quot;Half the money I spend on advertising is
wasted… the trouble is I don't know
which half.quot; -John Wanamaker
$528 billion in total revenues
Waste: $112 billion a year in America
$220 billion worldwide
(or just over half of their total spending)
An independent firm, such as Nielsen Media
Research, estimates how many television sets
are tuned to a given channel at a given time.
Advertisers then pay a rate, called CPM (cost
per thousand), for the right to expose the
implied audience to their spot.
Regular activities engaged in by
viewers during TV commercials:
33.5% talk with others or on the phone
30.2% mentally tune out
5.5% regularly fully attend to commercials
Founded in 1998, Google Inc. is one of the
fastest growing companies in US history.
With nearly 17,000 employees and a $147
billion market cap, it is considered the
largest media company in the world and the
largest advertising agency in the world.
As of December 2007, Google controls 57% of
the search engine market.
Its two closest competitors are Yahoo! at 17%
and MSN 14%, respectively.
Flagship products and main sources of revenue
Revenue is on a ‘pay-per-click’ basis
The goal: To cut down that 50% waste
AdWords and AdSense: $6.1 billion in revenues
In its simplest form, this involves
querying a search engine with
keywords (“used cars”, say), then
scanning the search results as well as
the sponsored links from advertisers,
and then clicking on one such link. In
effect, the consumer has expressed an
intention twice (first with his query,
then with his click). The average cost
to an advertiser from one such
combination is 50 cents, which
corresponds to a CPM of $500; by
contrast, the average CPM in traditional
(“exposure”) media is $20.
A consumer’s action is 25 times as
valuable as his exposure.
Pareto Curve: “The 80/20 Rule”
• The top 20% items result in 80% of sales
• More attention is given to the ‘head’
• Expensive to promote low selling items
Long Tail: Everything can be profitable
• Sell Everything!
• No additional marginal cost
• Ads are self-service, cheap, and performance
based (pay-per-click), which all combine to
dramatically lower the barrier to entry.
“We sold more books today that didn’t sell at
all yesterday than we sold today of all the
books that did sell yesterday”
-A former Amazon.com salesperson
Room To Grow:
Web advertising in US is only 6% of total
advertising expenditures, though consumers
spend 23% of their media time online.
Source: The Online Publishers Association
quot;The surprising thing about
The Long Tail is just how
long the tail is, and how
many businesses haven't
been served by traditional
-Eric Schmidt, CEO Google
Google now has revenues of more than $1
billion a quarter, a least half of which is
made up of Long Tail advertisers by this
definition. This is, needless to say, just a
glimpse of what's still to come.