July 2009 – Marketing Methods

Google Pulls Plug on Radio

By Peter Koeppel

In a rare misstep, Google has decided to end its attempt to automate the radio advertising business. According to a recent story in The Wall Street Journal, several factors led to the demise of Google’s radio business, including miscalculating the ability of its technology to work with offline mediums, misjudging the importance of the human side of the business and the reluctance of radio stations to turn over their inventory to be sold at lower rates.

Of course, Google remains highly successful. It sells one-third of the online ads in the U.S., but online ad sales have been slowing. So Google has been on a mission to extend its online ad model into offline mediums. Several years ago, Google came up with a “dashboard” that enabled marketers to track, compare and measure online, radio, TV and print ads. Its initial offline ad endeavor was designed to sell and track reader response to magazine ads and proved unsuccessful. Google then decided to go after the larger radio ad market.

To enter the radio market, Google first purchased dMarc Broadcasting, which invented a technology to automate the transmission of radio ads to stations. Google then came up with the idea of creating an online auction that would allow advertisers to bid on radio spots. Google felt advertisers would be interested in bidding on radio ads based on the effectiveness of the ad, not on the number of listeners reached, and that this approach would generate more revenue for the stations. Google was counting on the ability to track whether a radio ad led to a purchase as a way to transform the radio business and bring in new advertisers.

UNFORESEEN PROBLEMS
Google ran into problems developing a system to auction and track radio ads. The company also had a hard time signing up stations to provide inventory. Stations feared an auction system would sell ads at prices lower than they could sell via their sales force. Advertisers were not satisfied with Google’s technology and its ability to track sales. To bring in more stations and advertisers, Google came up with a pricing model using Google tools to track campaign performance. This resulted in a drop in revenue for the stations, which further alienated station owners.

Media buyers feared Google would use their technology to bypass them and complained that Google didn’t allow them to target ads on specific stations. This may have influenced agencies not to use Google for their larger advertisers. Google also would not sell bundles of spots and negotiate rates in advance–the way radio is traditionally sold. Advertisers reported that they received more useful advice on creative and media purchases working through an agency. Meanwhile, Google’s relationship with the former owners of dMarc deteriorated, adding to its problems.

Google decided to pull out of the radio business in May. Now, among its offline advertising ventures, only its TV ad platform is still operating.

Peter Koeppel will be speaking during the “Navigating the Media Buy in Today’s Market” session on Sunday, September 13, from 1:45 p.m. to 2:45 p.m. at ERA’s D2C Convention.

Peter Koeppel is a Wharton MBA and president of Koeppel Direct, a full-service media buying agency based in Dallas. Koeppel also serves on Electronic Retailer’s Magazine Advisory Board. He can be reached at (972) 732-6110 or pkoeppel@koeppelinc.com.