Revenue For Google And Yahoo Costs Competitors - InformationWeek

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5/31/2005
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Revenue For Google And Yahoo Costs Competitors

The extraordinary revenue growth exhibited recently by Google and Yahoo is coming at the expense of established players in the $263 billion information industry, a new report says.

The extraordinary revenue growth exhibited recently by Google Inc. and Yahoo Inc. is coming at the expense of established players in the $263 billion information industry, according to a report released Tuesday by research and advisory firm Outsell.

"They're literally sucking the financial air out of the room," the report says. "Google and Yahoo are clearly diverting advertising revenue" from established information companies.

According to the report, the 10 largest information companies are Daily Mail & General Trust, Gannett, McGraw-Hill, Pearson, Reed Elsevier, Reuters, Thomson, Tribune, VNU, and Wolters Kluwer. Together, they generated $60 billion in revenue in 2004, an increase of $4 billion over 2003.

Google and Yahoo together brought in $6.5 billion in revenue in 2004, an increase of $4 billion since 2003.

"That $4 billion in revenue growth from Google and Yahoo," says Chuck Richard, lead analyst at Outsell, "some of that is marketing and advertising spending that would have gone to the other 10 companies. This is most clearly evident in the newspaper and the B-to-B trade magazine areas, where the problems are quantifiable."

"The traditional media companies have been in a tough situation for a while in terms of getting ad dollars," says Gary Stein, advertising analyst at JupiterResearch. "Many newspapers get better than half of their revenue from classified, which are really susceptible to the type of ads that Google and Yahoo are offering."

The Outsell study, "Financial Performance Scorecard, Full Year 2004," lists the New York Times Co. as one of its "Sinking Stones," citing the newspaper industry's low revenue growth and its difficulties attracting young adult readers.

Last week, the New York Times Co. said it would eliminate 190 jobs. Reporting on its own troubles, the Times said that national newspapers are bringing in less advertising revenue than in previous years as marketers look for new ways to attract customers, such as Web sites and search engines like Google.

One way for traditional information companies to deal with the changing advertising landscape is through acquisitions, Richard says. He points to the acquisitions of Marketwarch.com and About.com by Dow Jones & Co. and the New York Times Co., respectively, as examples.

"It's hard for a newspaper company to just throw a switch and get online, because they really haven't done it in any significant way," Stein says. "So I think there are structural issues that are inside of these types of companies that prevent them from going online and being more like Google."

And there's another issue. According to Richard, there's a substantial price difference in terms of the impact of offline and online advertising. "If you chose to convert every subscriber that newspapers or B-to-B trade magazines have to an online model, but took as revenue the current revenue rates for online ads and did the math, the total revenue equation is out of balance," he says.

In other words, marketers are either paying too much for print ads or too little for online ones. One reason for that, Stein observes, is that print ads represent a leap of faith in that it's difficult to measure results. Online ads, by contrast, can more easily be measured in terms of who sees them and how effective they are.

Whether print-ad costs decline or online-ad costs rise, reconciling the disparity may prove painful.

United Business Media plc, parent company of CMP Media LLC, which publishes InformationWeek, is among the 100 companies covered in the report.

This story was modified on June 1 to correct the spelling of Thomson.

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