Google Neuroscience

Following up on my last blog on “Google Googly” (http://pgmadblog.blogspot.com/2009_11_01_archive.html), I take a deeper look at why the Google business model works and what other businesses can learn from it.

Google is into everything these days but Search and AdWords are still their “bread and butter” business. Search was their initial focus and it took a while for them to figure out how to monetize it via AdWords. As I mentioned in the last blog, their core DNA is this: Wherever the user is searching “content”, Google wants to provide the most popular results while proffering some paid-for ads.

Why has this model been so very successful? It has to do with neuroscience – how our brains work!

Once we have made a purchase decision and acted on it (made the purchase), it is pretty obvious that we will have little interest in additional ads. The “Purchase Funnel” on the left shows the various relationships. “Branding” has an important place in advertising but it is a long drawn-out awareness creation process. Plus there are no easy metrics such as CPM (one of the many so-called “click metrics”) to connect the ad to influencing the eventual consumer decision and action. Google happened to have landed, by design or luck or both, in the perfect spot in the Purchase Funnel!

When we “Search”, we are in the information collection phase (by definition). We are willing to explore and click through various informational pieces on the screen such as text ads – if they seem relevant and related to the information we are after, the more likely that we will click through. But after such explorations, consumers want to move on to the Decision and Action phases if their search was driven by a purchase need. Once we have finished the Action, we have no real patience for more ad watching – we have made our purchase and we want to enjoy it; this isn’t the time for more awareness-generating branding-type ads either. We are in a satiated state after a purchase action and our brains are not looking for more information to process.

In summary, in the information acquisition phase, we see significant consumer “traffic” and the click through of many links in an effort to gather the best information. This is Google’s realm – they provide very good search results and provide many good opportunities to click through, thus generating massive revenue via AdWords business model. But once I click through to a final destination such as a Wall Street Journal article by Mossberg, I am keen to read it rather than pay attention to any ads; I am in the satiated state – I do not care about banner ads that create awareness about random products, let alone make the effort to click through other ad links. Ads in the IDD (Interest, Desire, Decision) stages are most directly useful to the consumer and most monetizable via measureable “click” metrics.

This explains to me why Google business model works so well for them and why content business cannot monetize increased traffic (provided by Google) to their “terminal” sites. It is neuroscience!

Are there other cases where Ads in IDD (AIDD) will work? Look for opportunities when consumers are “searching” in a purchase context; at that time, provide them with “useful” ads and generate metrics to monetize.

I will reveal an AIDD business that parallels Google in the mobile world in my next blog. In the mean time, think of other cases where AIDD will work. Let us hear about it . . . after you have patented it. J

PG

Google Googly

I am sure you are as much of a Google watcher as I am. I have read various books about Google over the years but the most recent one from Ken Auletta (“Googled: The End of the World as We Know It”, Nov 2009) is particularly interesting to me as Auletta brings his media-writer cred to his analysis of Google.

For those of you who are not cricket fans, “googly” is a very effective pitch where the arm action indicates to the batsman that the ball will go one way but the ball actually kicks off in the opposite direction! As you can imagine, a googly can be very effective in getting batsmen out. Google is definitely a googly pitch – it goes in the Search direction but can kick off in totally unexpected directions and take out many existing businesses (which may have started to happen already).

Googly is NOT an evil pitch. Neither is Google – for the most part thus far. But there can be un-anticipated consequences in the offing!

Auletta calls Google the best Internet “navigator”. Allow me to use the Information Booth in a large mall analogy – you walk up to it and ask a question; they will not only tell you which stores sell shoes but also which sell high-end, athletic, low-cost and so on. Google does this admirably well. They direct you based on popularity – which is definitely one effective criterion (there could be others such as “quality” but in many instances, the “wisdom of the crowds” does work).

I was in the market for an all-in-one printer for home recently. With Google as a proxy for things we do on the Web, let me say that I would have been sunk without Google. Along with the search results, ads based on their AdWords program, the user-reviews and expert-reviews were most useful. I got a lot out of user-reviews but the “crowd speak” is not always easy to decipher. I also need expert-reviews to get a systematic and consistent breakdown regarding the features of potential printer choices.

Newspapers that go online may find a lesson here. An editorial by Thomas Friedman is like an expert-review – I may happily make a micro-payment to read it online. But daily news that is available from myriad sources ought to be available free. Why? I am not an intellectual property rights (IPR) lawyer but having generated enough IPR and protected them, I have a sense of copyright that may be different from the commonly accepted. Every written bit is not “copyright-ful”. Remember, patents have to be novel, non-obvious and useful. Reporting that Senator Reed has a Healthcare Bill ready is not “copyrightful” but an in-depth analysis of the Healthcare Bill would be – because it is non-obvious. Items that are “copyrightful” in this sense ought to be protected and their value affirmed by seeking permission for their use (even for searching it) with appropriate compensation.

Google has done better than “don’t be evil” in providing us with a great way to search the Internet. But when you are finished with cataloging the Internet and making it searchable, where do you go to expand your business? Any source of knowledge (books, TV shows, music) seems fair game to Google. Wherever the user is searching “content”, Google wants to provide the most popular results while proffering some paid-for ads – this is their DNA.

It is in making any content searchable without affirming its “copyrightfulness” that Google’s justifications seem self-serving. And they are being gradually hemmed in by various entities litigating to affirm the value of copyrightfulness. Here, Google has to micro-share its ad revenue for “copyrightful” items and spread a little bit of its wealth around - looks like they have enough to go around: a case of the little “flood that floats all boats” a little bit.

This is the true “democratization” – Google improves transparency which engenders cost/price “arbitrage”. A natural consequence of such transparency is commoditization but by expanding accessible markets, Google is helping to create huge volumes albeit at falling margins (partially compensated by Google’s ad revenue sharing for copyrightful items, I hope).

Such commoditization may seem frightful but there are many industries that thrive in such a world – consumer electronics for one. LCDs used to cost $2500 two years ago but can be purchased for $600 today. So what do they do? They bring in a ultra-thin LCD that they can price at $4000 today; price will erode to commodity levels in a few years but they get frequent revenue spurts driven by – INNOVATION.

Democratization will thus drive compressed commoditization-innovation cycles. Commoditization will also drive consolidation especially of the laggards in innovation. Is that “The End of the World as We Know It”? Is the “googly” coming at you or are you safe this time?!

Current weather in Seattle is not conducive to writing a haiku – so I repeat one from before that seems relevant to this blog . . . Enjoy!

PG

“Complex problems have
Simple, easy to understand
Wrong answers”
- by VR