It’s mid-September, and Volkswagen of America has a problem: It won’t have any new models coming out until the spring. Keeping VW front and centre in consumers’ minds has drawn a group of marketing folks from the automaker and two of its ad agencies to Google’s BrandLab at its YouTube headquarters south of San Francisco. Dedicated to “evangelising the art and science of brand-building”, the richly appointed meeting space is basically a man cave for ad creatives, complete with overstuffed couches, booze and the mother of all big screens, an assemblage of 32 flat-panel displays massed into 300 square feet of video overload.
In one corner of the BrandLab, Google’s Jeff Rozic goes to work running VW’s folks through a rapid-fire succession of video ad campaigns the BrandLab feels have worked. His earnest delivery is well-honed, courtesy of 100-plus similar “private workshops” held for potential advertisers from Coca-Cola to Toyota over the past year. VW has some catching up to do, a point Rozic makes intentionally or not by highlighting 13 travel vignettes produced by a rival, Nissan Mexico. His larger point: Don’t clutter a story with too blatant a call to action. “We shouldn’t apologise for trying to sell cars,” one VW exec protests. “Sure,” Rozic shoots back, “but you have to be careful to distinguish when you’re telling a story and when you’re selling.”
Fair point. Rozic is clearly selling—and it’s a product intended to change Google’s path. The king of the click is now lecturing one of the world’s most accomplished advertisers to forget those clicks and amp up the image ads. CEO Larry Page can go on as much as he wants about self-driving cars, wearable computers or any of the company’s other “moon shots”. But Google fundamentally remains the most disruptive advertising company of the past half-century. As its total advertising-revenue growth rate has halved in the past two years, from 29 percent to 15 percent (thanks in part to Facebook and Twitter), it’s now charging full-bore toward the biggest pot of advertising gold it doesn’t own: Brand advertising, the image ads you see in glossy magazines and on television.
Most online ads—the banners that litter nearly every commercial website and, most notably, Google’s search ads—have failed to help marketers move the needle on classic advertising measures like brand awareness and intent to purchase. Instead, they mainly drive people to a product page to click the buy button. Direct marketing is lucrative: Search is still upwards of 60 percent of Google’s ad revenue, helping it earn an estimated 15.8 percent net margin in 2013—but image ads will come to dominate digital advertising in this decade.
Look at the numbers: Digital brand advertising is a $18 billion market this year, according to eMarketer. Its forecast implies that number will double by 2018, at which point it will have passed search and direct marketing, with plenty of room to grow. Television advertising, comprising almost entirely image ads, is currently a $200 billion global market. And it’s a vulnerable one, as younger people scatter to YouTube and Netflix when they aren’t Snapchatting or Instagramming on iPhones or skipping ads entirely on their DVRs. Some 75 percent of respondents to an Interactive Advertising Bureau poll of 5,000 ad execs expect to see some spending move from TV to digital video in the next year.
This explains the man cave. YouTube remains one of the greatest acquisitions of the internet era. Larry and Sergey paid $1.65 billion in 2006 for a business that today would conservatively be worth $20 billion as a standalone. So what’s another $400 million or so to build out a brand ad business?
The return has been fairly quick: In October Publicis’s MediaVest, the ad agency for Coca-Cola, Honda and other big advertisers, inked a deal to spend tens of millions of dollars over the next year on Google video, display and mobile ads. It was Google’s first agreement with such an online partner to buy ads in advance, as agencies and marketers do on television. In November Publicis agencies DigitasLBi and Razorfish went bigger, committing to spend $100 million on YouTube and Google’s banner and mobile ad networks this year. “Google is one of the few players with a platform big and wide enough to attract these dollars,” says Razorfish CEO Pete Stein.
And Google sources insist that more of these “upfront” deals will be announced shortly, which has investors—who have driven the stock to a recent alltime high of over $1,150—feeling bullish. Tim Ghriskey, chief investment officer at the asset management firm Solaris Group, a Google investor, figures the company could capture about 6 percent of TV ad spending by 2020, or $20 billion a year. Given that Google’s total revenue this year will come in at around $60 billion, this is the growth the company needs to continue its dominance.
Mohan, who likes to decry the 40 percent of “spray and pray” TV advertising he says is wasted on indifferent audiences, offers a vision of the future in which Google can marry its data about individual consumers with the reach of TV and measure the results, too.
Like a Kid in a Candy Store
Google has outspent all its rivals combined on acquisitions. Here’s a sampling of deals ranked by relevancy to the ad biz
(This story appears in the 07 March, 2014 issue of Forbes India. To visit our Archives, click here.)