At first glance, Google's announcement Monday that it will enter the print space for 50 big newspapers may seem like a feather in its cap. After all, the search giant has brought the traditional media companies -- whose business it ravaged by sucking ad dollars online -- to the bargaining table.
Google plans to set up an online marketplace that lets a group of more than 100 customers bid for space in major newspapers including
The New York Times
The Washington Post
The Boston Globe
. The highest bid doesn't necessarily get the spot, though, because ultimately the papers choose which bids they'll accept. The three-month test version of Google's platform launches this week, and Google will deliver the service for free during this period.
But big papers don't plan to turn over their choicest spots to Google, and will instead foist their scraps onto the company. And Google will have to hustle new advertisers into spots, rather than being brought into cozy, pre-existing relationships.
"This is not about the customers we already do business with and our franchise product that is already in high demand," said Denise F. Warren, a senior vice president and chief advertising officer of
The New York Times
, in one media report. "For us, it opens up a whole new segment of advertisers."
This will leave Google hustling hard for what at the end of the day will amount to change, compared with what its print partners are pocketing from offline advertising.
"The prime inventory -- which is easy to sell and commands high prices -- will be kept by the newspapers," says David Bank, an analyst at RBC Capital Markets. "Google will be given the remnant inventory, not the real inventory."
All of a sudden, it seems it's the old guard that comes out ahead. Big papers now have a way of moving space that would have otherwise gone to waste, while taking none of the risk themselves. And while Google will be putting in the legwork, the effect on its bottom line will be nil -- at least for the near term.
Google didn't immediately respond to an email request for comment.
This latest setup underscores Google's predicament as it steps up efforts to plunge into new businesses. The company realizes it needs to broaden its horizons beyond the online advertisement arena. "It's a concern if at some point the company doesn't reach into other markets," says Scott Devitt, an analyst at Stifel Nicolaus.
In that vein, Google picked up video site YouTube in a $1.7 billion acquisition in October. Earlier in the year, it acquired radio ad-placer dMarc, and word spread across Wall Street last week that Google was ramping up an army of radio ad sales people to add muscle to its effort.
But in both ventures -- much like its latest print foray -- Google has yet to hammer out a game plan for making money.
Although speculation has surfaced recently that Google has set aside $500 million to pay off the copyright concerns it brought on with YouTube, it's doubtful Google will be able to make its money in the most straightforward way -- sticking ads in front of the videos. This would fly in the face of Google's mantra of customer experience before all else.
Google's radio ambitions, meanwhile, face many of the same hurdles as its print efforts. While it may have brought on the technology to sell radio ads, big broadcasting players see little reason to undercut their own salesforce by handing good spots to Google. Again, the company is stuck moving the leftovers.
Of course, much of this manic, experimental style is vintage Google, and reminiscent of the style it brings to introducing and refining new products. And it took the company quite some time and flapping around to figure out its now revolutionary targeted advertising model.
Also, Google doesn't need to succeed in each venture, and would be well off with even one big win, points out Devitt. "It could pay for all the other unsuccessful ventures and more," he says.
Still, as the company keeps on unveiling new directions, investors would be wise to keep in mind that the competitive forces it faces in entrenched markets are much different than the futuristic areas it excels in. And Google has yet to post a win against the old guard in its own back yard.