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Google and Money!

Ethan Miller/Getty Images
Larry Page, who cofounded Google with Sergey Brin, at the International Consumer Electronics Show, Las Vegas, 2006

Carr also pays surprisingly little attention to the specific economic pressures that Auletta describes. He claims that “it’s in Google’s economic interest to make sure we click as often as possible.” But in referring to the quantity of clicks, Carr gives the impression that Google’s approach to advertising is much like the page-view model of its competitors. For his argument to be correct, Google would want users to be clicking indiscriminately, seeing as many ads on as many different pages as possible. In fact, with Google’s search engine advertising, the value of the ads comes less from their quantity (the number of times the ads appear, for which the company receives nothing) than from their quality (the number of times the ads match what users are looking for and attract purposeful clicks, for which Google receives fees).

This is why Google refuses to show ads when none match a user’s query: the company wants to provide advertisers only with clicks of the highest quality, from users who are searching for what is advertised. On other sites, such as YouTube, where Google must rely on the page-view model of advertising, the company does have an incentive to increase the raw number of ads a viewer sees. But with search engine advertising, where the company makes the vast majority of its profits, and where its decisions may have the greatest influence on the development of the rest of the Web, Google’s interest is the opposite of what Carr suggests. The company’s success, both as a provider of information and as a seller of advertising, has depended on finding ways to produce results of such high quality that users need not worry about clicking unnecessarily.

Carr is of course correct about many parts of the Web: the most successful news sites, like The Huffington Post, Politico, and Gawker, while supposedly attempting to satisfy the desire for the latest news, often fill their front pages with spurious brief stories about, say, Hollywood celebrities, meant to produce ever more page views; and the social networks, while claiming to “make the world a more open place,” encourage users to check in every minute partly in order to raise total advertising revenues. (Each time a user logs into MySpace, for example, it counts as a separate page view, thus allowing MySpace to charge advertisers more.) Google, because of its size and its different advertising model, has had other challenges. The most widely discussed may be the technical principle known as “net neutrality.”

The Internet, as originally conceived, was supposed to be noncommercial, and therefore treated all traffic in a “neutral” way, giving the same priority to every piece of data that passed through the network. As the Internet has developed, this principle of neutrality, though never codified in law, has largely been retained: whether Internet content comes from a long-established video rental company like Blockbuster or from a relatively recent start-up like Netflix, the pages, images, and videos that are sent through the network must all be passed along at equal speed.

More recently, companies that provide Internet services, such as AT&T, Verizon, and Comcast, have begun to see that they could make significant profits by providing quicker service to content providers for a fee—adding a “fast lane,” as it were, at the edge of the “information superhighway.” For example, if YouTube wanted to gain an advantage over rival video site Vimeo, it could pay the various Internet service providers to give priority to its traffic, so that videos on YouTube would load faster than those on Vimeo. Tim Wu, a professor at Columbia Law School, suggests that had the Internet not been neutral back in the 1990s, “Barnes and Noble would have destroyed Amazon, [and] Microsoft Search would have beaten out Google.”

For years Google was a staunch supporter of net neutrality, even as net neutrality’s demands began to run counter to its interests. But on August 9, Google together with Verizon announced a “compromise.” Google executives claimed that they would continue to support net neutrality on traditional cable and telephone services, but the compromise they proposed left open several loopholes.

More importantly, the iPhone, the iPad, as well as the whole gamut of mobile devices that run Google’s own Android operating system, have led many users to access the Internet through wireless devices rather than through cable or phone lines. It is not hard to imagine a future in which many users give up their home Internet connections—much as many have abandoned their “land line” telephones—and gain online access exclusively through wireless devices. But Google, in its joint statement with Verizon, dropped its support for net neutrality for wireless devices. Instead of insisting that the rapid expansion of wireless Internet access should make net neutrality all the more essential, Google executives claimed, in corporate-speak, that the “nascent nature of the wireless broadband marketplace” would make the application of the principle of net neutrality premature.

What may prove as important as Google’s acquiescence on net neutrality, however, was the disclosures by The Wall Street Journal on August 10 about the company’s strategies for the use of private information. According to the Journal:

Last September, [Google] launched its new ad exchange, which lets advertisers target individual people—consumers in the market for shoes, for instance—and buy access to them in real time as they surf the Web…. The further step…would be for Google to become a clearinghouse for everyone’s data, too. That idea…is still being considered, people familiar with the talks say. That would put Google—already one of the biggest repositories of consumer data anywhere—at the center of the trade in other people’s data.

Why would Google consider constructing such a “data clearinghouse”? Given a specific query, after all, Google’s search engine already has a very good sense of what users are looking for; and while Google could sell the data it gathers to other sites, the company would lose much of the trust of its users. But the growth of revenue from the search engine has been declining, and Page and Brin know that if Google can build a data clearinghouse and become a primary distributor of more precisely targeted ads—not making use of them on the search engine, but showing them on YouTube and selling them to other sites—then it could lay claim to another source of revenue.

Google has for years run a sideline business distributing ads to other sites, and the company made a major investment in the field by purchasing the leading ad distributor, DoubleClick, for $3.1 billion in 2007. By making this acquisition, Google took a step toward overcoming the distinctions that had defined the early years of the Web. As Eric Schmidt admits, Google knows “roughly who you are, roughly what you care about, roughly who your friends are.” The combination of DoubleClick’s ad distribution service with the data that Google has gathered on its users allows Google to sell the page view–style ads that appear almost everywhere online, and to target the ads so precisely that they can be sold on a cost-per-click basis.

Many companies, including Facebook, have attempted to create such targeted ads by using the private information they have gathered on their users. The data clearinghouse being considered by Google would make these ads far more precise by bringing together all the private information that companies have gathered on users in one place. As a result, many websites would place less emphasis on maximizing the number of page views, and more on obtaining and using personal information about their users.

These personally targeted ads, whether created by Google or some other company, will be more intrusive than anything we have seen before. Marketers have long known more about individuals than many of us would like, but the use of this information has largely been limited to techniques that could be directed to a single individual with the technology of the past—telemarketing and junk mail. The spread of wireless technology will allow marketers to do much more with this information. As magazines move to digital devices like the iPad and the Kindle, for instance, marketers will be able to personalize the ads that appear based not just on each person’s demographic information but also, with the help of the devices’ ability to track location, the places where they happen to be reading at the moment.

In addition, these personalized ads will become more pervasive, allowing advertisers to coordinate campaigns across a single user’s computer, e-reader, and cell phone, as well as the many other devices that are now being built with wireless connections, such as radios, TVs, watches, and cars. With the help of a highly efficient data clearinghouse, marketers will be able to update these campaigns instantaneously, based on such factors as the sites that we visit, the searches we make, and the places we go.

The ability to target a tightly knit group, such as a circle of friends or a family, has been of particular interest to marketers. Irwin Gotlieb, the CEO of GroupM, the largest advertising agency in the world, relates one example to Auletta: “Take disposable diapers. Should you just market to pregnant women? I would argue that maybe the grandmother has significant influence.” Thus if a daughter-in-law becomes pregnant and searches on Google for baby blogs, or looks at strollers on Amazon, the grandmother-to-be—whose relationship to her daughter-in-law could be discovered through Facebook, or perhaps through the social networking service Google is reported to be working on—may begin to notice a remarkable increase in diaper ads not only on the websites she visits but also, as more and more devices become tied together through wireless connections, over her radio, on her television, possibly on her toaster, and certainly on her cell phone, which, following another of Gotlieb’s suggestions, might start flashing with coupons for diapers when, through the phone’s location features, a marketer is made aware that she has walked into a supermarket or drugstore. It’s not hard to imagine a future in which an ill-informed grandmother-to-be might suspect that there will be a new addition to the family, simply by observing changes among the ads she’s served up hour by hour and day by day.

If we can imagine that future, we can also picture a more disturbing variation: perhaps a depressive son begins reading blog posts about suicidal thoughts, and shortly thereafter his parents begin to notice a rise in advertisements for psychotropic drugs and crisis prevention hotlines. Would that be wrong? Perhaps not, but as advertising becomes more personalized, pervasive, and instantaneously updatable, it seems likely that more and more users will want to opt out of a system that, though perhaps seldom deeply intrusive, will continually be pushing the boundaries of what we find acceptable. As The Wall Street Journal recently revealed, many companies, including Facebook, already provide advertisers with information that even their current minimal privacy policies are supposed to protect.

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