Google print ad venture has lacklustre beginning

It was a small step that sent tremors through the media establishment. Seeking ways to expand its advertising juggernaut beyond the internet, Google has been buying advertising space from niche publications such as PC Magazine and Budget Living.

Google then divided up the space and sold it in small pieces - often four to seven per page - to its network of several hundred thousand advertisers, most of whom can't afford pricey magazine ads on their own.

Google says the trial scheme - dubbed "Google Publication Ads" - is taking off, with hundreds of publications inquiring about it. The company is expanding the trial from four publications to many more. But a closer look at Google's foray into magazine ads suggests it could be in for a tough slog. A BusinessWeek analysis of Google's pilot, including interviews with 10 advertisers and two publishers, indicates advertisers haven't warmed to the scheme.

Only one of 10 advertisers interviewed by BusinessWeek said their print ad performed well enough to recoup the money it cost. And eight of the 10 were unhappy enough with the result that they say they're unlikely to repeat the exercise.

The lacklustre results came despite deep discounts in magazine ad rates. Some pages were sold by Google for as little as one-quarter of the listed ad rates at these magazines, according to information provided by participating advertisers. The early feedback should be worrying for Google. Its internet ad business is booming, with 2005 profits expected to climb fourfold to US$1.6 billion ($2.24 billion). But with its stock at a stratospheric US$400 per share, giving it a market valuation of US$120 billion, many investors are betting that Google can expand beyond the online text ads that constitute 98 per cent of its sales into splashy, online image ads, as well as new media such as radio, TV and print.

Google boasts relationships with hundreds of thousands of small advertisers. By selling bite-size chunks of these ad pages, it hopes to draw in thousands of businesses that otherwise couldn't afford magazine ads.

But Google faces a couple of daunting hurdles in print ads. First, most magazine ads aren't geared towards direct businesses, which constitute the bulk of Google's advertisers. Take TrimYourDebt.com, an online business that sells tools to individuals to reduce credit card and other debt. TrimYourDebt's goal is to send users to its website, something it has done profitably by buying text ads next to Google searches for terms such as "debt consolidation".

But when TrimYourDebt tried Google's print ads, responses came in at a rate about one-tenth of that of a similarly priced online campaign. Google's other problem is that it can't simply lower the asking price on print ads, as it can online, to the point where they make sense for businesses. On the web, Google lets advertisers bid against each other for placement alongside search results. Since it costs Google nothing to give each surfer results to their query, it can afford to let advertisers bid a few pennies every time their ad gets a click. But producing and distributing magazines can be expensive, so publishers can't sell ads for pennies.

Google is already getting some of the cheapest possible ad rates, according to two participating publishers. Even with big discounts, Google appears to be reselling ad spots without making money itself, BusinessWeek's analysis suggests. Still, Google isn't backing away from the market. Ad sales chief Timothy Armstrong says Google is working hard to improve its performance. "We're not as concerned with profitability right now as we are with finding value for publishers, advertisers and customers."

- INDEPENDENT