Media Industry Reaction: What Google Becoming Alphabet Means For Agencies And Brands

Originally Published in: M&M Global

December 8th, 2015

M&M Global spoke to a selection of media and ad technology experts about how they reacted to the news of Google’s restructure as Alphabet, the hiving off off Google as a search subsidiary and where they envisage the future for advertisers and brands might lie.

Stefan Bardega, chief digital officer, ZenithOptimedia

Google has long been considered part of the fabric of the internet. In many respects it has been the electricity of the web powering many consumer journeys, driving the largest share of advertising experiences globally, and certainly contributing significantly to the digital economy. Google Corp itself was constructed like an electrical circuit running in series (rather than in parallel). The challenge with a ‘series’ organisational structure is that if there is a break in one part of the chain, the whole is affected. For example, if Google Glass fails it affects Google core business (if only from a public perception point-of-view) similarly if Google (Search) faces regulatory scrutiny it is likely to negatively impact the development in other areas of the business such as Nest and driverless cars. The move to operate in parallel rather than in series will have a positive impact in several areas: Innovation: Google can take its moonshots and fail without impacting the core (+80%) business of advertising. Regulation: Google can fight its regulatory battles one product at a time. Organisation: With the new structure Google will be better able to focus on the reorganisation of its advertising and technology sales operations which require closer integration if it is to take full advantage of its market leading integrated advertising stack. FaceOff: Facebook has deliberately kept the majority of its operations (Facebook /Instagram/ Atlas/Oculus) distinct and separate both from a consumer and B2B point-of-view. Google’s move in some ways acknowledges the success of this strategy and enables it to compete/face off better with its largest competitor. Investor Relations: Google’s new structure is a clear signal of the arrival of a new finance director. The structural change and the subsequent increase in organisational clarity and transparency will no doubt be a very positive sign to investors.

Isabelle Baas, managing partner for digital, Starcom Mediavest Group UK

Yesterday’s shock corporate restructure of Google into Alphabet Inc has many experts and clients wondering what the motivations are for a move like this. This is good news for the media industry who need a strong, more singular focused advertising business ready to innovate and set apart from its growing competition. Moving all of what we know about Google’s media offering including search, maps, Google Display Network, YouTube, Android and apps will now be aligned under Google with a new Chief Executive in Sundar Pichai. It allows Google/Alphabet to retain a key talent in the business and give him licence to protect the 90% of Alphabet revenues. It also means that other diversified non-media services and projects such as Loon, LifeSciences, Calico, Fiber, Nest, Ventures, Capital and Google X can now receive the attention required to become powerhouses in their own right (or die a fast death). This will open up new opportunities for acquisition through Capital or Ventures that can be complimentary strategic services for Alphabet as well as solutions or clients. Watch this space. What does this mean for media agencies? The restructure is good news as it positions Google as a media owner and declutters it from the additional solutions for advertisers. In another sense bigger strategic alliances will simply move to Alphabet level and become what they should be, big strategic partnerships and solutions that are bigger than media. So, for the media industry as well as investors, the restructure adds accountability to funding and shareholder value under the Alphabet umbrella, as well as clarity as to what entity you are working with and that entity’s direction of travel.

Robert Lloyd, head of owned and earned at Reprise Media, a digital agency part of IPG Mediabrands

Alphabet raises three questions for us. First, what does this signal for the future? Second, what does this mean for Google in a corporate sense and finally, how does this affect agencies and brands? For a long time, Google has given the impression of a search company with diverse and seemingly unrelated hobbies. The Loon Project, Glass, Driverless Cars, Nest and the acquisition of robotics company Boston Dynamics shows a company wanting to break free from the shackles of a software company and take the step into your real physical world. These devices need to think for themselves, but the main challenge for Artificial Intelligence today is the lack of what is called General Intelligence. This is the ability for something to apply a wide set of knowledge and experience in solving unpredictable problems. When Google has combined this desire of knowledge, intelligence and physical realms together, the possibilities are endless. These ventures are all primarily funded by Google’s advertising money tree which could become easily distracted by these ventures. The creation of Alphabet and the separation of a “slimmed down” Google will give investors potentially more transparency into Google’s revenue streams and bundle the non-core services in a way that protects IP and preserves discretion about Alphabet’s long term ambitions. This is especially relevant when Facebook are also breaking the software shackles through projects such as their solar power aircraft, Aquila. Regardless of the future and what science fiction it may bring, a “slimmed down”, less distracted Google will now have the much simpler purpose of increasing margin. Google’s enthusiasm for advertisers to move into YouTube video and mobile (helped along by April’s ‘Mobilegeddon’) underpinned by their ever strengthening the digital marketers toolkit through services such as Adometry is Google simply continuing to act like a business and maintain appeal to investors. Despite the mention of “margin”, agencies and brands must remember that Google has risen to become the most popular search engine in many markets because they experts at balancing a monetised product with a superior user experience. Google knows that if paid search bullies organic results, there will be a user backlash – likewise with YouTube advertising. We’ve seen this before when in 2009 Google had limited the number of social results in search as users experience signals temporarily deteriorated. Therefore, Google has a risk of becoming slightly more aggressive in monetisation but they must protect user experience to protect investors. Nine out of 10 searches in the UK are via Google and therefore we see its dominance remaining for at least the next 5 years. The biggest threat to Google at this point in time is ignoring their longstanding balance of monetisation and experience. The second largest threat is the on-going litigation such as the EU Antitrust which is what we believe is still Google’s biggest external concern.

Chris Dobson, executive chairman, The Exchange Lab

The creation of Alphabet doesn’t mean much for the global media industry. This move is about shareholder pressure for visibility into their non-media businesses, such as Google Ventures’ driverless cars and robotics and Calico’s health research. As a secondary, this could also well be a pre-emptive measure by the corporation to separate its divisions further in the wake of EU regulation measures on the business. This will make it easier to separate some of the firms that have moved under the Alphabet umbrella from Google, and as such the data sharing capabilities between them all. The changes prove how much Google is diversifying beyond media – Google itself (compiled of Search, YouTube, Apps, Maps, Ads and Android) has remained the same, albeit for a new CEO choice of Sundar Pichai, promoted from his post as SVP of Product. The umbrella company, Alphabet, is the holding piece for its innovation companies and everything will continue to run largely as normal. Whether in their pursuit of transparency Alphabet continues to share information across the rest of its divisions freely will remain to be seen. Other than a few more CEOs and different reporting paths, the changes look likely to be minimal. Google’s standalone digital media focus is unlikely to have any impact on how it works with brands and partners as Google as an entity isn’t changing. It’s just re-jigging a few of its firms, such as Nest, Fiber and Calico around. The move will be unlikely to see brands moving to go direct to Google over an agency any more than they would have before. The benefits for brands have yet to be laid out – on the surface, the move looks like it is business as usual. It is only natural for Google to want to form separate businesses. Similarly, for third-party DSPs and programmatic companies, it won’t have any impact. At least no one is talking about the YouTube news anymore.

Andy Kahl, director of research, Sizmek

It’s too early to know [what the creation of Alphabet means for global media industry], but much will depend on where the company leadership draws the lines between its ‘traditional’ digital media business and its new frontier-type endeavours. It may be that early adopters can partner with companies that have sprung out of Alphabet, such as Nest, Sidewalk, Calico, to get ahead of the curve, or that revenue-producing features are guarded and released via the existing, familiar channels. The company restructure is certainly dramatic, if only because of the scope of the company involved. However, it is likely that most daily web users and the majority of Google business customers won’t notice a difference in day-to-day tactics or functionality. Now that Google as a standalone digital media company is focused almost entirely on ad revenue, do you think it will change the way that it works with brands? With everything Google, there is a question of how much of its experimental DNA still influences the decisions made on the scale of the giant search and media monolith. If you’re of the mind that close proximity with speculative parts of the business has an impact on the digital media decision makers, then you should expect to see a change in the coming months as those business units are more formally separated. If you believe that the digital media departments have an isolated culture of decision-making already, you won’t expect a change – experience and evidence suggest that the latter is true. Will it lead to brands bypassing agencies? Google’s position with many of its products – and its ad technology – is to consolidate services into a single platform. This platform is naturally designed to not only provide ad management services but also to sell Google media. The reorganisation does suggest that this is Google’s strategy for the foreseeable future. So much remains the same and brands have to measure the strategic value of freedom of choice in the media market, against the features provided in the newly focused Google ad platform. What does it mean for third-party DSPs and programmatic companies? Google’s platform will continue to grow but the realignment may see product teams inside Google more aggressively replicating functionality available elsewhere in the market. The challenge other ad serving and management platforms face in differentiating themselves against the competition will grow equally more difficult and more important.

Written by:

Ben Bold

NEWS & EVENTS

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