The Wall Street Journal
by AMIR EFRATI
December 24, 2010
Google Inc., which helped popularize the idea of automated ad sales on the Web, has been quietly turning to an old-fashioned tool-phone calls-to compete in the hot market for local business advertising.
The Internet-search giant this year has hired several hundred sales representatives to call U.S. businesses such as spas, restaurants and hotels to promote new advertising initiatives, people familiar with the matter said. The effort includes an office in Tempe, Ariz., with around 100 sales representatives, one of these people said.
Since 20% of searches done on Google are for local information, "a strong Web presence can help neighborhood businesses answer those searches and bring in more customers," said Marissa Mayer, Google's vice president of geographic and local services, in a prepared statement. Google's new local ad offerings "are simple and they work, so we've been investing in marketing and sales to support them."
One person who has experienced the results is Debbie Codino, a manager at Bob Brown Tire Center Inc. in Portland, Ore. She said she hangs up daily on callers who say they can help boost the small tire shop's presence on the Web to attract new customers. But when she received a call from a Google salesman last month, she stayed on the line.
Ms. Codino quickly agreed to pay $25 a month to highlight her store and show a 10%-off coupon when people use terms like "Portland tires" in a search on Google. "I was surprised," she said. "This time it was really Google calling so I was motivated to listen."
Google, of Mountain View, Calif., is better known for search algorithms and the engineers who refine them to get better results. The company's $24 billion in revenue last year came almost entirely from AdWords, a self-service system developed 10 years ago to let anyone buy text ads that show up next to search results. More than one million small businesses, from makers of boots to distributors of special shampoo or contact lenses, advertise through Google on AdWords to drive online sales or get people to download catalogs, among other things, according to some analysts.
But AdWords never fully took off with local businesses, in part because it includes features viewed as too complex or time-consuming for average business owners to use, according to former Google employees. For example, AdWords uses an auction-like system to determine prices for ads. By contrast, Google introduced ad offerings this year for local businesses that cost a fixed amount per month, the kind pitched to Ms. Codino.
So far, only a fraction of local businesses advertise online. BIA/Kelsey, a local-media advisory firm, estimates that local businesses will spend about $20 billion online this year, a figure that could reach more than $35 billion by 2014.
Google signaled a strong interest in the market with an unsuccessful attempt to buy Groupon Inc., a fast-growing company that offers users daily deals on a variety of goods and services. People familiar with the matter have pegged Google's offer at $6 billion; both companies have declined comment. Had that deal been reached, Google would have picked up a sales force of more than 1,500 people who call local businesses to get them to offer discounts to Groupon customers.
Companies such as Groupon and Yelp Inc.-a business-reviews website that has hundreds of sales reps-have attracted big Web companies such as Google and social networking site Facebook Inc. to the growing online local ad market. Google tried to buy Yelp last year, people familiar with the matter have said.
The direct-sales approach on local business "constitutes a cultural change of sorts" for Google, said Greg Sterling, an analyst at Sterling Market Intelligence, but a necessary one. Paying sales people generates lower profit margins than a system like AdWords, "but what Google has come to see is that without a sales force or at least human involvement in the process, they're not going to acquire these small businesses as customers," he said.
Direct sales isn't a new approach for Google in handling large advertisers. Though many of Google's 23,000 employees have technical jobs, the company says it also has several thousand salespeople who work with Fortune 500 companies, small and medium-sized businesses and ad agencies on text and graphical ad campaigns, among other things.
To reach local businesses, Google has already built relationships through Web pages it developed last year for them on its search engine. Known as "Place pages," they list basic information, such as the location on a map and a summary of customer reviews.
Google's new sales reps are primarily selling two ad offerings called "tags" and "boost" to the four million businesses that have contacted Google electronically to verify the accuracy of their Place page. The ads show up on Google search results and in Google Maps that display local businesses.
When Facebook earlier this year began its own effort to establish relationships with local businesses, known as Facebook Places, its Chief Executive Mark Zuckerberg said the social network would compete with Google's offerings but added that the local market is huge. A Google executive said he welcomed Facebook's moves.
Links to Place pages on Google's search engine recently became more prominent on the results page for searches covering everything from Italian restaurants to spas. That has put Google into conflict with some business-review sites that generate revenue from local businesses, such as Citysearch.com, which claim Google is crimping their sites' growth by directing more Web searchers to its Place pages. Google executives say the changes are meant to improve users' experience and they believe the changes have generally helped direct more users to non-Google sites that specialize in local-business information.
Mr. Sterling said he expects Google to offer more opportunities for local businesses to reach consumers, perhaps through Groupon-type daily deals. In addition, Google Chief Executive Eric Schmidt said recently that Google's Android software for mobile devices could help people use those devices to pay for goods at a local store, rivaling credit cards.
"Google has always had large sales forces and, quite frankly, the advertiser opportunity has always been bigger than the number of people we were able to hire," said David Scacco, who joined Google as the first advertising sales executive in 2000. But he said Google co-founder Larry Page stressed from the beginning the "need to build automation," or allowing advertisers to buy ads through a self-serve system rather than just hiring scores of salespeople to reach the advertisers.
Mr. Scacco, who is now chief revenue officer at MyLikes, a social-media ad company, said Mr. Page would tell Google's ad team: "If you only throw people at the problem, you won't innovate."
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