Ken Auletta - Googled - The End of the World as We Know It

Among the more interesting aspects of this drama was witnessing Microsoft cheered on as an underdog. “Microsoft,” said Philippe Daumann, the CEO of Viacom, “is the one company that can most effectively challenge Google’s emerging dominance.” A victorious bid by Microsoft would provide advertisers with more leverage, Irwin Gotlieb said. “We’re always better off with more than one strong party.” He added, “The real concern is that once Google has an eighty percent market share, they can change the auction rules.”

At Microsoft’s annual two-day forum for advertisers on its Redmond campus in mid-May of 2008, the company’s new head of advertising, Brian McAndrews, was the first to speak. He described the online advertising opportunities Microsoft was offering, and sketched for attendees Microsoft’s pitch to advertisers: “We seek ongoing input from you.” He did not cite Google by name, but his meaning was clear: We seek to work with you as partners, and the other guy does not. On the final day of the forum, Irwin Gotlieb was eating scrambled eggs at a breakfast buffet, greeting people as they came by to shake his hand or lay a palm on his shoulder. Microsoft’s sales pitch, he told those who came to ask his thoughts, is not new. “They’ve been saying it for a while. Microsoft has never been perceived by people like us as someone who is looking to destabilize an existing business model because they feel like it.” They were not vying to enter the advertising business the way others were. He, too, did not invoke Google’s name, nor did he have to.

Microsoft intended to close the forum by presenting a new plan to overtake Google, a plan it privately touted as “a game changer.” Company executives took care to brief people like Gotlieb beforehand, seeking not just his input but his enthusiasm for a program they hoped would attract more advertisers, more purchases, and more searches. For the unveiling of this plan, Bill Gates, who would step down the next month from his day-to-day duties at Microsoft to concentrate on the work of his foundation, appeared on stage to announce what he called “a milestone.” He was tieless and jacketless, his sandy hair uncombed, and he stood at the foot of the amphithe ater and described the program they called Cashback. The idea was that Microsoft would offer a cash rebate to consumers who did their searches on Microsoft and clicked to purchase products from more than seven hundred merchants, including Barnes amp; Noble. In essence, Microsoft was offering a reward for consumers who used its search engine rather than Google’s. Yusuf Mehdi, senior vice president of strategic partnerships at Microsoft, helped shape Cashback and described it as “maybe a genius idea,” a program that would transform Microsoft into “the Robin Hood of the search business.” The initiative offered Google “two bad choices,” he said: duplicate Cashback and lose income, or don’t and lose market share.

Mehdi and Microsoft were spectacularly wrong. The program did not excite many of the ad agency people in attendance, partly because the Microsoft program already had a name in the advertising community: it was a rebate program. Perhaps it failed to excite because Microsoft didn’t come up with a catchy name and a finely tuned sales pitch-“geeks acting like marketers,” muttered one attendee. In the press too, Cashback failed to generate the headlines or excitement Microsoft anticipated. Still, the jury was out. “If consumers perceive that the search process on Google and Microsoft are the same,” predicted Sir Martin Sorrell, “what Microsoft is offering will be important.”

By November 2008, the verdict was in. Cashback had not boosted Microsoft’s search share. Google’s search market share in the United States had risen from 57.7 percent a year before to 64.1 percent. In September, when I asked Eric Schmidt about Cashback, he could not resist: “All attempts by Microsoft to give people back money they paid them is great!” By January 2009, the two executives who headed Microsoft’s advertising efforts, Brian McAndrews and Kevin Johnson, would depart.

Meanwhile, Sorrell, whose WPP steers an annual total of between five hundred million and eight hundred million dollars of his clients’ advertising dollars to Google, grew more agitated. What enraged him, he said on a panel at the Cannes International Advertising confab in June, was that Google was now reaching out and talking to his ad agency clients directly, something he claimed Google had vowed not to do. In WPP’s annual report, Sorrell noted that although WPP and the next three largest marketing companies combined had 50 percent more revenues than Google, their combined market value was 75 percent less. He expressed hope that Google was now working “to develop the constructive side of our relationship.”

Had he attended Google’s 2008 national sales conference, held June 11 and 12 at San Franciso’s Hilton Hotel, he would have been more alarmed. In the main ballroom, Eric Schmidt and Tim Armstrong were onstage. Below them sat a Google sales force of fifteen hundred people, one-third of whom had been hired in the past year. Why did Google need such an army of salespeople? “Because our customers must talk to someone at Google,” Schmidt said.

Many of these new Googlers were account executives, like the people who work for Sorrell or Gotlieb. And their mission, Schmidt emphasized in his remarks, was to share with advertisers the targeting techniques that made search advertising a rousing success. Online, he said, Google was pouring engineering resources into making itself the leader in display advertising on YouTube. In traditional television, he said, they started by “reaching into the long tail” and he expected that “over a five- to ten-year period… we’ll become a very significant player in traditional television because of our targeting. The same thing when you look at radio or print.” Consumers of traditional media, he continued, “are scared. They’re scared of what they’re reading in the paper. They’re scared about what’s happening in their company. You show up and you offer a new message, a message of hope, a message of change and opportunity.”

Page and Brin showed up unannounced, and Schmidt spontaneously invited them to join him onstage. The troika sat in oversized armchairs and had a lighthearted colloquy before turning to the audience for questions. The first two were from a sales manager named Seth Barron, and both concerned missing pieces in Google’s effort: “How do we make it easier for agencies to work with us?” he asked first. It was a question that would have pleased Sorrell. The second question would not: “What resources do we need to be able to effectively compete for deals and eventually do bigger and better deals with companies like the Procter amp; Gambles and Mars of this world?”

“Today,” said Schmidt, “we lack the tools. We’ve identified this as a big hole in our strategy, and we’re either going to build them or buy them.”

“The piece that is missing is production,” said Barron. “The creative execution, the operational execution-those are the factors where we stumble today, and where our competition has world class solutions.” Later, Schmidt said that the “competition” Barron referred to was Yahoo and Microsoft and display advertising. But these are not the companies that produce “world-class solutions” to the puzzles of advertising. The true answer is probably that Google’s real “competition” is WPP and GroupM and their peers-the biggest players in the business of advertising.

THERE ARE THOSE WHO ASSUME Google has a master plan for world conquest, as Napoleon did. By early 2008, it was not unusual to encounter a traditional media executive who at the end of an interview whispered, “Have you read Stephen Arnold’s study on what Google is really up to?” Stephen E. Arnold heads a consulting firm, Arnold Information Technology, and starting in 2002 he and a team of researchers spent five years digging into Google’s various patents, algorithms, and SEC filings. Then, for a hefty but undisclosed fee, he sold his voluminous report to various media companies. The title of the report, “Google Version 2.0: The Calculating Predator,” telegraphs Arnold’s stark conclusion: