GLG News by Jeffrey Molander

Implications: Microsoft, like Google via Doubleclick, is busy "reinventing and rethinking the whole business model of online advertising..." (Steve Ballmer) Yes, MSFT, is chasing GOOG as it races toward opening up new, performance-based media and ad cost models but MSFT too is looking to re-define ad models in a radically different way. Web advertisers are anxious to tie ALL prior user click and impression activity to an end "action" taken by consumers -- a new, more cost-effective kind of direct response marketing that has serious appeal.

Analysis: Microsoft, is busy "reinventing and rethinking the whole business model of online advertising" according to Steve Ballmer himself.

Yes, MSFT, is chasing GOOG as it races toward opening up new, performance-based media and ad cost models (i.e. it's rather knee-jerk OpenSocial announcement) but MSFT is also looking to re-define ad models in a radically different way.  How?  By suggesting that advertisers pay on a performance basis -- performance of another sort and not just a single click (a la the cost-per-click model that runs AdSense/AdWords).

[Microsoft’s Brian] McAndrews contends that search engines, which long have claimed credit for sending people to companies’ Web sites, do not deserve it all (via NYT.com).

What's the secret sauce/new model?  Web advertisers are anxious to tie ALL prior user click and impression activity to an end "action" taken by consumers.  Hence, a new, more cost-effective kind of direct response marketing that has serious appeal is born via MSFT.

Says MediaPost's Joe Marchese, "The goal is simple, and amazingly intuitive to anyone in the ad industry: All Microsoft has to do is prove the value of all other marketing messages delivered prior to the action of searching. This is the No. 1 reason Microsoft bought aQuantive."

He continues, "If Microsoft figures out the more efficient way to assess the value of non-performance-marketing message delivery, Microsoft can then deliver higher value to marketers, while simultaneously delivering higher monetization to quality Web sites. Combining these two things would theoretically allow Microsoft to catapult past Google in the race to unlock brand dollars."

Read more here on how GOOG is re-defining advertising currency by creating the platform for an Attention Economy.

Implications: Google doesn't 'get' social media and their pandering to entertainment media via "Universal Search" offers proof.  Need more?  Microsoft just moved on Facebook. Google has compounded their missed opportunity with social media by letting company politics seep into their PageRank update.  Not only do they stand to lose a huge amount of face and standing, they could cede control of making social media an integral part of their business. Google could have leveraged its Toolbar product in the world of social media to the extent that wildly successful StumbleUpon has (acquired by eBay who will use it to drive e-commerce transactions-- another ball dropped by Google).  Google doesn't get social media to the extent that it is actively warring with it by penalizing virally successful Web sites. Google's Orkut social media experiment is a total failure to all but the Brazilian drug cartel.

Analysis: Google doesn't get social media and their recent "Universal" algorithm update (where they are beginning to include video and images in search results pages) is proof.  Considering how marketers don't much use video yet -- or have images properly tagged for search engines to discover them -- this seems obvious and, hence, the move translates to the initiative being less about Google 'getting' social media and more about pandering to big entertainment.

Google wants to monetize social media, not protect it.  Wonder why Google took forever to release its copyright violation "fingerprinting" detection software?  Simple: to figure out a way to use that same technology to monetize it (rather than protect it) and cut entertainment companies in.  Did they wait too long and will the ad models they're testing on consumers pan out?  We'll see in short time.

Google has compounded their missed opportunity with social media by letting company politics seep into their PageRank update.  Clearly Pagerank sits at the heart of HOW Google rates and ranks Web sites.  However, industry luminaries/insiders agree -- it is all but dead in terms of a viable means to rank sites.  Why?  Google's platform has been gamed to death (Businessweek: 'Hotwiring Your Search Engine') by marketers and their (the biggie) affiliates.  In simple terms, the system was so easily defeated by commercial interests it is now becoming less and less powerful, useful.  The core is rotting and Google is worried... and not afraid to react as they did this week.  Kudos for that.

Yet Google is running scared from social media.  Insider Wayne Smallman of BlahBlahTech.com says...

Instead of 'Googling' for something, we find stuff being sent to us as emails from friends, in our profiles, in a friends' lists of favourites, or any number of user-generated websites, blogs, RSS feeds, Social Networks and Social Media portals.

While we're busying ourselves voting and commenting on this stuff, we're not using Google’s search algorithm, and we're not clicking on Sponsored Links, either.

As pointed out by Mr. Smallman's readers, Google is resorting to blackballing "paid links" and has been creating FUD (fear, uncertainty and doubt) among Webmasters for a while now via bloggers like Matt Cutts.  Google is clearly on the social media defensive.

More proof: Google has been, for some time now, actively warring with social media by penalizing virally successful Web sites in its search index -- ranking them lower in search engine results pages (SERPs). This is documented all over the Web.  In fact, in a colossal slip-up, Google once mistakenly targeted its own AdSense blog for deletion!

Meanwhile, widgets and ad-driven widget networks (i.e. WidgetBucks.com) race across the Web at light speed -- capturing ad dollars.  As well, RSS (real simple syndication) powered syndication tools are making it possible for consumers to find ways around Almighty Google.  The consumer reviews space is red hot now.  Certainly these make for potential acquisition targets for Google and others.

According to Forrester Research, "Social media will drive emerging channels to $10 billion by 2012. Spending on social media alone will grow to $6.9 billion." 

Google is, of course, gearing up for a November announcement in the area of social networking.  What might they have in store?

Implications: Chasing GOOG is pointless so MSFT is changing things up: wagering on shoring up intellectual property rights on hip, new consumer shopping models. MSFT needs to either compliment or compete with Yahoo. Jellyfish moves it in this direction. MSFT will need to overcome serious challenges to achieving full advertiser participation in an advertising model requiring significant back-office integration. Yet MSFT has its eye on the prize: satisfying advertisers' insatiable appetite for cost models that include a direct response (cost-per-acquisition/pay-per-action) element. This move counters Google's recent CPA Optimizer announcement/tool. Mercent, ChannelAdvisor and ChannelIntelligence become acquisition targets for anyone (MSFT included) promising advertisers the ability to "set it and forget it"--automate and optimize product and inventory-levels against pre-defined advertising cost goals. With eBay's Skype flop as a backdrop M&A action could start heating up.

Analysis: Chasing Google is pointless so Microsoft is betting on changing things up: wagering on shoring up intellectual property rights on hip, new consumer shopping models.  In the case of Jellyfish.com it will own a hybridized advertising platform, albeit a complex and incomplete one. 

In November, I interviewed CEO Brian Wiegand who summarized the value proposition well -- to advertisers and consumers.  For consumers Jellyfish offers a fun, incentive-oriented shopping experience that combines a variety of proven, successful 2.0 business models.  Think Ebates + Woot.com and on the advertiser-side, eBay's Shopping.com + Google's AdWords auction environment + Commission Junction's (VCLK) performance-based cost model (cost-per-action) with a twist of Google (auctioning off ads).

Sound complex?  Youbetcha but in reality it's fairly simple if you take it piece by piece.  Yet media and trades are offering confused analysis of what exactly MSFT is acquiring.

There is nothing 1.0 about Microsoft's new division.  This is all about MSFT locking up intellectual property rights on something truly unique and defensible.  Jellyfish.com's hybridized approach is at the core of the overall value proposition.  Everything from its shopping comparison-like product presentation to incentive shopping environment to advertiser bidding (competitively on a cost-per-action revenue share) is... well, unique.  It's valuable intellectual property.

As well, MSFT has its eye on the prize: satisfying advertisers' insatiable appetite for cost models that include a direct response (cost-per-acquisition/pay-per-action) element. This move counters Google's recent CPA Optimizer announcement/tool (a gutsy move that gives longer legs to the cost-per-click model that built the company).

That stated Jellyfish's model is a nearly impossible one to sell Web advertisers/merchants on -- without a set of Mercent-like product features and inventory-level automation.  This involves giving advertisers the means to optimize their ads against advertiser-defined customer/order acquisition goals.

Sound familiar? (Google's CPA Optmizer)

Mercent, ChannelAdvisor and Channel Intelligence become acquisition targets for anyone (MSFT included) promising advertisers the ability to "set it and forget it" -- automate and optimize product and inventory-levels against pre-defined advertising cost goals. With eBay's Skype flop as a backdrop M&A action could start heating up.

Implications: "In the end, CPA Optimizer moves Google one step closer to becoming a true broadcast company and take on the run of network display business in advance of their integration of Doubleclick, or perhaps in spite of Doubleclick." (Source:Digital Moses) Web-based affiliate marketing has been all the rage and incumbents ValueClick (VCLK), Linkshare, Think Partnership (THK), Time Warner's Advertising.com (TWX) could stand to take some punishment as Allmighty Google (GOOG) steps in to their turf. Incumbents will need to quicken the pace of acquisitions that divest themselves of reliance on Google as a main point of ad distribution. GOOG is further positioning as an ad solution that offers comprehensive flexibility and will reap the benefits.  How?  By offering direct response marketers cost-per-acquisition (they call it "pay-per-action") ads AND a new cost-per-click optimization tool that measures traditional click ads against  advertisers' target customer acquisition costs.

Analysis: Google and Yahoo! (via Overture) birthed Web cost-per-acquisition "affiliate marketing" NOT by entering the scene as a player but as an enabler.  They provided the platform for just about anyone to engage in advertising arbitrage (buying surfers "low" at Google.com and selling them "high" to major name retailers on a cost-per-transaction basis).

Gone are the days of mom-and-pop affiliate arbitrage operations that powered affiliate networks -- now owned by the likes of ValueClick (Commission Junction) and Think Partnership (Kowabunga Technologies).  These networks have been reduced to growth via acquisition of distribution points that are not overly reliant on Google -- as an example, ValueClick's acquisition of Mezimedia.  But they'll need to pick up the pace if they're going to survive against Google's latest move into their "performance" or cost-per-acquisition ad turf.

Indeed, Google has quickened its pace on moving against affiliates and affiliate networks themselves.  Google is slowly but surely biting the hand that has fed it and is now courting advertisers directly.  They're eliminating the middle-man.

Why?  According to Digital Moses, an industry trade, "Google does things for Google. This move might seem to help the advertisers, and indeed it will for many, but the desire to help them didn't drive the change. The need to make more money did."

The Editor, who wishes to remain behind the scenes, goes on to say (and notice his word choice)...

"Google has threatened to do this for some time, beginning in June of 2006 when they announced their first CPA venture, the content referral network, which they followed up with Pay per action beta in March of this year with the official launch taking place towards the end of July. With their usual genius, Google leveraged their expansive publisher network to gain the necessary insight into performance – leveraging their long tail of often underwhelming publisher placements – as well as building up an increasing stable of advertisers....

Having all those pieces in place – CPA advertisers, the publisher placements and acceptance, Google could then connect the two and offer advertisers a true CPA product. And, that’s just what they did on the 24th of September."

Similarly, Umair Haque suggests, "That’s Google’s strategy—it’s about edge leverage creating enormous amounts of space for new strategic moves in a industry bereft of any kind of strategic.”

Implications: Advertisers of all shapes and sizes will continue to hold advertising dollars back when it comes to social media for some very specific reasons.  These center on a lack of understanding of what "social media" entails, high profile mistakes that hit at the authenticity of media (i.e. Walmart and Microsoft's blunders involving money, opacity and bloggers) and the continuing (false) belief that "going viral" is something that you can actually plan for and execute as a marketing strategy. 

Analysis: Sure, they generate serious media buzz yet social networking Web sites like MySpace.com and YouTube have not yet figured out how to use that hype-and-spin to generate significant advertising revenue.  So says IDC who released a report last week in suggesting many social media sites will never figure the game out (turn their site traffic into cash).

In the report the firm suggests that risky, edgy and/or blue content (words, video, audio) generated by users are the main barrier for advertisers who are just to scared to jump in the social media pool.  With Goliaths like Walmart (example) and Microsoft (example one, example two) having taken such a beating others are sitting on the sidelines and rightly so. 

You would think that Walmart would have learned a lesson but apparently not as recently the retailer teamed up with Facebook in a joint venture targeting would-be college roommates.  Says industry rag Adotas:

"The retailer has created a group on the social network called 'Roommate Style Match' which is intended to have roommates discuss decorating options and college life, however the majority of the comments seen on the group’s page have been less than enthusiastic and aimed at the company’s business practices.

Many of the comments are not just aimed at Wal-Mart but at Facebook as well for allowing the page in the first place. Forrester Research Inc. analyst Josh Bernoff said in a statement to Computerworld, 'Wal-Mart has more enemies than most people. Wal-Mart has a PR weakness. If you give people an opportunity, they are going to come after you.'

Despite the abundance of negative feedback, many industry analysts applaud Wal-Mart’s move to use Facebook after a failed attempt at creating their own social network called the Hub. The key will be for the retail giant to get users back on track and discussing dorm décor and stepping over the brand smearing."

Undaunted, Google's YouTube launched new "overlay advertisements" last week... prompting complaints from its users (some who threatened to stop using the site and opening doors for YouTube competitors).  These advertisements "overlay" video content from major entertainment companies for the most part (which Google has struck ad revenue sharing deals with).

Why the lack of deal-flow?  Examination of the high profile blunders reveals the answers: advertisers refuse to understand that authenticity is key.  Ads must be authentic in the world of social media.  They cannot be canned, fake or drummed up by corporate interests.  "Social ads" (in fact, they're not ads at all) require transparency... opacity and, in fact, participation with the audience.

Finally, advertisers continue to believe that "going viral" is something that they can actually plan for and execute as a marketing strategy.  Why not given all the agencies springing up that claim to have the "viral marketing" strategy licked!

Andrew Chen says it best in his piece "Viral marketing is not a marketing strategy."

He eloquently suggests...

"Many times, viral marketing is seen as a 'marketing strategy' that is interchangeable with other methods of acquiring users. That is, you go through three steps:

1. Develop your product
2. Think through a plan on how to make people use it
3. Declare viral marketing is one of N approaches (along with SEO, SEM, PR, etc.)

Or perhaps you already have an existing product, and you have gotten interested in using a Facebook widget or something like that to make it 'viral.' If you are in this boat and think of viral marketing as a compelling marketing strategy, you're in trouble.

Successful viral products don't have viral marketing bolted on once the product has been developed. It's not a marketing strategy. Instead, it's designed into the product from the very beginning as part of the fundamental architecture of the experience."

He goes on to quote Roelof Botha, the venture capitalist that backed YouTube...

"Viral isn't something you can just make happen... it has to be inherent in your product."

Says Chen...

"Similarly, no single product feature determines the viral success of a business. I've seen several product pitches where the business is described as 'viral' on slide 10 of the presentation, because of a particular feature, like 'Tell a friend',Widget embeds, Addressbook importing... or whatever.

No single feature determines the virality of the product - instead, it's part of a viral loop that connects a disparate set of functions into a cohesive motivation for the user to tell their friends. If the fundamental product doesn't drive a viral motivation from its users, then it's very hard to force it."

In the end, viral marketing is a fundamental product design discipline.

Implications: Fueled by the wider "Web 2.0" movement and technology protocols, marketing and advertising are also setting up to explore "open source" as an option -- a collaboration-based "operating system" for media and advertising metrics. M&A activity within media and digital advertising is also opening the doorway for shared access to consumer-facing ("attention" metadata ownership) and advertiser-side (ad optimization) information.

Analysis: Back in 2005, Doug Weaver suggested that we would see the emergence of Open Source Marketing and discussed its many promises. 

Today, we're absolutely moving toward a world where "markets are conversations" (The ClueTrain Manifesto) and companies like Google (GOOG) are setting up to give away valuable tools and information.  The benefits of recognizing and acting on these once futuristic concepts are becoming increasingly powerful for companies that are willing and able to adapt -- today.

Says Weaver, "Open source marketing can actually shed light on what happens when you turn the various knobs in the online plan."

While this may sound rather un-compelling to the layperson, to Web marketers its a bit of a Holy Grail. 

As we examine the moves and predict the plans of companies like Yahoo (YHOO), Microsoft (MSFT) and All Mighty Google we're also forced to closely track their many competitors -- from clunky, publicly held Goliaths to nimble, privately funded start-up companies that see the same potential to not only "free up" consumer-based data and media but marketing/advertising data.  They, too, see the potential.

Implications: SeekingAlpha and TheStreet.com columnists are doing battle over threats to GOOG's revenue stream but each offer uninformed opinions that seem to back up predetermined conclusions: All is well -- or not well -- for GOOG. At the heart of the matter is understanding what drives pricing and spending on search marketing (paid and unpaid or "natural SEO" across the board).  Habits and strategies that marketers have practiced for years now and show no sign of changing soon yet there are new concerns.  Namely, GOOG's Universal Search initiative which experts believe is one of the most significant move GOOG has made to date.  As well, the domaining industry (i.e. Marchex) is changing rapidly as "parked domains" and "Made For AdSense" sites morph into legitimate publishers of quality content (for advertisers to invest in).

Analysis: I respectfully find James Altucher's viewpoints to be uninformed.  Andrew Melcher takes him on yet I find many of his opinions and premises to be misguided. 

Much of what drives pricing and spending on search (across the board) are habits and strategies that marketers have practiced for years now and show no sign of changing soon. Amazon is a perfect marketer to cite given its long history of, in effect, outsourcing much of its "natural" SEO work to third parties -- affiliates/associates. No need for a large SEO budget.

This may seem like nuance but Amazon's tactic here is not only key in its overall spend (in effect, it pays on performance only... in the form of a cost per transaction to its affiliates) but its top down decision-making strategy. This practice (outsourcing SEO to affiliates) has been mimicked by nearly all major online retailers and most studies that I read indicate a continual slow-down in SEO spending overall.

Why? Marketers suggest that playing the "Google Dance" no longer interests them (it's too expensive).

BUT what few (outside a handful in my peer group) seem to be discussing is the impact that Google's Universal Search initiative will (is having??!!) have on broader search spending. Quite literally, millions of "page one and two" search results are being pushed off the page by new search results (emanating from Google Maps, YouTube, Google Base, etc. etc.). If anything has the ability to create broad spending change Universal Search does more than anything else.

On a recent podcast I hosted, Dr. Amanda Watlington (a respected search industry expert) said:

"You've got to optimize everything… get out of the business of thinking about it as just text (as the only important thing)...  I think it’s (Universal Search) one of the biggest changes that we've ever seen."

Indeed, Altucher's statement is highly (dangerously?) uninformed...

"Keyword inflation is coming to an end... search users are up to six times more likely to click on the first few organic results than they are to choose any of the paid results."

... but I believe for reasons other than those offered by Melcher. Namely, the AdSense network and the multimillion (many say nearly billion) dollar business of domaining (i.e. Marchex) is not factored in. While we do not officially know how reliant GOOG is on revenue generated by so-called "Made for AdSense Web sites" you can bet it's significant and this is a rapidly changing portion of the contextual search marketing landscape.  Made for Adsense sites (or "parked domains" filled with ads wherein publishers play a social engineering-based arbitrage game) are converting into legitimate Web sites filled with quality content.

Worth noting, the conclusion Melcher draws in his camcorder pricing example (free results are often more expensive) may also be driven by the virtual monopolization of "free" results pages by third party affiliates (hence, prices at the retailer need to be increased to offset the revenue share with affiliates). In any case, it's an interesting conclusion and one that is worth further thought in terms of predictable (leverageable) consumer behavior (which is critical to most affiliate marketing approaches).

Implications: Winners: Those who give advertisers what they demand. That means BOTH "brand and reach" (display) and "direct response" (cost per action/click) options needed to corral those increasingly coveted, multi-channel consumers.
Losers: Those who remain married to a single ad distribution network/payment scheme. Agencies: WPP has seen enough and is now in on the game (will acquire 24/7 Real Media). They see MSFT and GOOG investing in services and must respond. They clearly understand the need for a diverse distribution menu, cost model. They understand the power of a Web that offers scale to advertisers. MSFT and GOOG are no longer distribution companies, they're full service. aQuantive: MSFT's planned acquisition of AQNT is a forced "me too" investment yet also places them squarely in the services game. The 'Currency' of Advertising is Changing: Attention and engagement will soon become the new currency of advertising (not clicks and page views/impressions).

Analysis: MSFT, GOOG, WPP and MSFT are just a few companies who are actively giving  advertisers what they demand in a world increasingly dominated by short attention spans and multi-channel shopping habits. "Brand and reach" (display) and "direct response" (cost per action/click) options are mandatory so as to corral increasingly coveted, multi-channel consumers that are worth many times more (customer lifetime value) to marketers.

WPP has seen enough and is now in on the game (will acquire 24/7 Real Media). They see MSFT and GOOG investing in services and must respond. They clearly understand the need for a diverse distribution menu, cost model. They understand the power of a Web that offers scale to advertisers.

MSFT and GOOG are no longer distribution companies, they're full service.

MSFT's planned acquisition of AQNT is an expensive, forced "me too" investment yet (like Google's acquisition of Doubleclick-Performics) places them squarely in the services game (via AveuneA/Razorfish).

The 'Currency' of Advertising is Changing
More important than a shift away (which will not happen; search-based advertising will not dramatically shrink given what looks like a rise of interest in display), attention and engagement will soon become the new currency of advertising (not clicks and page views/impressions).

What’s ultimately behind the Google - DoubleClick deal that has everyone (including former Anti-trust Kingpins AT&T and Microsoft) screaming bloody murder? The MSFT-AQNT deal? 

The attention of consumers; not their clicks nor their page views but something else.

We’re on the cusp of a shake-out that could come sooner than pundits predict.

Ad industry futurist, Sam Harrleson of CostPerNews says,

“Google is paving the way for audience (attention)” and what he calls “content counting that makes sense.”

Looking for evidence?  Here's some.  Google is likely to open up RSS advertising soon via acquiring Feedburner, a leading player in pioneering RSS (Real Simple Syndication) ads that help monetize social media (blogs) inventory.

Pay Attention to Attention
While it’s been wowing Wall Street and scaring the pants off of the traditional advertising and measurement industries, Google has (all along) been quietly planning to help foster radical change.

By changing the actual currency of advertising it stands to thrive, indeed, dominate (though strategic alliances) in an environment that seems increasingly out of control (controlled by users/consumers). Indeed, Google’s plan to dodge the anti-trust bullet is a brilliant one and rooted in ceding control to consumers.

So how will it fundamentally change advertising—beyond the spread of its auction meme?

Simply stated, page views and impressions (CPMs)... clicks (CPCs) and actions (CPA sales, leads) will all be challenged. Yes, this is Google’s bread and butter today (it’s advertising’s for that matter!). No, these models will NOT go away as measurement devices that connect with advertising payment schemes. BUT, they will be challenged. They are being challenged—today—if you’re paying attention.

Winds of Change: Ad Measurement
Do current measurement firms like comScore “get it?” Yes. Are they moving? Yes again... by taking small steps. Recently, comScore decided to challenge cookie-based tracking. Already under fire and proven to be highly faulty as a measurement device, most (if not all) of online advertising relies on the use of cookies.

Mohanbir Sawhney said it best...

“To measure audiences more accurately, it is important to link visits to unique individuals, not unique cookies.

As privacy programs become more entrenched, cookie-based audience counts will get even more unreliable.”

The ad measurement game stands to change radically as well.  Hence, if one is to lead the pack they must be ready to invest in new ad measurement technologies and pioneer metrics that measure "attention."

Implications: Looking for evidence that cable TV, the industry, needs a forward-thinking digital media gameplan?  Look no further than this commentary around a decision rooted in a "heads buried" approach to change.

Traditional ad agencies are not leaders, they're fearful laggards that have yet to smell the 'accountability coffee' that advertisers have been demanding... and that the Web can deliver (if agencies let it).  CATV's looking to them as decision influencers is a serious mistake -- or a poor excuse.

Analysis:

That’s right, Mr. Cunningham boldly used the words “critical strategic and idea-driven intelligence” to describe media buying. Come now, Mr. Cunningham. We all know that media buying isn’t brain surgery and traditional agencies are suffering from a serious credibility problem.

The cable TV industry seems to suggest that open marketplaces are on par with “dumb” automation (by suggesting that there’s not enough room inside marketplaces for good old fashioned human intelligence).

What?!

This same logic suggests that I would use Priceline without putting any energy into considering things like the quality level of the hotel I’m looking for… or the location where I want to stay… or that Priceline doesn’t give me the opportunity to change/tweak my bid. Of course there’s room for that, silly!

Cunningham also noted that the media agency community is divided on the feasibility of the system. “The refusal by major members of the agency community to consider this interface reinforced our conclusion that ending our participation was the correct decision for our members and their advertising clients,” said Cunningham.

Okay, now we see cable TV’s true colors. They fear because… well, because they (agencies) do. Agencies? Seriously? They’re the bellwether?

Aside from Cable TV’s inability to think for itself (following the lead of a defensive laggard no less)... when will ad agencies give up on fearing the Web as a marketing channel AND equating “better tools” with “automating us out of business?”

This isn’t about automating anyone out of business. Companies like eBay and Google offer ad agencies a better, more efficient set of tools. Uh-oh. There’s that word again… efficient. Next thing ya know I’ll toss in the word accountability. Well there you go—I guess I just explained why ad agencies continue to fear the Web rather than embrace it.

Implications: 1) Ignore the price: By now this should be obvious.

2) GOOG gets instant display ad relationships with nearly all large online publishers and more than half of online ad agencies. Whoot!

3) Free ad serving is on its way and pairs very nicely with free Web analytics and ad campaign optimization. This spells trouble for anyone in the ad serving, ad management/optimization biz.

4) Better ad serving is on the way. Buzz in the privacy community is a good indicator of what is sure to come (and what YHOO already does): serving ads based on user’s searching and Web browsing activity. This spells even more trouble for anyone in the ad serving, ad management/optimization biz.

5) Media & analysts are missing the point: GOOG's core market. 
Although it wants to have large agencies who manage large brands as clients, GOOG is increasingly positioning to become the dominant ad distribution/services provider for a “mid tier” market that demands convenience, scale. 

6) ValueClick next?  Likely not.  There’s much buzz about ValueClick (VCLK) being ripe for the picking now that DCLK is off the table. This speculation is misguided and it’s important to understand why.  aQuantive (AQNT) becomes of more interest.

7) GOOG’s display business is poised to take off.   As the company rolls out its new Doubleclick network in a highly scalable, self-service manner among existing advertisers it's looking good for GOOG. 


8) Google wins an ad exchange / marketplace.

Analysis: Ignore the Price
By now this should be obvious. GOOG doesn't need to recover such investments at this stage (so long as they own a printing press).  GOOG gets instant display ad relationships with nearly all large online publishers and more than half of online ad agencies. Whoot!

Free ad serving is on its way (insider buzz suggests)
It would pair very nicely with GOOG's existing FREE Web analytics and FREE ad campaign optimization. This spells trouble for anyone in the ad serving, ad management/optimization biz.

Better ad serving is on the way
Buzz in the privacy community is a good indicator of what is sure to come (and what YHOO already does): serving ads based on user’s searching and Web browsing activity. This spells even more trouble for anyone in the ad serving, ad management/optimization biz.

GOOG's core market & the coming social media explosion
Although it wants to have large agencies who manage large brands as clients, GOOG is increasingly positioning to become the dominant ad distribution/services provider for a “mid tier” market that demands convenience, scale.

Yes, this means it's "democratizing" the media business but no, contrary to those who suggest GOOG has no chance at playing with the big guys, the company can successfully serve BOTH audiences.

GOOG doesn't play in the 'behavioral targeting' space that seeks to arm large advertisers and their respective publishers with whiz-bang ad targeting technology. Why? They don't have to. This business is not scalable enough for GOOG and inventory is limited versus the explosive social media opportunity (so-called user generated content is vast and offers potentially endless inventory) setting up before them.

ValueClick is not next: AQNT is
There's much buzz about ValueClick (VCLK) being ripe for the picking now that DCLK is off the table. This speculation is misguided and it’s important to understand why. aQuantive (AQNT) becomes of more interest given its similarities (Performics is to DCLK as AvenueA/Razorfish is to AQNT).

With the addition of Performics (a unite being completely ignored by analysts), GOOG will begin to resemble aQuantive with a twist -- GOOG will carefully balance self-service ad management tools (aimed at advertisers direct AND agencies) with high end marketing services (via its Performics unit which looks a lot like AQNT’s AvenueA).

This serves all advertisers... those who value self-service scale and those who need full blown agency services.

GOOG’s display business is poised to take off
As the company rolls out its new Doubleclick network in a highly scalable, self-service manner among existing advertisers it's looking good for GOOG. Competition for display ads will only increase (considering it's now opened up to a wide variety of smaller advertisers). The display offering pairs nicely with GOOG’s move into CPA.

This will spur the company to offer all payment options (CPM, CPC, CPA) across all display and text ad networks.

Google wins an ad exchange
GOOG wins a marketplace for its huge lot of advertisers to leverage. So much for RightMedia (not to mention Yahoo’s stake in the company).

Anecdotally, consider the cash: GOOG acquired DCLK in an all cash deal. DCLK acquired Performics in an all cash deal. Nobody wants stock. Hmmm. What does this say about GOOG and dare I suggest “the market?” Market=GOOG=Market?

 

Implications: Google will bring SCALE to a popular cost model at the expense of a variety of other networks who's publishers have been increasingly reliant on Google for traffic.

Ad networks like ValueClick (VCLK) have attempted and failed to both wean themselves from dependency and satisfy advertisers' need for more growth at less cost (overhead) -- enter big G.

With its daring plans to extend into text link advertising, Google is setting up to monetize blogs and other grassroots social media that have remained vastly untapped (AdSense has not penetrated).

Ultimately (like Analytics, Checkout and other products like the rumored, highly disruptive free ad serving platform) this is another powerful cog in the wheel allowing GOOG to take on Microsoft in the burgeoning SME/SOHO/small business sector. 

Analysis:

Google's announcement has been met with everything from fear and loathing to cheers from a variety of bloggers -- both in the know and in the dark. While this does provide a means for GOOG to mitigate click fraud, media reports hyping this aspect neglect the fact that GOOG has already put click fraud to bed -- it is no longer a viable threat.

Google is indicating that it will not be keeping this in beta for long and plans on quickly opening up AdWords (appearing on Google.com) ad inventory soon. As well, text links (embedded anywhere and everywhere inside Web content like blogs) will make an appearance soon.

Says Scott Karp of Publishing2.0, "This is about turning the web into one big pile of junk mail, aimed at getting you to sign up, buy, or commit to something that you hadn't necessarily wanted.”

Peter Caputa IV has a different take.

“... what if Google manages the risk for the publisher? It wouldn't take much for them to compare an eCPM from different CPA, CPC and CPM offers and choose the right ad to run to maximize conversions and profit for them and the publisher.

The real reason that CJ, LinkShare, Amazon's programs haven’t scaled is because they don't have liquid markets:

1) Most small businesses can't participate because of specialized knowledge, resources and investment required.

2) Most publishers can’t manage the risk, especially if they can sell high value ads f2f or phone2phone on a CPM basis.

Google COULD bring liquidity into the market by lowering the barrier to entry for advertisers to participate in CPA/PPA advertising and for publishers by choosing the ad that pays them the most, whether it’s CPA, CPM or CPC. We'll see.”

As I see it, the opportunity clearly exists for Google to:

A) lower the (cost and complexity) bar for entry on CPA advertising while offering up their most valued (by advertiser) asset—scale

B) manage risk for publishers by calculating an eCPM (effective cost per thousand impression) and serving up the most profitable ad based on its secret sauce relevance algorithm

This entire move plays beautifully on advertisers’ love affair with scale AND relative disdain for actually doing the work—targeting and optimization that serves their better financial and customer-based interests.

Which, bye the way, Google offers as a free service for as well.  Get the picture?  

Implications: Yahoo has proven itself to be more savvy than Google when it comes to insulating itself against click fraud suits arising from advertisers.

This is a raw deal for advertisers of all flavors. Will it come back to haunt Yahoo? 

Yahoo stands to benefit from being sued by its advertisers based on the legal action’s ludicrous settlement terms; terms that absolve Yahoo of liability for fraudulent, and more importantly “unwanted”, clicks sent to advertisers over the last 8 years.

Analysis:

I'm surprised that so many around the search marketing blogosphere have so little to say about this case as it's been going on for quite some time now. In return for agreeing to a settlement that most advertisers have no idea they agreed to, they settle with Yahoo -- gaining the opportunity to *ask* for credits (to buy more advertising) and these credits may ultimately be denied by the company.

A deeper look into the actual credit request process (as I did) it becomes obvious that Yahoo's intent here is to make it nearly impossible for advertisers to actually receive credits (sound familiar?... Google's settlement has yielded similar "refunds" for advertisers).

The $5 million Yahoo! will pay to Checkmate Strategic Group is, in effect, a VERY cost effective insurance policy against click fraud concerns that may arise in the future; all while, legally, never admitting fault and promising advertisers not one dime based on my research of court documents.

The Class (of advertisers) is HUGE (a majority of Yahoo's customers) given that advertisers who didn't respond to Class representation (through a burdensome process, again) were auto-opted into it. 

More...

Implications: The future for what could be a killer application for Google -- its Checkout service -- continues to be underestimated and misunderstood. This is NOT about PayPal and IS extending the life cycle of Google's advertising product (the AdWords connection) and growing their advertising dominance (base of advertisers) in an increasingly competitive market.

Google's Checkout could very well be one piece of a soon-to-be unveiled, soup-to-nuts e-commerce offering for small to medium enterprises (SMEs). 

Goldman Sachs estimates that Checkout promotions will cost Google about $20 million in this (Q4) current quarter alone and that Google's success is coming at the expense of traditional transaction processors, NOT PayPal.

Analysis: Scott Devitt, quoted in the original article and an analyst with Stifel Nicolaus & Company, says "Checkout could be a game changer, and the competitors (chiefly MSN and Yahoo!) are doing nothing of the sort."

In examining Checkout's potential impact, the questions we should be asking are:

1) Will enough consumers adopt Checkout and, if so, what will drive the adoption?

2) Will enough small to mid sized enterprises (SMEs) embrace Google as a more complete provider: an ISP, Web site / "landing page" host, advertising and e-commerce solution provider?

Please notice the lack of focus on disrupting PayPal and on immediate-term success of Google netting merchant participants.

Driving Adoption: Privacy, Trust
So what will drive consumer adoption of a secure Web shopping wallet? Ironically, I posit, privacy concerns.  I say ironically in that Google has, and continues to, amass THE proprietary data set ranging from corporate marketing ROI intelligence (Google Analytics + AdWords/AdSense = intimate return on investment knowledge) to user surfing behavior (via everything from Google Reader to Google accounts consumers are continually logged into).  There's nothing private about interacting with Google or any of its sister products, services or companies but so far the company has not stumbled in terms of users/customers being overly concerned with their privacy. They've not used any of this data in "evil" ways -- or at least they've not admitted to it. Google's trust factor is high.

Is it far fetched to suggest that consumers would trust Google with protecting their charge card number in an age where they are already scattering it across e-commerce sites? Not everyone gives their number out for storage by the retailer, of course, but most merchants are actively asking consumers for it. In the end, what's safer... storing the number in one place (Google's server) or storing all over the place?

Driving Adoption: Convenience
Web 2.0 is all about the consumer's ability to customize and Google is all over it. Consider Google's offering, at a centralized location, consumers a place to receive and store customized (again, only from a consumer's favorite/approved retailers) promotions and coupons.  One need not look further than Yahoo's new "Bargains" shopping tab to predict such a return volley from Google.  Again, I suggest the question is when and how... not if.

I posit that this is all about a longer, methodical (uncharacteristic for Google, I admit) race to capture a piece of the wider SME market -- one dominated by Microsoft products and services.  Does this focus on digital wallets?  Not really and Google seems content to let Microsoft lead the masses into a more transaction-focused mobile future.

Google could (although it denies such plans) become a full fledged ISP (Internet Service Provider) complete with site building, hosting and marketing analytics tools. Need to drive visitors to that site? No problem; how would you like to pay for them?

When and How Google Will Move
I suggest that we've only begun to see Google flex its branding muscle (among consumers and SME owners) and the tipping point will be reached when its advertising business revenues take a slowdown. This is another "when not if" question and will be preceded (if not triggered) by a declining housing market and rising interest rates.  I am confident that Google will, at such a time, launch sizable TV, radio and print branding campaigns that seek to earn the trust and adoption of consumers across a wide array of its largely free offerings.

Scaling 'Cost Per' Marketing
Cost per click (CPC)? Cost per action (CPA), lead or transaction? Not a problem -- Google can handle all forms of payment that an advertiser may desire.  SME customers relying on Google Checkout as their primary means to process customer transactions (or Google Analytics as their marketing ROI tool) can take advantage of paying on a CPA basis.  It's a snap for Google (an affiliate marketing scenario is all but built into Checkout using simple, industry standard pixel tracking).  Listen up Valueclick (VCLK), shopping comparison engines and anyone else wishing to sell CPA and CPC visitors to advertisers.

According to Forrester Analyst Charlene Li,

"They (Google) already offer a few things by cost-per-action, but the problem has always been closing the loop. Here they can actually absolutely close the loop."

From the NYT piece... Checkout's product lead, Benjamin Ling, reports that "Google has no plans to tie search results to buying habits or to use Checkout to move to a cost-per-action ad model." But he added, "If there is a service that is of value to consumers, we will consider it."

Again, this is not about disrupting PayPal or Valueclick (CPA affiliate networks) so much as it is about a wider, multiparous focused plan of attack on a growth market: the SMEs.

Implications: In the short-term (pre-Internet Protocol TV boom), if Google can convince broadcast and cable television "content owners" of relatively intangible ratings boosts attributable to YouTube viewing it may fend off lawsuits AND a larger play by content owners to monetize their programs via what would amount to be a YouTube competitor.

Analysis: TechCrunch reports CBS Interactive's president as suggesting YouTube is driving new viewers to its late night TV programs.  The Internet video powerhouse says that CBS content has been viewed 29.2 million times since October 18, which is an average of 857,000 views per day. 

How does CBS's Quincy Smith feel about this?

“Above all the other good news, what’s most exciting here is the extent to which CBS is learning about its audience as never before."
 
He goes on to say, “YouTube users are clearly being entertained by the CBS programming they’re watching as evidenced by the sheer number of video views. Professional content seeds YouTube and allows an open dialog between established media players and a new set of viewers. We believe this inflection point is the precursor to many exciting developments as we continue to build bridges rather than construct walls.”

The network's “Late Show with David Letterman” program added 200,000 (+5%) new viewers while “The Late Late Show with Craig Ferguson” increased to 100,000 viewers (+7%) since YouTube postings started.

Of course, the success of these shows on YouTube is not the singular cause of the rise in TV ratings.  Yet this clearly indicates both companies believe that YouTube is contributing to new viewership... and that's big news.

TechCrunch confirms my earlier speculation with regard to the cable companies (content owners) and their desire to cut YouTube off at the pass. 

Says Michael Arrington, "From what we hear, the content owners still on the sidelines are trying to create their own jointly-owned YouTube clone and license their content into it (thereby securing 100% of ad revenues)." 

Implications: What Doesn't Matter:
Copyright infringement lawsuits are the very least of Google's worries. 

What Does Matter:
Cable companies (i.e. Comcast who is already moving) banding together and creating their own Web distribution point.

Analysis: "But if YouTube is to remain a good fit, it will have to keep its new parent free of costly copyright infringement lawsuits..."

False.  Google expects this and will gladly foot the bill as it works behind the scenes to pioneer... to prove (as it already has with MTV) to entertainment companies that it can boost revenue both on the Web (ad revenue sharing) and off (promotional value).

What keeps GOOG up at night?  The fact that cable companies realize that nobody needs cable TV service anymore to enjoy their favorite programs from CSPAN to Comedy Central and nearly everything in between (that's worth watching).  What's more viewers can get it on demand.  From whom?  YouTube/Google and other Web2.0 companies (i.e. Revver).

With the cable companies already moving to encourage users to upload their personal videos, Google's dark fiber network and the entire Internet Protocol TV opportunity looming everyone is gearing up -- including Microsoft and Apple (iTV). 

If I were GOOG I would be bracing for the cable companies and/or content producers to band together and launch one centralized portal for viewers to access programming from -- throwing all their promotional weight behind it and, concurrently, figuring out a way to stem user-generated/shared video clips on competing services.

As I see it , cable companies will be less inclined to take GOOG's ad revenue splits (relative to entertainment companies) as they, themselves, are in the advertising business with much of the programming (i.e. Food Network) raking in strong profits.  Why take GOOG's tollway change based on an un-proven model? (Web video ads, AdSense for Video, contextual video ads etc.)

Implications: As part of a legal settlement, Yahoo! is about to shed serious financial risk -- completely escaping any claim of fraudulent or "unwanted" clicks it sent to advertisers over the last 8 years... unless objections are able to stop Checkmate Strategic Group Inc. vs. Yahoo! Inc. from settling. 

Total cost to Yahoo! $5 million. 

Total promised refunds to advertisers: $0.

Web Media Companies Winning: You name the major player (Google, Yahoo, etc.) they've got a lawsuit in the works that benefits them by creating settlements that leverage advertisers ignorance on how click fraud works.

Advertisers Lose: They have, without their consent, been automatically opted in to a Class being represented by Checkmate Strategic Group Inc. -- a company claiming to represent their interests yet seemingly stacking the deck in Yahoo's favor.

Analysis:

Click Fraud, Itself, Has Become a Fraud
The media and others are working overtime to convince us that advertisers actually do give a damn. They don’t and Google’s valuation, growth and sources of revenue (99%, as reported by Wired Magazine, from click ads) serve to prove the point.

Still, those around us beat a drum as if we should care, worry, freak out, spend, downgrade, speculate... whatever. Earlier this year, Wired Magazine joined in the hype parade proclaiming in its headline that ”Click Fraud Could Swallow the Internet.” Never mind the fact that everything in the article itself, like the countless pieces written before it, points to the contrary.

Advertisers don’t mind click fraud and probably never will so long as:

A) Google et al give them no control over it; nor define it

B) They can factor it in to the assumed operational cost of advertising on the Web

C) They remain widely mystified by search marketing in general

Yet Wired is absolutely breathless, screaming “It’s search giants against scam artists in an arms race that could crash the entire online economy.”

Details on the Yahoo! Settlement
Upon the review of documents obtained from the U.S. courthouse, it's clear that this case is well on its way to being a slam dunk for Yahoo! and the Class’s representation… not the Class (estimated to be tens of thousands advertisers) itself. 

An industry colleague of mine suggested, "The only people aside from the scammers benefiting from the recent Google and Yahoo class actions are 1) The lawyers and 2) Google and Yahoo -- it seems the US legal system is designed to protect these firms from further claims as opposed to legitimately helping advertisers."

The process advertisers must use to petition Yahoo! for credits is a remarkably laborious one that, in the end, works against advertisers who purchased click-based advertising from Yahoo! (formerly Overture) for the last 8 years.

In Google's Foooootsteps
Yahoo! has clearly taken notice of rival Google’s ability to all but convince the world that click fraud doesn’t exist. Case in point: Google’s recent earnings call never broached the subject of click fraud. Not a word about the single most significant and growing problem was mentioned by Google executives and, more importantly, top industry analysts.

Game, set, match: GOOG.

Yahoo! looks to be knocking this one out of the park even further by jumping at the opportunity to create legal precedent that redefines the notion that fraud against advertisers has ever, or could ever, occur in its network.

Sorting Through Conflicting 'Research'
Carl Howe concurs and amplifies a recent NY Times article that comes to the same conclusion (online media companies are dealing just fine with click fraud concerns) although for other reasons.

Howe points at the NYT piece that suggests, "Concerns about click fraud and viewer statistics do not appear to be affecting online advertising revenue right now, but ad agency executives said the issues must be resolved before large advertisers would want to pour much more money online."

Indeed, Howe points out that the study quoted in the NYT was funded by big ad agency dollars -- who typically don't benefit from a thriving click-based Web economy.  That stated, Howe himself concludes (using the Internet Advertising Bureau's numbers):

1) The largest advertisers spend below average percentages on online advertising

Top advertisers in offline advertising spend between 1% and 4% of ad budgets on online.

2) Most of these figures ignore search advertising (therefore these advertising figures grossly underestimate actual online effectiveness)

Thus, says Howe, "While click fraud is an important concept to keep an eye on, it's not quite the killer problem for online ads that the article portrays." 

Indeed, it's all but an accepted cost of doing business that advertisers have embraced... fully accepted.  For those few that have tried to deal with click fraud issues... well, they have been systematically and repeatedly dismissed by advertising providers like Google —even after offering their own damning evidence of fraud.

Life goes on... dollars continue to flow in the direction of e-savvy ad agencies who are happy to help big brands buy visitors by paying for clicks.

Implications: Based on leaks to bloggers and mainstream marketing media, Google (GOOG) appears to be readying to re-structure its client-facing organization.  This would position the company much like IBM or Microsoft in that one global account director would interface with each advertising customer -- bringing radio, print, video, display and contextual text ad placement to the table.  This move would greatly simplify the sales and operational elements of its media business.

While not officially announced, job openings in Chicago and Newport Beach, CA indicate AdSense for Audio is just around the corner.  Google is now clearly demonstrating clear plans to monetize streaming audio (i.e. radio) and, perhaps, "on demand", downloadable (i.e. podcasting) audio programs. This would put Google in competition with much smaller, emerging podcast networks and advertising network plays chasing after the same opportunity -- scalable monetization of this new Web medium. 

Google has been slowly bringing together various audio media-focused companies (i.e. dMarc) and voice-to-text technologies via acquisition.  It now appears ready to come to market and achieve scale rapidly... much like AdSense (text base, contextually placed syndicated text ads) did.

Analysis: Three of my most credible resources, including DM News’s Giselle Abramovich, are indicating plans for a significant reorganization at Google (Nasdaq: GOOG). Secondly, Google is positioning to move on the AdSense for Audio front—a move to monetize podcasts and other forms of streaming or “on demand” audio programs via the Web.

According to Ms. Abramovich, “What this means is that there would be one global account director per account, that pulls in resources to sell as needed - PPC (pay-per-click), Print, Radio, Video, Display, etc.”

The story has created tremendous buzz across the blogosphere... especially considering the many vocal critics of Google’s rather scatter-shot, from-the-hip product development style and relatively informal corporate structure.

According to ReadWriteWeb's (the leading next generation Web technology blog) Richard McManus, "The significance of this is that it's similar to what Microsoft and IBM already do - extract maximum revenue for each customer (in this case, the larger advertisers on Google)."

McManus continues, This means Google will utilize different types of ads (CPC, CPM, CPA, etc) over all media channels - search, mobile, video, audio, etc.  The benefit for Google's customers is that it enables them to target certain leads across different types of media. They can do that from one 'console' and they will work with 1 Google salesperson/account manager on their account. Of course will the large advertising agencies be happy with this scenario of Google providing a one-stop shop? Of course not."

How will the nearly 6,000 employees feel about such a change? Will it create culture shock on the inside and what about client (advertiser) relationships? As I see it more organization will offer serious benefits to advertising clients.  This is a natural and much needed change and employees will eventually embrace it.

AdSense for Audio
In related news, Google is demonstrating clear plans to monetize streaming audio (i.e. radio) and, perhaps, “on demand”, downloadable (i.e. podcasting) audio programs. This would put Google in competition with smaller, emerging podcast networks and advertising network plays.

How will they engage the market? You guessed it—it appears contextual placement of ads along side of podcasts. I would think they would focus on streaming media appearing on Web pages and, likely, RSS feeds… perhaps even within Google Reader?

“As Google turns you can feel the fabric of the media tear beneath your feet,” comments Wayne Porter of Web advertising blog Revenews.com.

Will Google use its patented ability to take voice and turn it into a search query... and scale it? This would allow Google’s AdSense for Audio service to “listen” to podcast content and provide contextually matched text ads on a Web page. 

eWeek's Steve Bryant confirms that his sources indicate "AdSense for Audio will involve, in part, contextual advertising around podcasts."

What about keying on the mobile (cel phone) delivered podcast movement currently afoot?  Bryant believes that Google could easily send podcasts to mobile phones and wrap them in mobile contextual ads.

What’s stopping Google from placing audio ads at the front and/or tail of audio programs delivered via the Web? This is not a new idea (there are a handful of start-ups like Podbridge, Podtrac promising this or a variation of it) but Google has the proven ability to scale and Madison Avenue presence… just like Podshow does. Hence, I believe this move by Google is bad news for a variety of startups promising a “podcast - advertising” match service.

As I see it, this pits traditional advertising (Podshow’s model) up against the ability of the Web to provide scale—the secret sauce behind AdSense’s wild success. Will advertisers prefer the “audience demographic” means of ad placement over the more scalable, contextually-driven (automated) AdSense version?

Implications: Forget about YouTube.  Google (GOOG) is serious about its new Checkout service and is actively investing in it via participating merchants. This time it’s not just advertising credit or low shopcart fees for merchants (a standard they've already set), Google is helping retailers pass along deep discounts to consumers (on products and services they offer). 

Considering the predicted focus consumers will have on discounting this holiday season, merchants should enjoy the added promotion.  Google's bet: merchants will adopt the, essentially free, Checkout shopcart even faster.

The moves have prompted Shopping.com to move into universal shopcart offerings and eBay to ban the use of Checkout among its sellers.

Analysis:

Google (GOOG) is serious about its new Checkout service and is actively investing in it via participating merchants. This time it’s not just advertising credit or low shopcart fees for merchants (a standard they've already set), Google is helping retailers pass along deep discounts to consumers (on products and services they offer). 

Considering the predicted focus consumers will have on discounting this holiday season, merchants should enjoy the added promotion. Google’s bet is that it will help merchants adopt the Checkout shopcart even faster.

Jeff Novak of Odimo (www.worldofwatches.com and www.ashford.com) is not only excited about the holiday season benefits but confirms that the Checkout "badge" displayed as part of AdWords advertisements is resulting in increased click throughs.  In fact he suggests that it has also helped to drive sales.

Larry Page, Google's Founder and President of Products echoed this in yesterday's earnings call stating, "... our goal is really to improve the purchasing experience for users and deliver higher conversion rates for advertisers."

Page reports "steady progress" and expects to ultimately penetrate the top 500 U.S. online retailers.

Says Novak, "as the badge becomes more and more recognizable and more users begin to use Checkout for their online purchases, we should see even more revenue." 

Momentum: Distributors
Surprisingly, Google is also securing serious traction with its advertising distributors. A closer look at how Web merchants and their distributors (affiliates) are using Checkout provides more insight.

Established affiliates and distributors (i.e. comparison shopping engines) show strong signs of embracing (not fearing) Google Checkout as a serious conversion (turning browsers into buyers) enhancer through use of that same exclusive, deep discount. Distribution partners of Web merchants, like Dealtime, are wasting little time in pointing consumers at the cash incentives offered by Checkout.

Why is this a surprise? Not all affiliates provide “native visitors”… many, rather, provide arbitraged visitors (via paid search media) which retailers are, themselves, increasingly getting better at netting. Established affiliates, however, rely less on use of paid search advertising to attract shoppers. These affiliates are not threatened by Google’s interest in offering merchants a very attractive, self-funding direct-to-consumer advertising solution like Checkout. They’re embracing it!

Does Google risk driving away its once cherished affiliate advertisers? Perhaps but Google has managed to reduce inventory, improve ad quality overall and raise prices quite well in 2006. In fact it’s taken a fairly anti-affiliate stance in many cases… weathering the storm very well as it weans itself off of affiliate dollars and moves to “go direct” to advertisers. Affiliates and distributors who in the past relied on search to garner visitors are increasingly turning to other forms of Web selling such as drop shipping.

Momentum: Retailers
Will advertisers continue to tolerate higher click prices? Time will tell.

Consider Google’s heavy courtship of National Retail Federation (via Shop.org) members this week in NYC. Consider the quantity of large, medium and small advertisers jumping on board and the rate at which Google is signing them up since rolling out the service just a few months ago.

Andy Newlin, Web Operations Manager at Sierra Trading Post, an early adopter of the Checkout service, says "We have seen, at times, new customer rates higher than 60 percent, transaction fee savings upwards of 20 percent, and 1,000+ percent increases in Google Checkout sales due to word-of-mouth marketing campaigns." 

According to Newlin, customers are indeed becoming more concerned about having their credit card information stored in many different places on the Web as a result of online purchases. 

"We feel that a service that can provide a centralized location for storing this information married with the ability to use this information at many of the places they want to shop will become increasingly valuable," says Newlin.

Finally, consider Shopping.com’s bold move into Google’s turf (using both a shop cart and cost-per-acquisition approach). It would appear that Shopping.com smells blood as does eBay who bans the use of Checkout among its merchants.

Momentum: Partnerships
Google hasn’t waited long to strike up some interesting partnerships such as a promotion with Citibank credit & debit cards that rewards shoppers who sign up for both services. They’ve even got a merchant referral (affiliate!) program.

What other partnerships has Google stricken to enhance the growth of Checkout and what are advertisers themselves saying about Checkout so far? Will Shopping.com be the first shopping comparison engine (SCE) to go “back to the future” by returning to (don’t forget this is how all SCE’s were born) a cost-per-acquisition fee model?