Property Grunt

Tuesday, November 01, 2005

Get Ready For Google Base

Recently I heard rumblings about Google’s new ad initiatives from Inman news, which was clarified by a NYT article about their new venture.

I think brokers should be concerned about these initiatives particularly Google Base which is a free advertising system. First of all Google has proven to not only to be bullet proof since the dot com meltdown but has actually thrived during the recession. Since going IPO Google stock has been a consistent winner along with their new advertising model which has also proven quite successful.

Google soared in popularity in its first years but had no meaningful revenue until the founders reluctantly fell on that safety net and started selling ads. Even then, they approached advertising with the mind-set of engineers: Ads would look more like fortune cookies than anything Madison Avenue would come up with

As it turned out, the safety net was a trampoline. Those little ads - 12 word snippets of text, linked to topics that users are actually interested in - have turned Google into one of the biggest advertising vehicles the world has ever seen. This year, Google will sell $6.1 billion in ads, nearly double what it sold last year, according to Anthony Noto, an analyst at Goldman Sachs. That is more advertising than is sold by any newspaper chain, magazine publisher or television network. By next year, Mr. Noto said, he expects Google to have advertising revenue of $9.5 billion. That would place it fourth among American media companies in total ad sales after Viacom, the News Corporation and the Walt Disney Company, but ahead of giants including NBC Universal and Time Warner.

Because of this strong brand identity, Google has become a force to be reckoned in the advertising community.

Not content to just suck advertising dollars from Web search, Google is using its windfall to pay for an eclectic range of ambitious projects that have the potential to radically disrupt other industries. Among other things, it is offering to build a free wireless Internet network in San Francisco, plans to scan nearly every book published and is testing a free classified advertising system it calls Google Base.

"The smartest thing that Google did was getting smaller advertisers to buy in," said Ellen Siminoff, the chief executive of Efficient Frontier, an agency that helps advertisers manage their campaigns on search engines. She estimates that Google has two to three times as many advertisers as Yahoo does, largely because Yahoo has a 10-cent minimum bid. This lets Google earn money on more obscure search terms for which rivals have no ads.

The Google model is ideal for residential sales because selling an apartment is a small business venture in itself. Unlike large scale developers who can afford to market their own properties, the small sellers has very few resources in terms marketing the apartment. The Google advertising model addresses the needs of the seller of that one apartment because it is free and Google has brand name recognition.

So why do I feel that brokers should be dropping a load in their pants? Well you need to understand the role marketing plays in residential sales. One of the reasons why sellers enlist the aid of certain brokers is because of their brand identity. Customers recognize these brands, which draw them into looking at the websites and newspaper ads. Barbara Corcoran is a perfect example of branding since she was the first one to prove that the use of media could strengthen a broker’s bottomline.

Another brand is the New York Times which is considered to be the bible of real estate since it is usually the first place customers peruse for apartments.
Brokers routinely carpet bomb with the New York Times with ads.

None of these marketing services are free. Brokers have to pay out of pocket for New York Times ads and running their website. Brokers are wiling to absorb these costs since they are gambling that that the sale of the apartment will make up for the the marketing costs.

With Google Base there is very little justification for sellers to use a broker because they can do a FSBO, market their own homes and get the same amount traffic through Google because of its strong brand presence. And sellers don't have to pay a dime. Another scenario is that a seller could negotiate a lower commission by demanding that brokers only market through Google base because the broker would not need to expend any money for New York Times ads neither would they need to list it on their own website because of the traffic that the Google brand attracts and that the service is free. By simply using Google Base, brokers would be prevented from expending their own resources therefore they would hardpressed to demand a full commission due to lack of capital outlays.

One could argue that Google Base would not be a viable option since it could be afflicted with the same problems as craigslist which include bait and switch artist. I am sure that the Google crew has created an algorithm to neutralize that problem.

I also forsee brokers arguing that real estate ads are a completely different animal comparing to other advertisements requirin a certain touch and feel that only a experienced broker can provide. Google begs to differ.

Eric E. Schmidt, Google's chief executive, explains the company's astounding success in advertising - and reconciles it with the founders' distrust of hucksterism - by suggesting that advertising should be interesting, relevant and useful to users. "Improving ad quality improves Google's revenue," he said in an interview at the company's headquarters, known as the Googleplex. "If we target the right ad to the right person at the right time and they click it, we win."

This won't happen overnight but it is in my opinion that in the near future many a broker will be cursing these engineers.