Author: Kevin Kelleher

Three years ago, a survey found Google to be the world’s best-known brand, topping Microsoft, GE and others. It was an impressive achievement not just because Google wasn’t even a decade old but because it did so little advertising. So why has Google been spending nearly $2 billion over the past year to strengthen its brand?

Google, the company that has redefined advertising in the 21st century, is itself becoming a major advertiser in traditional media. Remember the “Parisian Love” ad that ran during the Super Bowl (a $3 million piece of TV real estate)? Or how Eric Schmidt, in tweeting about the ad spot, joked that “hell has frozen over”? Then there was the Chrome ad on the NYTimes.com, as well as other print ads in magazines and newspapers around the world.

But when hell freezes over, you have to wonder why. Yes, Google launched new products like the Nexus One (to disappointing sales); and yes, its brand takes a hit with every perceived violation of its don’t-be-evil ethic. It also wants to let people know about new twists on search ads like remarketing. But does a company with a two-thirds share of the search market really need to beef up its marketing budget?

Google’s marketing costs have long been around 8 percent of its revenue. Last year, sales and marketing (excluding stock-based compensation) totaled $1.8 billion. Yet in the first quarter of this year, it spent another $553 million, a 47 percent increase over the same period a year ago. Granted, the beginning of 2009 was a bad time to be spending on anything, but that 47 percent rise is more than twice Google’s revenue growth rate.

The question of why Google is buying so many ads was on the minds of analysts during the company’s earnings call this week. When a Bank of America analyst asked about it, a Google executive responded that it was driven by return on investment. Which is a silly answer: All advertising is directed at a return on investment. That’s like saying you’re going into business to make a profit.

What’s more, marketing an ad-driven company has an absurd Ponzi scheme logic to it, a kind of media usury where ad revenue is spun out of ad revenue. Just stop and think about Schmidt’s Super Bowl ad tweet: Here was the CEO of an online ad giant advertising a TV advertisement. If it gets any more meta than that, our heads could explode.

But, as another analyst pointed out on the call, Google is facing long-term threats from social sites like Facebook, where major advertisers like eBay are spending more of their own ad budgets. Jeff Huber, a SVP of engineering, responded by saying that online advertising is growing so fast it’s not a zero-sum game. That’s true for now, but it won’t be for long. Google, of course, has had a number of failed initiatives in social media. And mobile search is not only a clear priority for Google, it’s a fledgling market up for grabs, perhaps by Google’s newest rival in web advertising, Apple.

Google’s sudden interest in buying expensive ads in visible advertising spots may suggest that the company is bracing for a period when its core market matures and growth slows. Coded into those rising marketing numbers is a slight but growing concern about what life will be like in middle age.

Still, at the end of the day, I doubt there can be much return on investment for Google to advertise its search engine and its ad model. Does anyone with web access need to know what Google is, or what it does? If so, I suggest they Google “Google.” Ow — once again, my head hurts.

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We all love good, provocative speeches that makes you feel like you’re looking at things in a new way, which is why Jesse Schell’s ambitious speech at the Dice 2010 Summit – about the future of gaming, networked sensors and marketing embedded in our daily lives – is still reverberating around the web several weeks on. I discovered it after Om called it the most mind-blowing thing he’d seen in a long time. Mathew later expounded on its themes in a thoughtful way. Others raved about it, calling it “astounding” and “Gibsonian” (as in William Gibson).

My reaction was different. I watched it not as a designer or advertiser but as a consumer, and when it was over I was overcome with a wave of depression. Somehow I’d hoped the future would be less dystopian than what Schell laid out — in particular the notion of games as a marketing tool to corral consumers into desired behaviors. Apparently, I’m not alone. A clip of the last 10 minutes of his speech was recently posted on YouTube under the banner “Most Disturbing Presentation Ever: Our Tech Nightmare.” From there it spread to Hacker News via a blog hosted by IEEE Spectrum, which said:

Schell’s apparent goal is not to scare his audience. He’s way beyond that. His attitude is that, given how close we already are in theory to experiencing life as a game, it’s clearly something that’s going to happen and we better make sure it gets done right. But, sorry Schell. While you may not have wanted to, you scared me and a whole bunch of other people.

But if the early enthusiasm that greeted Schell’s vision was over-enthusiastic, this new wave of alarm is also overdone. There may be a future for Foursquare-like startups that can create compelling game-like features in apps. But marketing is an entirely different matter. Marketers and advertisers are the eternal gate-crashers in the world of content. The best ads have always been the rare ones that engage consumers intelligently. The worst ads have taken a cynical approach, viewing consumers as so many behavioral buttons to be pushed.

Schell is probably right that there’s a home for video game designers in marketing and that behavior-detecting sensors will grow ubiquitous in time (just as behavior tracking on the web is nearly ubiquitous today). But the old-fashioned distinction between good ads and bad ads remains the same, and will be played out again on a larger scale as new technology takes marketing to a broader, and potentially more intimate, platform.

So if marketing companies are excited about using emerging technologies to play new games with consumers, they should think twice. The rewards may be greater, but the task will be much trickier. Consumers, after all, have only so much time and attention for games. It is already difficult enough to make any game engaging. Keeping up with frequent-flier programs, credit card reward programs, and so on can be tiring after a while.

Now imaging that the new rewards-based game your company developed has to compete not just with those, but hundreds of other new marketing games targeted at an overtaxed audience. Just this week, New York City tried to induce citizens into good behavior with the most basic of rewards — cold hard cash — but it failed.

Eventually, the consumer appetite for games will reach a saturation point, and these campaigns will be seen as just another cynical ploy to manipulate us into spending money. We like games because they offer a needed respite, even an escape, from the grind of everyday life. But if life becomes a game, where’s the respite? The escape becomes the very thing we wanted to escape in the first place.

Image courtesy of Mike_fleming from Flickr.

In the world of technology, drama is a valuable commodity. Disruptive change may happen in the minutiae of software code or the gradual execution of a business plan, but we see its effects in the dramatic narratives of companies rising and falling, or getting locked in combat with each other. Which is why the rivalry between Google and Apple is such a compelling story.

It’s so tempting to get drawn into the ego battles between Steve Jobs and the Google triumvirate while placing bets on who will win that it’s easy to forget a deeper truth about this rivalry: Google and Apple need each other.

They both have a deep desire to stake out claims on the mobile web, but the mobile web is in a nascent stage. In order to develop, it needs to have both rigid structure and a sometimes reckless creativity. Structure is necessary to provide a strong foundation and a set of standards everyone can understand. And creativity is essential to bringing the innovative potential of the mobile web into full bloom.

This dichotomy was present when the Internet began to develop in the early 90s. Many people who came online then did so through America Online’s walled gardens, a safe little enclave where consumers and content providers alike could create the rules of a new medium. Then the web itself took off and sites like Yahoo and GeoCities offered a much more creative environment to explore what else could be done.

Now it’s happening again, only with Apple and Google. Apple’s stern and unforgiving approach to the iPhone offers the structure this new medium needs to succeed. Cupertino’s control-freak tendencies stretch from enforcing adherence to ever-changing app guidelines to banishing plastic screen protectors from its retail stores.

Google’s approach is nearly the opposite, much more open and free-wheeling. Its Android OS, based on the Linux kernel, has so many versions available the company is struggling to consolidate them. The Android Market is such an unregulated affair that it’s hard for anyone to count the number of apps on sale.

Google’s culture has built into it a tolerance for the failures that come with creative experiments. Its 70-20-10 rule seems rooted on that spirit of tolerance — how many companies require employees to spend time on something that may never fly? — and Google has floated so many failed ideas it’s hard to keep track of them all. Apple, by contrast, starts with an instinctive idea of how consumers will experience its products and fits everything, even the ecosystem of apps that extends beyond its corporate walls, into making it work.

It’s in the tension between these two companies and their respective cultures that the mobile web is being forged. But as America Online found out, the walls eventually come down as consumers grow more comfortable with the new medium and desert the walled garden. That would suggest the balance will tip in favor of Google.

But I would be surprised if Apple isn’t anticipating this evolution. Right now, iPhone owners are experiencing the mobile web through the 150,000 or so apps it offers through the App Store. But Apple has also backed HTML5, which allows a smartphone browser to have rich app-like features without requiring any new software to be downloaded. Just as people stopped downloading AOL’s software and switched to browsers, we may well abandon most of the apps on our phones today.

Both companies will continue to play a major role on the mobile web, but I doubt either will ever gain the upper hand. This dramatic tension between Apple and Google may be around for a long time. So executives at both might as well get used to it.

Image courtesy of Wikimedia Commons.

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Six months ago, it looked like mergers and acquisitions were heating up again. Om thought it was good news for startups, while I fretted about companies being pressured to make deals that didn’t make strategic sense. I needn’t have worried. After the usual end-of-year lull, deals are starting to be made again.

And no sector is riper for deal-making than tech, especially those companies active on the web. Not only has the economy been stable for nearly a year, but web companies that survived have emerged with leaner operations and more cash on hand. Perhaps more importantly, the web has evolved to a point where mergers are starting to make strategic sense.

Here’s why: Over the past several years, web content has developed something of a split personality. Part of it is driven by information, navigated by search and static in nature. The other part is driven by conversation, accessed through discovery and protean in essence. This distinction has been around for some time, and discussed at length on this site, but it’s becoming more and more of an acute reality, especially when it comes to big web companies.

The dichotomy is becoming clearer in data as well, as evidenced by a report from Hitwise this week comparing the downstream news traffic of two sites, Google News and Facebook. The 10 sites that Google News drives traffic to have next to no overlap with the sites to which Facebook members are linking. Only CNN.com is on both lists. And while print media dominates Google News’s list, People is the only print-oriented publication on the Facebook list.

It’s also clear that the conversational web isn’t going to make the informational web irrelevant. Rather, they complete each other in a Jerry Maguire kind of way. So marrying the informational web to the conversational web is appealing to companies. It means greater mindshare among their users — and therefore more opportunities to serve them ads or coax them into premium subscriptions. It means higher profits if they can combine the two without a corresponding increase in operating costs. And it means a more integrated, seamless experience of the web — instead of its fragmented nature today, with people jumping from site to site.

But the catch is, people like the web fragmented. They get nervous when a single company promises them that unified, seamless experience. That’s why Google has launched social network (Orkut, FriendConnect) after social network (Wave, Buzz) without gaining solid traction. Buzz won terrific reviews on its launch, but there’s just something troubling about letting Google – or any one company – stalk all of our online behaviors.

And that leaves Google with little choice but to buy its way into that Maguire-ish state of completion that it so craves. Of course, many companies crave such a state. To that end, speculation that Microsoft might make a play for Twitter has been around for some time, though the issue was inflamed by comments made by Steve Ballmer this week. Just ask Yahoo how hard it is to say no to Ballmer.

All it will take is one big deal to start a wave of web mergers. It might not even come from Google or Microsoft. Facebook understands the need to extend its reach into the informational web – a key reason for its Facebook Connect alliances with companies like Yahoo. A merger with Yahoo would present its own share of problems for Facebook, but it would turn the company — overnight — into a formidable web giant. Not to mention the fact that it would an alternative to the IPO that the company seems to be dreading.

Image courtesy of Mykl Roventine on Flickr.

Over the past several years, the web has been kind to extroverts. Social networks have offered a new platform for people to broadcast their thoughts, connect with each other and expand their contacts in the online realm. The social web has even ushered in a new kind of extroversion, in which people who might be shy or uneasy in traditional social settings can express themselves online.

Much less noticeable is another trend: the rise of the web introvert. But while some web introverts might be introverted in the classic sense — that is, uncomfortable in social settings — many of them aren’t shy at all. They are simply averse to having a public presence on the web. And in time, they are going to present a problem for social sites like Facebook and Twitter, whose potential growth will be limited unless they can successfully court them.

Web introversion isn’t a question of technophobia or security concerns. Anyone who has tried to build out their online networks on Facebook knows that there are a lot of people they know in real life that they can’t friend online. Many people who have been involved in technology for years — or who are entirely comfortable shopping at Amazon, paying bills online, buying songs from iTunes — will have nothing to do with social networks. Others see it as a chore necessary for their jobs. Still others have accounts languishing on all the major social networks.

If you ask a web introvert why he or she isn’t into social networks, the response often comes down to a matter of trust – or rather, a lack of it. It’s frustrating enough that each social network has its own etiquette to master, but many people are loathe to make the effort because of the unpleasant reality that there is no such thing as privacy on the web.

And typically, the more that web introverts understand the nature of the web, the less willing they are to expose themselves on it. For while you might start off thinking you own your tweets, you really don’t. And if you don’t want your Facebook information open to the public, you need to follow closely that site’s constant privacy changes. Moreover, regardless of the site, a casual comment that, in an offline conversation would be forgotten, is preserved for years on the web — and could come back to haunt you.

For extroverts, this is all just part of navigating the social web. But enough people are uncomfortable with social networks that it’s going to become a barrier to growth in the coming years. For now, Facebook’s growth is continuing simply because there are more and more extroverts signing up. And Twitter is still in the stage of experimenting with ways to make money.

Eventually growth rates will slow and these companies will see web introverts as an alienated part of the market that they need to court. Each introvert, after all, is a lost opportunity for revenue. But it may be that these characteristics are so inherent in the social web that such people simply can’t be courted.

Image courtesy of Flickr user creatingkoan.

I just finished a book — Richard Price’s excellent “Lush Life” — hardly a noteworthy feat except it’s the first book I’ve read cover to cover in several months. It languished for years on my reading list, which has itself grown longer by the week. In fact, of all the books I’ve read in my life, a shockingly small percentage have been read in the past several years.

This has a lot to do with the people who write, publish and sell books. The big threat to Amazon’s Kindle isn’t people reading e-books on the iPad or the Nook. It’s that books are becoming fringe media.

That’s not to say that books are dying. They’ll always be around, and Amazon can count on a loyal audience for Kindles for some time. Kindle owners say they’re reading more books, although they remain a small portion of the population. But notably, according to an informal survey of Kindle devotees, 59 percent of people who buy the e-readers are over 55. Meanwhile, as a NEA study pointed out two years ago, people under 25 were already doing most of their reading on the web, with only 7 minutes a day devoted to books.

Since that NEA report appeared, the shift in our attention to the web from books has intensified. Just in the past month, I’ve heard several friends — some whose careers are dedicated to writing books — say they are reading fewer of them, if they read them at all. The main culprit that they cite is the web. Whether published in ink or pixels, books are facing tough competition from updates, posts, and a blizzard of free, brief and ephemeral writings that distract eyeballs from the task of digesting 300 pages of text.

Book publishers may be hoping the iPad and other tablets will solve this problem, but I think such devices are only going to make things worse. Electronic books may have a place on the iPad’s home screen, but they will be battling for attention against dozens of other web apps: games, news, social feeds and so on. In the end, not being a multifunction tablet may be the virtue that saves the Kindle: It’s a refuge from the distractions of the web, a quiet garden walled off from the web except to download a book.

Like other media, books will change to adapt to the new readers, and I think this means less non-fiction. Even before the web, all business books — and the majority of non-fiction books — struck me as 1,000-word pamphlets puffed out to book length with heroic amounts of filler. So if some books are forced to condense to keep our attention, so much the better.

As for fiction, there will always be an audience for people who know how to tell good stories. According to Nielsen BookScan, sales of non-fiction books fell 7 percent in 2009, while adult fiction rose 3 percent. There may well be a home for fiction in a world where the web takes up an ever larger portion of our mind share, but novels — like  books and e-readers in general — will have to fight their way back from the fringe.

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In “The President’s Analyst” — a great relic of 60s paranoia — James Coburn plays a doctor plagued by spies working with the film’s villain TPC, a sprawling tech conglomerate obsessed with collecting information. It’s amusing today to think that TPC — aka The Phone Company — was patterned after AT&T. It’s a little less funny to realize that our era’s TPC is Google.

Unlike some, I don’t believe Google is a villain. And it doesn’t employ spies because it doesn’t have to — Google knows more about our emails, chats, web surfing and phone messages than we would ourselves care to remember. But its obsessive desire to organize information and our access to it is turning the company into a 21st century conglomerate. And whether you consider that a good thing or a bad thing for web users, it’s going to be a big problem for Google.

In the past few months, Google has been pushing into new industries that no one expected it to be in even a year ago. Most notably, it began offering the Nexus One, moving into the business of selling (and supporting) hardware devices, and now it’s sticking a formidable toe into the broadband access business with its fiber-to-home experiment. Those efforts resemble Google’s move to build and maintain a massive, stealth data network — at the time, a radical one for a search company.

All, of course, were aimed at the same goal: improving the way we access and experience the web. But that simple goal — summarized in Google’s longtime mission “to organize the world’s information” — is leading to a complex corporate structure that may not benefit Google in the long run. Every time Google takes on one of these ambitious plans, it adds another ball to those it’s already juggling. And even the most gifted executives can juggle only so many projects at once.

Google’s history of expansion is a mixed one, complete with more than its share of abandoned experiments. The $102 million purchase of dMarc in 2006 presaged an expansion into radio advertising that Google later decided wasn’t worth it. With Buzz, the company is trying once again to draw an audience in social media — a longtime goal never quite achieved with Orkut, Base or Wave. But none of those were as expensive as the Nexus One and broadband initiatives could be if they fail.

Google’s growth is turning partners like Apple and Motorola into rivals, and potentially enemies. The company’s strongest years of growth occurred during times of little friction with other companies, save Microsoft. And when other big companies are less likely to work with you or even to work against you, it becomes a distraction to achieving the company vision.

What’s more, the new initiatives are costly. Analysts have worried about how much a Nexus One could hurt profits if Google decides to eat some of the subsidies often necessary with mobile phones. Now, they are concerned that the broadband network experiment could be another cash-burner. Google has never made profit margins a paramount concern, but if investors yell in protest and the stock falls (along with the value of employee options), that’s another big distraction.

A conglomerate with tentacles in myriad industries is not necessarily a good thing. It’s an inordinately tough act to pull off: GE has done it, but it took decades of work. And for Google it will mean giving up the culture of Internet innovation that made it a success in the first place. Conglomerates pour their innovation into management and process — that is, into improving what exists — not necessarily into creating what will be.

If Google insists on straddling multiple industries, it faces a choice: It can spend its energies holding the sprawling empire together, or it can focus on shaping the web. But it can’t do both with any success for very long.

Image courtesy of Wikimedia Commons.

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Rupert Murdoch knows who’s winning the war between big media and the Internet. Unsurprisingly, it’s Rupert Murdoch. “Without content, the ever-larger and flatter screens, the tablets, the e-readers and the increasingly sophisticated mobile phones would be lifeless,” he proclaimed when News Corp. posted unexpectedly strong fiscal 2010 second-quarter earnings. “Devices and platforms are proliferating but this clever technology is merely an empty vessel without any great content.”

Murdoch danced a lively jig for investors as he bragged about his company’s ability to thrive in the media tumult caused by the Internet. I’m not buying it. News Corp. may be getting a big lift from “Avatar” right now, but like any big media company, it still has a lot of learning, experimenting and failure to do before it can really start to monetize the web. The arrival of the iPad and other tablet devices may, in time, make that easier. But first they will make it much harder by speeding up the process of adaptation.

The most difficult thing about the disruption facing the media industry hasn’t been the certain sense that business models are changing — it’s that nobody is sure how they’re changing. But one important idea is starting to become clear: Content isn’t a product anymore, it’s a service. Because for consumers, content is less and less a thing they buy and more a thing they experience.

The notion emerged a couple of years ago, with the likes of Kevin Kelly alleging that the Internet is essentially a copy machine and asking what can be sold that isn’t easily copied. Others took it even further, to the notion of content as a service. Over at his O’Reilly blog, Andrew Savikas wrote:

Whether they realize it or not, media companies are in the service business, not the content business. Look at iTunes: if people paid for content, then it would follow that better content would cost more money. But every song costs the same. Why would people pay the same price for goods of (often vastly) different quality? Because they’re not paying for the goods they’re paying Apple for the service of providing a selection of convenient options easy to pay for and easy to download.

It’s no accident that Apple has been thriving in this chaos. And it’s no surprise that the iPad was designed to enhance the experience of web media in ways that are more immersive and intuitive than either laptops or smartphones. In fact, the iPad seems to be built on the blunt assertion that content is now something to be experienced rather than possessed. Selling content — whether it’s news, music, books or something else — as a product on a tablet is setting yourself up for disappointment.

This evolution in content is clearer in music, which was the first to feel significant disruption from the Internet. Twenty years ago, buying music meant purchasing a CD after you heard a song on commercial radio (or, for the adventurous, college radio) or read a review in a magazine. Today, music is becoming an experience that begins with discovery sites like Pandora or social network sites like Twitter and end up in a cloud-based service like Spotify or Grooveshark. Significantly, these companies are startups and not traditional media giants.

In short, the old media giants need to think like startups: That is, look at the iPad with the eyes of any other app developer and imagine what it can do that hasn’t been done before. How will a tablet change the experience of books, news, music, and so on? And why will we consumers be willing to pay for that new experience? These are the questions to start with, rather than asking how to shovel the same old content products onto devices that radically transform what content is.

Murdoch is right that those devices are lifeless without content, but he neglects to mention that it’s a symbiotic relationship. “Content is not just king, it is the emperor of all things electronic!” he crowed. Maybe, but this emperor is wearing the service uniform of a burger flipper. When do we get fries with that content?

Image courtesy of World Economic Forum on Flickr.

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This article also appeared on BusinessWeek.com.