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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.

The mobile advertising challenge

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.

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