Not understanding the basic economics of advertising: Today, MediaPost.com is running a story with the heading “Newspapers, Magazines Lose Ad Revenue To Search Engines.”
Here’s a Quote:
Internet powerhouses Google and Yahoo! have “rewritten the information industry playbook,” according to a recent report by research firm Outsell, Inc. The study, an analysis of 2004 revenues of 100 publicly traded information companies, stated that sponsored search listings from Google and Yahoo! are “sucking the financial air out of the room.”
Google and Yahoo! combined generated $6.5 billion in total revenue last year, compared to a total of $60 billion by the 10 largest companies (Reed Elsevier, Thomson, Gannett, Pearson, Tribune, Reuters, McGraw-Hill, VNU, Wolters Kluwer, and the Daily Mail and General Trust) according to Outsell’s analysis. But when it comes to new revenue, Google and Yahoo! also have generated $4 billion–the same amount as the 10 largest companies combined.
Ironic as it may be for a report geared to media buyers, but the reporter or her editor doesn’t seem to get the point that Google and Yahoo! are merely the sales agents in a large percentage of that advertising revenue generated: that a majority of that “new revenue” is being reimbursed to those 10 largest companies for search ads appearing on those company’s websites. (Flashback: In the most recent quarter, Google reported it has “reimbursed” over $400 million to its “publishing parthers” — that’s just Google and just one quarter.)
There is an extremely significant shift taking place, here. Search replacing traditional advertising is a major trend. But the story is not about how traditional media companies are losing revenues. Google and Yahoo are vendors to those old media companies, not competitors. There may be some “sucking out” taking place, but there is also plenty of “pumping in” as well.