. Hulu ranked second, with the various Microsoft video sites ranking third.

And the contest isn’t even close: Hulu’s second-place ranking was good for only ~4% of viewership!

The average number of videos seen monthly per viewer as recorded by comScore were as follows:

 YouTube: 101 average number of videos per viewer
 Hulu: 27
 Microsoft video sites: 16
Viacom Digital: 10

If there were any continuing questions as to who is the 500-pound gorilla in online video, these statistics appear to be putting that debate to rest.

Novelty Reigns at Allure Bays (er … Microsoft)

Microsoft Office 2010 logoMicrosoft SharePoint 2010 logoIn the drive to “engage” customers, some companies are going to pretty great lengths to try something new and novel.

Take Microsoft and its soon-to-be-released Microsoft Office® 2010 and SharePoint® 2010 versions. Burned by the negative customer reaction to some of its earlier introductions (Vista®, for example), the company is trying some new tactics this time around.

Will they succeed? You be the judge.

You can start by visiting www.allurebays.com. This is a “pretend” site put up by Microsoft’s direct marketing agency-of-record (Wunderman), and attempts to generate awareness for the new Office 2010 and SharePoint 2010 versions without ever mentioning the products by name.

“Allure Bays Corporation” is a fictional company whose name is a riff on the Internet meme all your base are belong to us from an erroneous English translation in a Japanese video game that spread throughout the web in the early 2000s. The bogus site offers infomercial-type videos and other content. Special hidden clues are peppered throughout the site, with content that only alludes to the Office and SharePoint products and their feature/benefits.

What’s going on here? Jerry Hayek, a Microsoft marketing group manager, reported that the company wishes to reach an audience of developers that he characterizes as “jaded”: “It’s a fairly jaded audience. There are a lot of companies that want to talk to them,” he said.

In order to spark visitor engagement, a leaderboard on the “Allure Bays” web site allows registered users to compete for the honor of finding all of the 45 hidden clues on the site. So far, the site has attracted ~25,000 registered users.

“When we look at the developer audience, getting an engagement of 150,000 to 200,000 (spread across several videos) … is a win,” Hayek noted.

What’s the reaction of visitors? If the comments left by viewers of the “Allure Bays” video channel on YouTube are any gauge, it’s mixture of criticism and confusion. To wit:

 “This is one big, expensive, utterly failed attempt of Microsoft to go viral. Please thumbs-down this video.”

 “AYBABTU is a cornerstone of Internet culture. Microsoft appropriating it to hawk the newest version of their bloated Office Suite is loathsome. Anyone up-voting any of these videos should have their Internet license revoked.”

 “I don’t get it … is it supposed to be funny?! Or what the h*ll is going on here?”

“It could be the new TV show like Lost or Fringe or Fantasy Island 2?”

 “WTF.”

Sheri McLeish, an analyst with Forrester Research who covers Microsoft, reported that she found the “Allure Bays” site confusing. “I’m not sure what it’s supposed to do. But maybe there’s something I’m missing.”

In the end, whether or not this initiative will be declared a success depends on how the folks at Wunderman and Microsoft view the results in terms of before/after awareness, audience engagement, and positive product perception.

But the early indicators don’t look all that promising.