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October 19, 2003
Sunday, October 19, 2003. Salespeople
Sunday, October 19, 2003. Salespeople Beware.Last week, a story ran in the Wall Street Journal with the headline "Seeking Growth, Google Acts Like an Ad Agency." The article stated, "Without identifying itself, the popular online search engine posts pitches next to relevant content on Web pages where is has lined up space in advance. It's part of an ad-placement service Google began offering to online pubishers and advertisers earlier this year and now is rapidly expanding." The next paragraph read, "It's a big step beyond Google's traditional business of selling ads pegged directly to search results. 'Google in effect is serving as an online medi-buying agency,' says Scott Epstein, a consumer marketing consultant in Silicon Valley. 'It's a potential threat to the ad networks, the online media-buying agencies, and to some extent it takes fees away from general online advertising agencies.'"
True and scary enough, but Mylene Mangalindan, who's byline appears on the article, which, by the way, is very good, missed an even bigger point, in my view. Let's look further into the article: "Google traditionally has made money selling ads that appear next to search results and on various parts of the Google site. The company is on track to generate about $800 million in revenue this year, according to people familiar with the situation, because advertisers love its ability to target a narrow audience. Google now boasts 150,000 advertisers, up from 100,000 in March."
And then, three paragraphs down, this paragraph appeared: "Google uses an auction system of selling key words and placements to the highest-bidding advertiser--much as it auctions off the nicest spots on search results through its own Web site, though 'relevance,' or the click-through rate of the ad, is also factored into placement. " And later, "Goolge says its ad-placement program is especially attractive to smaller advertisers that are a big part of its base. It really 'democratizes the Web,' says Susan Wojcicki, Google's director of product management. 'Small advertisers 'dont need and ad agency,' she says. 'They can do it themselves. Their ad is being shown immediately on a site.'"
One hundred and fifty thousand advertisers! Think how big an issue of the Wall Street Journal would be if it contained 150,000 advertisers. It would be as thick as a phone book. Think how many salespeople would be required to sell and service 150,000 active advertisers. In most national media such as network television, cable, and magazines, a salesperson is lucky to have 20 active accounts running at any one time, and which would keep two or three support people (planners, assistants, coordinators, production, and traffic people) very busy. So to handle 150,000 advertisers, it would take 7,500 salespeople, 25% more than the entire estimated workforce of NBC before it bought Vevendi.
Eight hundred million dollars of advertising revenue! That' s lot coming from zero several years ago and is almost as big as Yahoo's, which recently reported $356.8 million in quarterly revenue and bigger than the new ad revenue of the once-dominant AOL. When AOL had its big years and did over $2 billion in ad revenue, its sales division (Interactive Marketing) had about 500 people in the entire division and bragged, rightfully so, that it had over 3,000 advertisers. Eighty percent of AOL's revenue came from about 10% of its advertisers. The majority of the 2,700 smaller advertisers were sold by the Inside Sales force that sold over the phone. At one time the Inside Sales force numbered more than 20 hard-working telephone salespeople. With these numbers in mind, it is almost inconceivable for a company to have 150,000 advertisers. How does Google do it? With a disruptive technology.
Disruptive technologies were first described by Clayton Christensen in his book, The Innovator's Dilemma. The Internet was a disruptive technology that many businesses did not see coming and they stuck to their old business models, to their eventual regret. Google's desruptive technology for auctioning ad space is based on eBay's disruptive auction technology, and could not only put ad agences out of business, as Mylene Mangalindan suggests, but also put advertising salespeople out of business.
When I recommended to AOL Interactive Marketing when I was a VP there from 1998 to 2002, that it install auction software on its informational Web site, MediaSpace, now cutely called the Ad Visor, and sell small banners and search results, the idea was pooh-poohed, "Don't be silly," I was told, "we'll always need salespeople." Really? Well, Google is using auction software to sell $800 million in search results and contextual advertising.
AOL, Yahoo, ABC, CBS, NBC, Time, Vogue, Clear Channel radio stations, and any company that sells advertising should look into this disruptive online auction technology that allows advertisers to bid for ad space, thus eliminating not only agencies but also salespeople; it could revolutionize the industry. But they probably won't, because ad agencies wouldn't like it and it could put an estimated 125,000 media salespeople out of work. It reminds me of the story of when Bill Gates wanted to buy Encyclopedia Britannica to put the content on a CD called Encarta. The then-CEO of Encyclopedia Britannica told Gates he wouldn't think of selling the company and its content because it would put 25,000 Encyclopedia Britannica salespeople worldwide out of work--they made a living on commissions from selling over a dozen leather-bound volumes for around $1,500--and he is reported to have told Gates, "Our sales force is our most valuable asset." Really? Well, Gates bought another, less prestigious encyclopdia company, issued Encarata, and put 25,000 salespeople and Encyclopedia Brittanica out of business.
More than one business has been blindsided by the advent of the Internet, and we have just begun to scratch the surface of revolutionary changes in business models that this disruptive techology called the Internet will create.
Posted by Charles Warner at October 19, 2003 2:50 PM
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