Is Google Going into the Classifieds Business?

There’s more to an automat than meets the eye, especially when that automat is Google Automat. The search engine giant’s patent application featuring this new service started the rumor mill working overtime. Just what does Google have up its sleeve?

Traditional media trembled when the likes of eBay, Craigslist and others started making a splash online. These companies made their business from web versions of classified advertisements, which have always been part of the bread-and-butter of newspapers. The newspapers retaliated, with mixed results, by taking their entire publications, including the classified ads, online. Now, it looks like newspapers and their rivals have a new reason to start shaking in their boots, and its name is Google.

To understand the full context, we will first need to do a little backtracking. Back in June, rumors started flying about Google’s plans to offer a new service. Dubbed Google Wallet, the new service was expected to compete with Paypal, despite the search engine’s vehement denials that it was readying a rival online payment service. The name has since changed to Google Purchases, and in early November, more rumors started flying that the service was close to launching.

In late October, Google began testing a service designed to allow users to post and make searchable any type of content. A Google spokeswoman explained that “This is an early stage test of a product that enables content owners to easily send their content to Google. Like our Web crawl and the recently released Google Sitemaps program, we are working to provide content owners an easy way to give us access to their content. We’re continually exploring new opportunities to expand our offerings, but we don’t have anything to announce at this time.” The service, dubbed Google Base, caused many bloggers to speculate that it was Google’s way of sticking its toe in the water, preparatory to offering a full-fledged e-commerce site.

There is one final tie-in with these two services. Though discovered recently, it dates back nearly two years, to a Google patent filing with the United States Patent and Trademark Office made initially in March 2004 and published in late September 2005. It has not yet been approved, but “Google Automat,” as it has been dubbed, may already have classified ad publishers running scared. More than anything else the search engine giant has done so far, it represents the possibility of a move into this lucrative field.

Google’s patent filing describes a “system and method for providing on-line user-assisted Web-based advertising.” In that sense, it sounds very much like Google AdWords and AdSense, but this system seems to be geared more to individuals advertising their “stuff” than to businesses seeking advertising for which they choose their own keywords. Here’s the abstract from the patent application:

“A system and method for providing on-line advertising is presented. An interface guiding on-line advertising is presented. An advertisement is created from at least one of user inputs and stored data and includes information describing at least one item. An advertising creative is generated in association with the advertisement and includes a hyperlink reference to the advertisement. The advertisement is hosted on-line as a Web page and the advertising creative is place on one or more targeted Web pages.”

So what does this mean, exactly? Basically, someone using this system will provide Google with information about an item they want to advertise, and the information will be stored in a Google database. From this information, Google will create an ad, and presumably handle the messy business of deciding what keywords will be connected with the ad. It sounds as if the ad itself will link to a web page – again, generated from the information the user provided – that provides more information about the item (here it’s important to distinguish between the “creative,” which is probably just a small AdWords-style ad, and the full-fledged advertisement, which would be the Web page).

Here’s where it gets interesting. The advertising creative will probably come up just like an AdWords ad on Google’s website – but it will also be hosted on other targeted web pages. In effect, this means that any site can host classified ads from Google, and it tremendously widens the range of competition for the companies mentioned earlier – Craigslist, eBay, and anyone else making money from classified advertising.

Remember Google Purchases and Google Base? The former will provide a way for individuals to pay for their ads, as well as receive payment for the item when it ultimately sells. The latter will help with storing advertisements, and making them more searchable – so in theory someone will actually be able to indicate that they are specifically looking for Google classified ads that try to market particular sorts of things (cars, jobs, used furniture, what have you). In short, all of the parts of the system are already in place, and very close to ready.

Google is being very coy about the speculation surrounding Google Automat. “Like many companies, we file patent applications on a variety of ideas. Some of those ideas later mature into real products or services, some don’t. Prospective product announcements should not be inferred from our patent applications.” Right. So why did Google use the “classifieds.google.com” domain name address in its patent application?

We’re not stupid, and neither is Google. The search engine giant knows it needs to diversify its revenue stream. Granted, classified advertising is still advertising, but it is a very different kind of advertising. And if it cuts itself in for a small percentage of the proceeds from each transaction it facilitates – as to both eBay and Paypal – it stands to gain a great deal of money.

Currently, Google is almost completely dependent on pay-per-click ads. There has been growing concern about “click fraud,” where malicious users click on ads with no real intention of buying anything, in order to gain money for themselves or do harm to the advertiser’s budget. Still, according to a study from the Interactive Advertising Bureau and PricewaterhouseCoopers, U.S. spending alone on paid search ads reached $2.3 billion. The kicker is that spending on online classified ads reached $1 billion. In short, it’s a huge market, and Google, not surprisingly, wants a piece of the pie.

On a global level, the market is even bigger. According to Classified Intelligence, Google’s latest moves could “directly impact the $100 billion annual global classified advertising business.” About $30 billion of that global number comes from the U.S., and – at the moment, anyway – it’s still dominated by the newspaper industry. That looks set to change. Jim Townsend, editorial director of the consulting firm, stated that “We know they’re out to own search. And it looks like they are out to change classified advertising…Traditional media companies will need to figure out a way to manage life with Google.”

Of course, Google’s patent application claims the motive behind it is to help users with the “unique set of challenges” involved in Web-based advertising, since creating effective online ads require “significant time, effort, and expertise.” That is why web-based user-assisted advertising is needed. “Preferably, such an approach would guide a user in the creation of advertisements describing offerings of goods or services, creatives associated with the advertisements, and advertising budgets. Such an approach would also help create and host a Web presence for individual and other advertisers. Such an approach would also facilitate driving Web traffic to hyperlinked advertisements through targeting.” Well, it is probably traditional to not mention making scads of money as a motive in your patent applications.

A number of bloggers and more traditional analysts have expressed both excitement and concern over Google Automat. Personally, I’m really unhappy with the name. “Automat” sounds too much like “Laundromat,” and I don’t like the idea of Google potentially taking individual users to the cleaners. But of course, there are other possible issues.

Jeff Jarvis, in his blog Buzz Machine, raises an interesting question. “Here’s what I really want to know: if you create a listing, ad, or piece of content using this functionality, will it be addressable on the web? That is, will it be scrapable and searchable via other means? So if I create a job ad using whatever Google calls its geegaw, can Indeed find it? If I create, say, a restaurant listing and tag it as Mexican/New Jersey (something that’s too rare, by the way), will Technorati pick up the tags and IceRocket the text?”

If the content is not searchable, it might give Google an advantage, but it will have other effects, as Pete Cashmore observes in a comment to the blog entry cited above: “Yes, this may be Google’s attempt to own some content for a change – it’s very easy to switch search engines, but if Google could own data that the other engines can’t index, they’ll put themselves ahead of the game. Of course, this would also make them look like utter hypocrites…by trying to index everyone else’s data for free while keeping their own data under lock and key.” It seems to me that such a move would violate Google’s own “Do No Evil” mission statement.

Peter Zollman, executive editor of the Classified Intelligence Report covering this latest development from Google, said that the move was disruptive even if Google took it no further. “People in the [classifieds] business now have to assume that Google is coming at them full force.”

Michael Bazeley of Mercury News, however, had a ray of hope to offer. He believes that this could in fact generate more revenue for those currently in the classifieds business, particularly traditional publishers. He cites one possible scenario under which “online publishers could carry Google classified ads on their Web sites and share the revenue with the search engine firm.”

Some blog readers wonder, though, if this could be the start of something even bigger. “Lone Deranger,” in a comment to a Dutch blog named Seweso, had this to say: “There is much more to this than an ‘ebay/craigslist’ killer. This is the first part of Google putting ALL YOUR INFORMATION on line that you currently have lying around on your desktop. Before there was no way of doing this other than creating a website, which most people are too lazy to do…Oh, and guess what, once you have your documents uploaded on Googlebase, in a few months they’ll roll out Google Office and you’ll be able to edit them right there!”

Is this truly a move by Google to take control of all of the world’s information? That seems unlikely; the privacy issues alone are enormous, and the search engine is still being attacked in court over its digital scanning initiative. But it will be interesting to see whether a new service comes out of this patent application, and how the market reacts.

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