If you take a step back, the purpose of ads and search are to connect buyers with someone selling what buyers want (even if they don’t know they want it yet). In both cases, fees are collected from the people who have something to sell for connecting them with buyers of those items. No one is rushing to categorize Google as an ad agency -- “they’re in the Search business”. You don’t have to study Google very hard to realize they aren’t limiting themselves to the “search business” which is increasingly hard to define in any case. It’s important to recognize that Google isn’t charging for search; their income is from advertising. As the old saying goes, if it looks and quacks like a duck, it is a duck. If they were considered an ad agency, they’d already be in the top 5 with a much stronger trajectory than any of the top 5 agencies.

You may be saying, “wait a minute, they are more like a media outlet than an ad agency” (which is largely true today) but withhold judgment for a moment and some interesting insights can be drawn. To begin with, they are already doing media planning if the business has a high volume of clicks and it’s highly likely they are working on ways to make that easier (and thus scale to smaller advertisers).

If I walked into most offices of the leaders of the largest ad agencies in the world today and stated that Google/Yahoo/MSN are their competitors, at best I’d get a polite laugh. They may say that I don’t “get” the ad agency business. Having been on both sides of the challenger/incumbent equation, I can say unequivocally that not “getting it” is usually an advantage for the challenger. The challenger isn’t shackled by the current way of thinking and perhaps more importantly, the current business model. Like virtually every other company (especially a public company), Google and “their competitors” are inspired by what will make them the largest sum of money. Today, Google’s revenues are advertising-based, but tomorrow they may have increasingly more characteristics associated with the agency business. Comparing some of the assets that agencies have versus Google is instructive. I’ll put these in context of some of the criteria I used to evaluate the ad agencies that I worked with when I held large ad budgets.

1. Efficiency with my budget: When my team owned the relationship/budget with an agency, I counseled them to look for padding and inefficiencies as the model shifted from a commission-based model (which had its own issues) to a salary multiplier that seemed like a fair approach based upon the number of people on the account. Furthermore, it was hard to know how well the agency negotiated with media outlets to get the best CPMs. With Google’s Adwords, you bid on how much you are willing to pay for a click which can range from pennies to dollars depending on the term. Google has a great feature where if you bid $1.50 for a click and the next highest bidder is $0.75, they’ll adjust what they charge you to $0.76. This looks like a more efficient way of spending my ad dollars and infinitely more trackable.

2. Consumer insight/research: I’ve worked with some fabulous media buyers and account planners. Their ability to dive into various syndicated research to identify the media properties with the optimal demo/psycho-graphics often impressed me. However when you combine the almost unbelievable volumes of click behavior across many thousand websites that provides a very robust picture of brand motivation and preferences. It’s an approach virtually any cold-blooded capitalist selling stuff would appreciate and is unrivaled by other means of capturing actual buyer behavior.