Google Advertising Outlook

Tim Armstrong President, Advertising & Commerce North America for Google recently spoke about Google’s search advertising outlook at the Citi Investment Research Technology Conference in New York.

Highlight via Forbes, PaidContent.org and David Kaplan:

1. The business of search: Over the next three years, will we have continued deceleration?

Definitely not, according to Armstrong. He said there’s still a lot of headroom for search because Google still has a lot of the world to conquer. Plus, the improvements in quality that Google has released over the past few months will also show some lift over the the next three years.

2. An advertising pullback? No, Armstrong doesn’t see any retrenchment from the poor economy affecting advertisers’ spending. However, they might be experiencing “a pause” in general. As for search as a branding tool, it’s too early to tell if marketers are starting to view that format as a vehicle for anything more than direct response.

3. Pain points: The major pain points that need to be addressed: complexity is one. There are a lot of offerings on the web today. A lot of companies spent the last four years getting “digitally certified”. The next is measurement and ROI. The third is education.

4. On mobile advertising revenue potential: Citi analysts don’t think mobile will be a material source of revenue in the U.S. this year, but perhaps in Asia. Armstrong: It all comes down to scalability. Will the iPhone grow more quickly? I think the non-iPhone analog devices will see search grow. Typically, we don’t scale all of our resources until we see movement on the consumer side. We’ve been selling ads on mobile for the last 18 months. You should expect to see more over time. But it took a number of years for search to get going, and it will be the same for mobile to pick up as well, from an ad revenue perspective.

My thoughts on Armstrong’s comments:

1. Indeed Google still has a lot headroom because the vast majority of money spent on advertising can’t be measured like Google’s can and thus it can’t be managed to produce a predictable return on the advertiser’s investment.

2. The only advertising pull back will be from media that aren’t delivering measurable financial results for their customers.

Why would an advertiser who is predictably generating a return on their advertising investment do anything but continue to advertise with the media that is producing it?

3. Complexity is indeed an issue on more than one front. The average small business doesn’t have the time or resources to attack the learning curve that accompanies search engine advertising. Secondly, advertisers who haven’t yet embraced search engine advertising whether they are still in the middle majority or are laggards historically won’t change until they have too. The present economic downturn may actually nudge them to explore their other advertising options. However, they may not have the luxury of time needed to make the necessary changes because they may already be competing with businesses who have already begun measuring their advertising investment and its return on investment. Advertisers who measure their advertising ROI have a non-arguable competitive advantage over those who don’t.

4. Mobile advertising revenue although growing will not reach escape velocity anytime soon because Google’s technology is out ahead of both the consumer demand and the average advertisers ability to implement advertising campaigns to reach a large enough group of consumers with demand which would justify the advertiser’s decision to devote resources for reaching them.

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