Does Google's acquisition of DoubleClick transform a concentrated industry into a monopoly?

By David Hallerman - Senior Analyst, eMarketer

Google is set to earn $6.3 billion in net US online ad revenues in 2007. Meanwhile, total US online ad revenues will reach $19.5 billion. Many economists define a monopoly as a company that controls 25% or more of a given industry. With the announcement of its DoubleClick purchase, has the monopoly player just sealed the deal on control of the market?

Before the DoubleClick announcement, Google's position of strength had already prompted BusinessWeek to ask "Is Google Too Powerful?" in its April 9, 2007, cover story.

There is no doubt that Google has sought to grow its revenues and defend its position of strength. However, the DoubleClick purchase is not solely about buying display advertising revenue. The long-term play about acquiring deeper relationships with large publishers and advertisers.

Google has relationships with hundreds of thousands of online advertisers, from top corporations to a slew of mid-size and small companies. DoubleClick has relationships with thousands of large Web publishers. Together, Google and DoubleClick will create a robust one-stop shop for all types of online advertising purchases.

Google hopes these relationships will increase Web video advertising earnings. DoubleClick has a large client base of brand marketers who will invest larger budgets in online video over the next few years.

eMarketer stands by its projection for US online ad revenues, estimating steady growth to $36.5 billion by 2011.

The DoubleClick purchase may well have an impact in Google's favor on the distribution of these revenues between the key players.

eMarketer is not going to jump to that conclusion.

It is highly likely that Google also bought DoubleClick for its display advertising data, which could end up harming revenue growth over time.

On the one hand, access to ad-serving performance reports from competitors such as AOL and MSN would give Google very useful industry intelligence. On the other hand, unless this is handled with utmost care, those same publishers could grow wary of Google's dominance and pull their business from DoubleClick once their current contracts expire.

One clear trend is that Google's aggressive pursuit of online advertising growth will prompt bold ventures by other players, both in partnership with Google and as challenges to the search giant.

Hitwise: Google Search Share Up 10 Percent

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Google accounted for 64 percent of all U.S. searches in the four weeks ended March 31, while Yahoo Search, MSN Search and Ask.com received 22, 9 and 3 percent, respectively, according to Hitwise. The remaining 48 search engines in the Hitwise Search Engine Analysis Tool accounted for 5 percent of U.S. searches.

Google has steadily gained search share, whereas MSN Search has lost share. A year earlier, Google accounted for 58 percent of searches, whereas MSN Search's share was 13 percent.

"Google's market share of executed searches continues to grow, exceeding 10 percent growth year-over-year," said Bill Tancer, general manager of global research at Hitwise.

Google Search is also becoming an increasing source of traffic to key industries. Search engines, in general, are the primary way web users navigate to key industry categories.

Comparing March 2007 to March 2006, the Travel, News and Media, and Business and Finance categories received more than double-digit increases in their share of traffic coming directly from search engines, Hitwise says.

Niche Sites Invigorate Online Travel

Friends and family tired of your vacation videos? Just go online.

New online travel sites are chipping away at some of the expertise that drives people to online travel agencies (OTAs), which are themselves already pressured by travel supplier sites run by airlines and hotels.

Recent offerings from Farecast and FareCompare help consumers determine the best time to book airline tickets. Travel social networking sites like Gusto.com let visitors share itineraries and trip information.

Capitalizing on the online video rage, travelervideos.com lets travelers upload vacation photos and videos and write their own travel blogs — all of which can be shared with family, friends and other travelers.

All this activity comes as research from comScore shows that travel supplier Web sites are steadily taking share away from OTAs, due to the success of their lowest-price guarantees.

Specialized Web sites and Internet tools are beginning to catch on with online travelers as online travel resources, according to Forrester Research. For example, 12% of online leisure travelers subscribed to travel-related RSS feeds in 2006, compared with 1% a year earlier.

Forrester also found that peer reviews and blogs can have a decisive influence on travel behavior. Among travelers who used the Web to plan or book a hotel stay and consulted peer reviews, 25% of infrequent leisure travelers and 33% of frequent leisure travelers changed their hotel stays based on what they read.

OTAs are not worried solely by these newcomers. Travel supplier sites are also edging in on their customers. The pressure on OTAs is likely to increase as the US economy enters what economists believe will be a period of subdued growth. What's more, travel search engines such as Kayak and SideStep, as they gain traction with travelers, will drive more visitors to supplier sites. Then there are travel portals like Yahoo! Travel that offer a full suite of travel products and services.

Despite the range of influences that affect whether or not Internet users buy airline tickets, Web sites are the most influential, according to DoubleClick and ROI Research. In fact, the research found that Web sites trump word-of-mouth, which is rare in any purchase.

So what does the rise of niche travel sites mean for established players? eMarketer Senior Analyst Jeffrey Grau says that the Internet is changing the rules of engagement between travel firms and consumers, making for a hotbed of experimentation.

"Lower industry entry barriers have paved the way for new online travel business models," says Mr. Grau. "In this dynamic environment, current industry players must stay alert, otherwise they risk being blindsided by new competitors that fall off their radar screens."

Learn what it takes to stand out in online travel. Read the eMarketer US Online Travel: The Threat of Commoditization report.

April 8, 2007 - NYT imes

Practical Traveler Online Reviews

The Web Gives Hotel Guests the Last Word

By MICHELLE HIGGINS

NEARLY every morning, over his second cup of coffee, Tom Brady, general manager at the Affinia Chicago, logs onto his computer and surfs over to TripAdvisor.com to see if there are any new postings about his hotel.
“It’s an obsession,” he said. If the review is positive he moves on. If it’s unfavorable — like the complaint posted in March from a guest who had received a $90 parking ticket because of a valet’s error — he’s on it immediately. In that case, he marched straight out to the valet to find out what had happened. After identifying the guest, he made sure that the company issued an apology and a reimbursement for the ticket.
“This is all over the world,” he said, describing his concern about any negative comment on TripAdvisor. “Everyone is looking at this. I’ve got to make sure it’s solved quickly, so God forbid someone else doesn’t have the same problem.”
The individual traveler’s word is weightier than ever. Before the advent of travel review sites like TripAdvisor, IgoUgo.com and MyTravelGuide.com, customer complaints about dirty showers or threadbare sheets typically went to hotels directly and discreetly in the form of comment cards, phone calls or e-mail messages. But as review sites have become more popular, customer feedback that was once viewed only by a hotel’s staff is increasingly being posted online for all to see, enabling guests to share their praise or air their gripes publicly.

“We love it and we hate it,” said Steven Pipes, vice president at the Jack Parker Corporation, which owns the Parker Meridien in New York and the Parker Palm Springs in California. He regularly checks TripAdvisor. “We love it because we really look for feedback and want to know what people are thinking about, and we know they don’t always tell us to our faces,” he said. “We hate it because it’s anonymous.” The anonymity of the comments makes it difficult to respond to guests and find out exactly what happened, he said, or to know if they truly stayed at the hotel.

Nevertheless, the growing influence of such sites is hard for hoteliers to ignore. Three out of 10 American travelers who do travel research online read reviews written by other travelers, according to Forrester Research. Of the people who book hotels online, 30 percent have changed their hotel plans because of comments written by other travelers.

Because of the importance consumers attach to guest reviews, some hotels have gone to great lengths to boost their ratings. Some encourage guests to write flattering reviews; some even submit phony write-ups or hire outside companies that specialize in online reputation management to monitor and respond to comments. Review sites, in turn, work to weed out bogus reviews.

Now, interest in the review sites is taking a new turn. As more travelers post detailed comments on everything from room service to décor, hotels are looking at their postings as market-research tools — sources of new ideas, feedback on new concepts and even promotional material.
“What this does is give you the information you need to improve,” said Tony Fant, president and chief operating officer of the Soho Grand and Tribeca Grand hotels in New York. “You look at it, evaluate it and learn from it.”

For small hotel groups like his, Mr. Fant said that online hotel reviews have helped level the playing field. “I have the same exposure through these Web outlets as Starwood, Marriott or Hilton, and they give me access to millions of customers I didn’t have access to,” he said.

Some hotels have taken to publishing TripAdvisor reviews on their own Web pages. In response, TripAdvisor, which says it has a stockpile over five million reviews and opinions, has started to offer them to hotels and other travel companies in order to expand its reach. Last month it began allowing hotels to publish TripAdvisor reviews directly on their own hotel Web sites through R.S.S., or Really Simple Syndication, which transfers the comments directly, as they appear on TripAdvisor. So far about 200 hotels, including the Barclay House in Vancouver and Chanters Lodge in Zambia, and at least one hotel group, Affinia, have begun posting the reviews through R.S.S. Most of the customer reviews these hotels receive on TripAdvisor are positive, making the new feature an attractive option for them, regardless of the risk that some negative comments are bound to creep in.

TripAdvisor says there is no opportunity for hotels to manipulate reviews because they are automatically fed to the hotels as is, but it does allow hotels to post their own responses to comments.
“The hotels are saying, ‘We have nothing to hide,’ ” said Henry H. Harteveldt, a travel analyst at Forrester Research.

By publishing the TripAdvisor reviews on its site, Affinia Hotels hopes to reinforce the message — to both customers and its own employees — that the guest’s experience is important to the hotel. “It raises the stakes for everyone when we make it that open,” said John Moser, Affinia’s chief marketing officer.
Since the reviews went live on its site, Affinia has begun developing a policy to monitor and respond to negative TripAdvisor comments. In the last month the company has begun asking general managers at its six hotels to monitor TripAdvisor and post responses to negative comments within five days.
Not every hotel is paying so much attention to consumers’ reviews. Neither Marriott nor Hilton has a formal corporate strategy in place for monitoring hotel review sites, though both keep tabs on Flyertalk.com, a frequent-flier Web site where travelers obsess over getting the most out of loyalty programs.
“We’ve got so many hotels it’s impossible to scan everything that’s going on,” said Bala Subramanian, senior vice president for global distribution services for Hilton Hotels. Hilton, he said, “makes a tremendous amount of investment in collecting feedback” through customer surveys. But as more hotels do take careful notice of guest reviews online — and even stake their reputations on them — posting one may be a surefire way for a customer to get a hotel’s attention. “I can tell you that you’re going to get a response,” said Mr. Moser of Affinia. When a complaint is out there on the Web, he said, “there’s no one to sweep it under the rug.”

Google has made subtle yet important changes to how AdWords ads appear above search results. The first, and relatively minor, change is that the color on those ads has shifted from blue to yellow. The second change has more of an impact on actual ad performance.

Instead of having any click within the shaded area of the box take users to the advertiser's website, the click must now be directly on the link.

Some are guessing that this change is being made because too many inadverant clicks were being made.By limiting valid clicks to just the link itself, marketers aren't charged for accidental clicks.

Inside AdWords: Two changes to how top ads are displayed

Few Convert at Retail E-Commerce Sites

APRIL 9, 2007

Many shop. Few buy.

Online merchants convert an average of 2%-3% of their site visitors into buyers, according to the e-tailing group's "Sixth Annual Merchant Survey."

That's about the same as last year. And the year before that.

The group says that driving the right customers to sites and increasing sales and retention all require more targeted tactics every year. It points to analytics and data mining as the way to make this happen.

Shop.org conducts a similar annual survey with Forrester Research called "The State of Retailing Online." Conversion rates in that study also average about 2%-3%.

These are averages. What about those who do better?

A Nielsen//NetRatings report called "MegaView Online Retail" cited in Internet Retailer listed the top 10 US retail e-commerce sites in terms of conversion. Every site had a greater than 15% conversion rate, and nearly 25% of visitors to top site Proflowers.com bought something.

eMarketer Senior Analyst Jeffrey Grau says that retailers with industry-leading conversion rates are doing more than just looking at numbers.

"Online retailers who go beyond using traditional Web analytics data to truly understand their customers' intentions, perceptions and concerns will be rewarded with higher conversion rates," he says.

eMarketer: $146 Billion in Online Travel Sales by 2010

U.S. online consumer travel sales (airline, hotel, rental car, cruise and vacation package reservations) will reach nearly $94 billion, up 19 percent from just under $79 billion in 2006, according to eMarketer.

Online travel sales are projected to remain strong for the next three years, albeit with steadily declining growth rates: eMarketer projects U.S. sales to reach nearly $146 billion in 2010, up from nearly $127 billion in 2009 and $110 billion in 2008.

A tighter market will exacerbate the fierce competition between online travel agencies and travel suppliers, according Jeffrey Grau, eMarketer senior analyst and author of the report "US Online Travel: The Threat of Commoditization."

This year, U.S. online travel bookings will for the first time surpass offline bookings in volume, according to PhoCusWright. In 2007, some 41.3 million U.S. households - some 52.5% of all US online households - will book travel online, according to eMarketer.

It projects that in 2010 nearly 10 million more U.S. households - 51.1 million, or 55.3 percent of all online households - will do so.