Google's 25% Share? That's Nothing

Ad-Revenue Dominance Evokes Days When Radio and TV Were 'New Media'

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NEW YORK ( -- Google's fortunes are soaring, and so is its market share: The world's richest media company this year will pocket 25% of U.S. internet ad revenue, estimates market researcher eMarketer.
It's doubtful Google can keep its dominance, as the history of media has shown.
It's doubtful Google can keep its dominance, as the history of media has shown.

Unprecedented domination of a sizzling new medium? Not quite. Google's share remains far below the shares of market leaders during the emergence of earlier new media: radio and TV.

Affiliates of NBC and CBS controlled more than 85% of nighttime radio wattage in 1938, giving the networks a virtual lock on evening broadcasts. In the 1950s, the two companies each commanded an estimated 40% share of network revenue for that decade's hot new medium, TV.

Dominance is fleeting
Domination didn't last. In 1941, NBC, owner of two radio networks dubbed Red and Blue, was ordered by the Federal Communications Commission to sell one. It sold Blue, which took the name ABC.

A cozy oligopoly of CBS, NBC and ABC maintained a lock on national TV through the 1980s, enriching networks and agencies. But the rise of cable, the arrival of News Corp.'s Fox as a fourth broadcast network and the demise of 15% commissions marked the end of that gravy train in the 1990s. Earlier this decade, cable surpassed broadcast in ad revenue and prime-time ratings.

Now Google is sizzling, with third-quarter revenue jumping 70% and net income leaping 92%. For every $1 advertisers fork over, Google keeps 27ยข in net income.

Can Google maintain its dominance? Doubtful, based on the brief history of the net. Microsoft Corp.'s Internet Explorer crushed Netscape, yet Microsoft's MSN remains an also-ran in areas such as search. Yahoo decimated AltaVista, Excite and Infoseek but now is struggling for momentum amid slumping growth and profits; its stock last week fell to its lowest price since 2004.

Yahoo's share of U.S. internet ad revenue peaked in 2005 at 19.4%, said eMarketer senior analyst David Hallerman. He expects it to slip to 18% this year and rebound slightly to 18.4% in 2007. He predicts Google's share will increase to 30% in 2007 vs. 25.3% this year and 19.5% last year.

What Google can afford to buy
Yahoo stock peaked the very quarter in 2000 when Google started selling ads. Now Google, with just its mounting stash of cash ($10 billion) and increase in stock value during the past month ($24 billion), would have enough to buy Yahoo-with money left over to swallow another YouTube. (Google's market cap is $141 billion.)

The challenges on the net are also the opportunities: constant change and fickle consumers. There are few barriers to entry, giving rise to start-ups such as YouTube (bought by Google this month for $1.65 billion).

But history also shows how leading media brands can endure. Time Inc. leads the market it helped create, accounting for 20% of consumer-magazine ad pages January to August '06, according to Publishers Information Bureau data compiled by TNS Media Intelligence. (Time Inc. beat Google into video by about 70 years; it began "March of Time" newsreels in 1935.)

Is media concentration bad news for advertisers? Not necessarily. Ad agencies representing top advertisers owned top radio shows in the '30s and '40s. Major advertisers paid the freight to reach a coveted national audience; 144 advertisers bought 97% of network radio time in 1943.

Networks ported the sponsored-content model to TV. Agencies owned most big shows in the '50s, and NBC and CBS acted as a sort of "common carrier" for sponsored content, said Tim Brooks, exec VP-research at Lifetime and co-author of a 1,600-page history of prime-time TV.

'Old boys club'
Marketers such as General Motors Corp. and Procter & Gamble Co., the two biggest advertisers in 1955 (and 2005), paid what it took to get into a limited inventory of TV shows. "They were huge companies advertising through huge agencies on huge networks," Mr. Brooks said. "It was really an old boys club." The game changed in the '60s when sponsored programs gave way to network-owned shows; networks became a true oligopoly with owners in control.

Google, for all its market share, isn't in control. Advertisers set prices by bidding on keywords; Google gets paid if a user clicks on an ad. While Google may have superior systems for managing ads, "they certainly do not have a lock on the audience," said Erwin Ephron, principal of Ephron Consultancy and a longtime media researcher. "Audiences shift like the sands on the internet."

What should Google do? Focus on users, said Mr. Brooks, for advertisers will follow if Google keeps its audience. He said Google would do well to study the model of MTV, whose business premise from its start in the '80s was to "change constantly to be always fresh and always new and always leading."

Google better hope advertisers don't replicate one Google trait: It doesn't much believe in buying ads.
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