When it comes to ads, Google isn't buying
EmptySAN FRANCISCO -- Like a gourmet chef who rarely eats out, Google Inc. feeds advertising services to hordes of other businesses while skimping on its own marketing.
The recipe has been extremely fruitful. While the Internet search leader has sold more than $30 billion in advertising since 2001, Google has become a household name without buying expensive ad campaigns on television or radio or in print.
"It's almost as if they have this cultural allergy to advertising," said Mark Hughes, author of "Buzzmarketing," a book about unconventional ways to build a brand. "It has been an advantage because it has helped keep them cool. They have zigged while everyone else has been zagging."
This advertising aversion has freed up money for engineers, computing hardware and other resources that fuel Google's search engine while leaving plenty of profit to keep shareholders happy and lift the company's stock ever higher.
Some marketing experts view Google as the archetype of an Internet-driven age that has made it possible for startups like YouTube, MySpace and Facebook to permeate pop culture with little or no advertising.
That's a change from the dot-com boom era in 1999 and 2000 when Internet entrepreneurs went broke paying for Super Bowl ads and other theatrics in a mostly fruitless effort to stand out from the rest of the crowd.
Google co-founders Larry Page and Sergey Brin were among the first to break that free-spending mold, deciding that advertising didn't make a lot of sense for a company that started out 1998 with just $100,000 before raising $25 million in venture capital a year later. But they have remained marketing misers even as Google accumulated a cash hoard that now stands at $12.5 billion.
The Mountain View-based company believes its austere approach will become more common as major advertisers learn to deploy technology to target consumers.
"We are at an inflection point that could radically change the way marketing is done," said David Lawee, who became Google's marketing chief a year ago.
More than 300,000 advertisers already rely on Google's online marketing platform, which primarily shows text-based ads on the search engine's results pages and other online destinations.
Google tries to deliver those ads to the people who are most likely to be interested in the messages, making an educated guess based on the words used in a search request as well as information gathered about visitors' past preferences and Web surfing patterns.
Drawing upon some of the same data-mining techniques, Google is developing marketing tools for TV, radio, print and even video games to help advertisers reach potential customers more effectively -- and perhaps less expensively.
Although Google regularly promotes its brand and services on its own online ad network, that soapbox hasn't been the key to its ubiquity.
Instead, Google has relied on word-of-mouth and the media's obsessive coverage of its every move to establish a prized brand just nine years after Page and Brin first set up shop in a Silicon Valley garage.
Consulting firm Millward Brown Optimor estimates Google's brand is worth $66 billion and calls it the world's most valuable. A separate study by Interbrand estimated the brand's value at $17.8 billion and ranked it 20th in the world.
While major rivals like Microsoft Corp. and Yahoo Inc. pour more than 20% of their annual revenue into sales and marketing, Google devoted 8% of its revenue to the category in 2006, spending a total of $849.5 million. Microsoft spent $11.5 billion on marketing and sales in its last fiscal year, while Yahoo spent $1.3 billion. On advertising and promotions alone, Google spent $188 million in 2006 -- roughly the same amount Microsoft spends every two months.
Another Internet bellwether, online auctioneer eBay Inc., consistently earmarks 14% to 15% of its revenue for advertising. Last year, eBay spent $871 million on advertising, with much of the money winding up in Google's wallet. The Coca-Cola Co., the brand ranked first in the Interbrand survey, spent more than $2.5 billion on advertising last year.
When Google does buy ads, it's often to recruit employees (the company has hired more than 11,000 in the past three years). On a few occasions, Google also has bought ads to highlight lesser-known products, such as a free telephone directory service, GOOG-411, recently featured on billboards in the San Francisco Bay area and rural parts of New York.
Some well-known companies are even more frugal advertisers than Google.
Starbucks Corp. spent just $95 million on advertising last year, 49% less than Google did. Like Google, Starbucks made a name for itself by developing a distinctive product that quickly resonated with consumers whose enthusiasm became infectious.
Google believes happy users are worth infinitely more than any goodwill advertising might buy, said marketing chief Lawee.
"If our products are great, our reputation soars," he said.
Google's brand also has been bolstered by the media's fixation on the company. Hardly a day goes by without Google's name being splattered across television, radio, magazines, newspapers and, of course, the Internet. That gives the company even more clout with advertisers and even less reason to advertise itself.
"They are at the crest of this wave that gives them a lot of free publicity," said Roland Rust, chairman of the University of Maryland's marketing department.
Google has proven adept at orchestrating stories that have little to do with its day-to-day business.
The company attracted headlines last month by funding a $30 million race to the moon. And it made news last year by investing in solar energy to power its headquarters. Some news outlets even filed stories on Google's 2005 search for a new executive chef.
Not all the coverage has been flattering, but even negative stories build brand recognition. Chief Executive Eric Schmidt said the company benefited from a spike in usage of its search engine after The Wall Street Journal reported last year that Page and Brin engaged in a petty spat about the size of the beds on their personal jet.
Industry experts say Google may have to invest more heavily in advertising as it branches in new directions.
It already is selling a suite of online software applications to businesses and reportedly is mulling lending its name to a line of mobile phones. Ventures like those typically rely on more conventional advertising.
"It's inevitable that they will have to advertise more," said veteran marketing consultant Bob Kahn, who runs his a Darien, Conn., firm. "At some point, the power of the Google brand will cease to support all those extremities."
Although he declined to provide specifics, Lawee also hinted that Google probably will need to increase its marketing budget because many longtime users of the search engine don't know about the company's peripheral products.
"Even with all the attention we get," he said, "that tells me we are still not getting all our messages out."