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May 12, 2012 03:06 PM IST | Source: CNBC-TV18

The mobile advertising challenge

This episode of CNBC-TV18‘s special show Storyboard discusses the latest trends in the digital space with senior vice president and chief business officer of Google Nikesh Arora.

This episode of CNBC-TV18’s special show Storyboard discusses the latest trends in the digital space and the new developments at Google with senior vice president and chief business officer Nikesh Arora.

Below is an edited transcript of his interview with Anuradha Sen Gupta. Also watch the accompanying videos.

Q: We meet on the back of your first quarter numbers, which is up 24% year on year this quarter over the last quarter. When you look at these numbers, what should people like us understand of the trends in this space and the challenges?

A: I think it’s fair to say that our revenues and our advertising dollars are following consumer behaviour. Two-three years ago, we were all spending time on our desktops, but as technology evolved, as people start spending more time on mobile phones and tablets, you are seeing that usage rise and the advertising dollar shift there.

Generally, with the availability of broadband around the world, not so much in India, you are seeing tremendous amounts of online video consumption and advertising dollars following that. So I think what you are seeing is advertising trends which used to be very text oriented or search oriented in the past are turning into more rich media that is displayed on the video and on the web. Mobiles are becoming a big relevant part of that equation, so that’s what happening in the consumer space.

Q: We are hearing a lot about TrueView and in May we will see you do a first upfront. Tell us how that happens?

A: On TV, when I watch an ad, the advertiser doesn’t know if I watched it, the advertiser doesn’t know if I wanted to watch it. On YouTube, there is a format called TrueView which is if I want I can skip the ad. We don’t charge the advertiser if somebody skips the ad and that’s a very different way of presenting advertising.

This means that the advertisement better be interesting, otherwise I do not want to watch it. Also, if I have already seen it, I don’t want to watch it again. So you are getting a true measure of whether the advertiser is getting ineffective returns.

In New York, we are doing our first YouTube upfront. For time immemorial, or as long as television has been around, people have sold advertising by showing the shows in New York or Los Angeles saying here is what my slate is for the next 6-12 months and dear advertiser do you want to sponsor this. We are doing the same thing on YouTube. We have now channels on YouTube which we are presenting, and I think about thousand people have signed up to watch what we are going to be showcasing in the next 6-12 months. People are bidding for advertising against those channels.

So this is the first time online video is behaving like television packaging from advertising point of view and I think it’s going to go down in history as a seminal event where for the first time advertisers were behaving similarly.

Q: How is mobile advertising doing because that is supposed to be the big future of the digital space?

A: I think we are in the very early days of mobile advertising. In fact, mobile advertising is where online advertising was in the first three-four years of its existence. Companies are still getting the hang of why they need a mobile experience because their websites work beautifully. Their mobile sites, however, don’t because they are not optimized to that screen, so people are working on optimizing the experience for the user on smaller screens.

As that begins to happen, we will see continued momentum of advertisers wanting to address users on that small screen. So we are seeing early adoption around the world, particularly strong in Japan, the UK and in the US because those markets have reasonably high bandwidth. They have lots of smart phones, which are iPhones or Android phones, and a lot of businesses are interested in the users. So there is a bit of an ecosystem built in those countries and that ecosystem is transferring around the world depending on adoption of smart phones and tablets.

Q: What about the India experience as far as mobile is concerned, because 3G was supposed to unlock that whole world for consumers, for telecom operators?

A: I think it is happening in India as well; people are using smart phones, you can see them around you, and people are using tablets to some degree. I think that just needs to get accelerated.

Hopefully, a combination of some measures around spectrum, some measures around build out from operators and a combination of some certainty with tremendous end-user enthusiasm will get us there.

Q: Given the telecom industry and the sheer complex crises it is in currently, do you think that it has held back the burst of optimal 3G services and therefore advertising on the mobile?

A: Advertising is a consequence that happens if there is tremendous amount of usage, so from a Google point of view we don’t worry about advertising, we think it will evolve. We are more excited about the end user experience because we have always focused on creating phenomenal end user products. If they work, advertising follows.

So yes, I would like to see much more ability for users in the country to use the services they used to on their desktops. That does require some amount of acceleration in the development of infrastructure, so I am hoping that will happen.

Q: Would the roadblocks today be because of the regulatory framework and what is happening around that or would it be because nobody is making money or everybody is making less money than they used to?

A: If you think about infrastructure businesses, whether it’s roads, electricity or mobile infrastructure, it requires long-term investment. It requires a certain amount of time where people can generate a trend, so I think the best thing that can happen for any industry is infrastructure business is certainty, certainty in regulatory matters, certainty in matters where companies understand the rules and play by them.

I think if some element of uncertainty exists, people stop spending. By the way, that’s not restricted to mobiles. In any part of the world, you see economic crisis and companies hold back, they stop spending on advertising. So what is important for continued sustained development is natural demand certainty.

So if there can be more certainty injected into the environment, specifically the telecom sector, I think you are going to see a sustained development of infrastructure and sustained momentum users.


Q: Little more than half of your revenue comes from outside the US. Does India even figure?

A: Of course India figures.

Q: But does it figure as a negligible little drop in terms of what the Indian market is?

A: Every dollar of revenue which is profitable is a good dollar of revenue, so we take them as they come. Is it proportionate to the potential? No. I think there is tremendous more potential in the market.

In the long term, we believe this is going to be a market which is going to be very vibrant. It’s a very technology savvy market, there is a huge youth population which is adopting online services, so we think the long-term prognosis for the country is phenomenal.

Q: But has it been slower than you expected?

A: As I keep saying, it can be faster. We aren’t setting up expectations and feeling disappointed. We are just going with the flow and seeing as development happens we are going to get the revenues that come with it.

What is more important is the development of a robust ecosystem, robust set of services, robust set of products with the end users because that is going to generate revenue in the long-term.

Q: Both globally and in India, Google is investing in creating relationship with the advertising community with media buying agencies. What is the India team telling you about how prepared or how skilled Indian agencies are when it comes to creating digital advertising and understanding the medium?

A: I think the agency preparedness mirrors the development of the ecosystem in the market. India is a very vibrant advertising market and it’s still very small numbers from a digital point of view, so agencies are putting in commensurate effort. We are seeing a lot more agencies getting equipped for digital age because they not only want to serve the Indian market but they also want to be able to serve the global market where their partners with other agencies and other creative businesses. So the creativity is there, the appetite is there, some people are more prepared than the others.

Q: The sense I get when I talk to people is that there is a lot of talk about digital but the money is not going there. What is holding that money back?

A: I think the money is being held back because of inventory demand, because lots of users have to spend lot more time on the web in the digital space. There is no creativity in search advertising, but the real creative agencies get very excited when video comes into play. We are seeing that in the New York upfront, we are seeing that in the US, we are seeing that in different parts of Europe and various parts of Asia as well. So you will see that happen in India as well.


Q: How long before you do an upfront in India?

A: I hope it’s soon.

Q: Two years?

A: I don’t know. I think it depends on the infrastructure, it depends on consumer demand. I think next two-three years will probably a safe bet.

Q: Big news last year where Google was concerned with the acquisition of Motorola. What can you tell us about what that business is going to do with Google? Is the integration complete?

A: It’s not closed yet, we don’t own Motorola yet, so it’s very hard to integrate something that you don’t own. We have been spending time understanding the business, but we are waiting for regulatory clearances somewhere around the world so we can work with them.

Fundamentally, I personally like businesses where there is natural demand and there is going to be natural demand for more mobile devices, so at least there is going to be huge demand in the future. It boils down to how the company can execute against that demand and we are hoping the team there and some of our people who are working hard to understand will do a good job, but its hard to comment right now.

Q: Will you be involved?

A: I have been always involved.

Q: What about Google+? Is it optimal for you guys?

A: If you look at our history, maybe it’s journalists keeping us on our toes and make sure we are honest, but every time we do people always question us something until it becomes something substantive. I remember us having a conversation few years ago saying what is going on with Android and it seems to have worked.

So we hope Google+ is going to work, but what is important to understand is a fundamental shift is going on in the way the internet operates. Larry Page said something very interesting in our recent earnings call. He distinguished the social world into social networking or a social destination and a social spine.

One incarnation of Google+ is a social destination, where I can go do whatever I do in a social network. The second, which is more relevant at least from my point of view, is that it becomes a spine of future developments so that in the future you are going to design things which are around social experience.

So it’s early days, but we are very excited about where we have gotten so far. It’s been less than a year and it’s taken a lot longer for existing social destinations and networks to establish themselves, so we are held in the right direction.

Q: But the fact is that you were not the first mover here, so you have to wane people away from existing social networks.

A: We were not the first mover in search, we never were; we are not the first mover in online video, we were not the first mover in e-mail, we were not the first browser in the world. If somebody is a first mover in a certain industry, it is hard for us to be the first mover now. The question is can we out-innovate that mover, can we come up with something that is even more useful that creates a compelling reason for users to do it differently.

But as I said its early days, it still remains to be seen, but we are very pleased with the early signs that over 100 million people have joined it. We are happy that they are beginning to get utility out of it, they’re beginning to enjoy and hopefully that creates a bit of a momentum, it creates a bit of a viral notion that everybody else needs to get on it. So you better get on it.

Q: How would you react if I say that while Google is a lot bigger and more comprehensive in terms of the services it offers and how it touches its consumers, Facebook has captured mind space in the past couple of years. Would you agree that for a company which is not competing with you at all the various different things you do, that it’s capturing share of mind a lot more?

A: I think there will always be another company, another set of innovators, another set of innovation that’s going to capture the fancy of us as users. We all like change, we all like different things at different points in time, but that’s not where we spend out time focusing. Our focus is can we keep users excited about our products because the biggest failure can be if users don’t see value in your product and they leave.

So we are seeing from all of our products and all of our users is that users are happy with a lot of the products we have to offer. On the back of it, to keep the innovation engine alive, you have to make sure you are generating tremendous amounts of capability for investment. So our business side of thing is doing well. We did upwards of USD 8 billion of incremental revenues last year and that’s still larger than what many of the names you are thinking are going to do.

But are we concerned that there are other things that are out in the market? Yes, we are. But we are not thinking about it from a competitive position, we are thinking about it how can we keep creating great products and keep their belief in Google as an innovation business, as something that if we come out of the product you should try it because it’s probably cool and solves the problem.


Q: Let’s shift from what is happening in Google to what is happening outside Google and that is the intense efforts to regulate the online world whether it’s in the USA, whether its conversations here in India. There is CISPA which a company like yours is supporting. What are the conversations around regulation of the internet?

A: I like the way you characterize it and what you have articulated is the challenge. The challenge is that we are moving into a connected world where I wouldn’t say the rules are being broken but it is creating new platforms and new conversations mush faster. So things happen much faster. Its just the dissemination of information has become so much faster that it changes the entire social contract. So that is the more fundamental shift we are dealing with generally a society and regulation over a time has been designed to create a level playing field, create equality, create a whole bunch of good things for society.

Now what we are trying to do is we are trying to see how the old model of regulation applies to this new world and therein fundamentally lies a bit of a challenge. Maybe some of the old models are not going to apply in the future to the new world because its hard to implement the old model in the new world; maybe the new world has a new model and that kind of thinking is happening in different parts of the world. Some people are coming up with more innovative ways of dealing with these issues, some people are relying on trying to apply old models towards new issues.

Q: But I don’t think there has been attempt to regulate the internet as strongly and as consistently before than it is right now, isn’t it?

A: For the primary reason that it’s becoming more mainstream. Five years ago there was 10% of the population using the internet online, today there is 80% in some countries and all businesses. I think it’s a bit of a myth that any new rules that get defined for the new way society behaves and I am actually staying away from the notion of the internet because this doesn’t impact the internet only, it impacts you and me as individuals and it impacts businesses because now all businesses are present on the internet so any rule that applies for the internet businesses applies to traditional businesses.

So a bit of a deep think has to be conducted on what is important for the new world to survive and what are the new rules. I think these are hard problems, these are not easy problems. You ask me about investment and the people we are trying to hire, I think we are trying to put the people in place around the world to be able to have these conversations and participate in this rethink in constructive ways.

We understand the roles government play, we understand the role the regulators play and it’s a very hard job and a respectful job because they are trying to do right thing for the society. But it’s just an interpretation of what is the right thing and how do you arrive at that conclusion because it’s easier to get something wrong. If you don’t understand the complexity of the new world, the unintended consequences of what you might unleash if you focus on one part versus the other and I think that’s the challenge.

Q: But do you think that you all being invited to the conversation effectively enough or is it that you all are the villains that needs to be countered and checked?

A: The imitation comes in various shapes and forms, some come in conceptualization phases, some come as a court order, but we do get invited one way or the other to the conversation.

Q: Where India at in its attempts to understand and create a regulatory framework that suites the internet?

A: It’s a tough problem and I cannot comment specifically in the court case and that’s for my local counterparts talk about because they are involved in it.

Q: But the thing is that now not your local counterparts, they are out of the picture, isn’t it so it’s you guys who got to answer?

A: Right and as I said we do get invited through the conversation and we are having conversations. My intent is not to offend anyone but it is a hard problem to solve. It is important to get into right, but it is important to get it right in the context of how the new world behaves.

Q: How do you think India is dealing with it compared to other countries that you have seen?

A: I think India is in a different point in the evolution of the internet. I think as you have talked about earlier, we are still seeing people get on to their phones and start interacting with the web more so not as much of the population is online. So I think we are going through the parts of the early phases where some other countries have been through the early phase and these are tough problems to solve.

My only hope is that enough time and effort will be spent in thinking through the consequences, both intended and unintended, as these conversations happen and things need to be weighed carefully before we make decisions because its easy to get something wrong and equally so something gotten to be right quickly as well.

India has a long history of conversation, it has a long history of being on the side of the citizen, the end user and there is a long history of great tremendous amount of growth so we have to make sure we get it right.

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