Google and the new economy

Jeff Jarvis reacts to the news of Google’s surprisingly healthy profits in the first quarter with his own theory: Google is rewriting the economics handbook and changed the definition of “the economy”.

The old definition meant and measured the performance of big companies and their impact on each other. This was especially the case in media and advertising, which served only companies of a certain size because only large companies could afford to advertise in large outlets. But Google’s marketplace for advertisers of all sizes represents the small-is-the-new-big economy: no limit of small enterprises that can now add up to a critical mass. The fact that it is an auction marketplace also means that this economy is more fluid; it fills in voids.

This means Google may be protected from an economic downturn in quite unprecedented ways:

when there’s an economic downturn that affects, say, travel, that will affect a magazine like Condé Nast Traveler; airlines and hotels of a certain size will advertise less and there aren’t new advertisers to fill in that void at Traveler’s price. But on Google, if American Airlines and the Ritz aren’t buying the keyword “Paris” this month, there are no end of advertisers who will step in to buy the word. The price of that keyword may decline. But in Google’s very broad economy, the prices of other keywords (e.g., “credit”) may rise.

Comscore started a run on Google’s stock by pointing out that fewer people were clicking on Google’s ads – though Google said it was tuning ad placement to improve relevance. In the end Google ends up looking smarter than Comscore and Jeff argues that the old sampling methodology’s days are numbered as it simply can’t measure the niches.

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Online ads grow rapidly

A joint study by the IAB and PriceWaterhouseCoopers shows rapid growth in online advertising last year:

Online advertising has grown from being the smallest market sector in 2003 to the third largest in 2007, with a new high of £2,812.6 millions. This represents a 38% year-on-year like-for-like increase, taking the medium to a market share of 15.3% (up from 11.4% in 2006). Internet advertising spend in 2007 exceeded the most generous forecasts and is now larger than press classifieds and regional newspapers.