Google: The best damn demand chain management company

Every desire turns into a search.  Search is now the most popular function on computers.  ComScore just announced that Google increased their share of search from 36.3% to 42.3%, year over year.  Watch out Yahoo!  I'm not one of those who think Google speaks no evil, and is invincible, but, they have a great model, and they are executing like crazy.  The thing I like the most about them is they are the first company that is truly trying to give companies an economic means to manage their demand chain.  So what?  Well, every electronic information space (what I term "marketspace") is turning digital, networked, and interactive.  From your cell phone, to the TVs going in cars, interactivity will be assumed, and addressability available.  (I can see it now, when I'm old my grandkids will say, gee grandpa, you used to have TV's that were driven for you?) 

In the developing world things are happening even more interactively for the PC of the developed world (even if the $100 PC works) is the cell phone.  According to Portio Research by 2009 half the world will have cell phones (e.g. about 4 billion people).  I don't know about your cell phone, but I'd trade my current interface for a Google interface, for me, search sits above any application.  If I want to do something, I can just issue a search command, like calendar, or April 6, 2005, and it can guess at what I want, just as Google does when I put in a stock ticker and it brings up a stock graph.  Google is great on the small screen, if there was a good client side application for most cell phones still have a very, very, very, very slow connection to the web (in the US, that is).  The rest of the world will have interactivity, and voice, baked into their core infrastructure.

All this means that he who can manage the demand chain best, wins.  How much money is at stake?  Well, in the United States, alone about a trillion dollars of marketing spending sloshes around our eleven trillion dollar economy, with much of it allocated on gut feel and little measurement of impact.  Google is far from perfect, but at least it can tell you what a customer actually "clicked on," and that information is a lot more useful than a TV rating point.  Such "clicking behavior" represents the language of the demand chain.  Many demand-side approaches have been enormously profitable over the years, too.  Consider "guides" such as McCormack and Dodge, TV Guide, and the Yellow Pages, for example, who have had gross margins of more than 50% and disgorged cash in the billions of dollars.  But Google, and others of its ilk, take this literally to another level, and every company should understand what that means for its demand chain.

When someone searches, he or she is looking for something specific; there is a desire for something.  When that "search" is performed on commercial television, say for football, people get football, yes, but they also get cars, beer, food, etc.  But when "searching," if the demand is "football," all things football appears.  When the demand is cars, it's cars, all things car.  This demand can be profoundly differentiated because the customer is a) actively asking, and b) the demand is itself specified.  Because the active customer is the most valuable commodity for any free-market economy, "search," typified by Google, will soon become the largest conduit for advertising in the world: for several reasons.

Google, first of all, provides measures of activity, something far more reliable than impressions or forecasts, much less gut feel.  Second, activated by a click, your marketing/advertising happens precisely when your potential customer is searching for something like what you can provide.  Moreover, through the global, standard, interactive nature of the internet, he or she can actually purchase what you provide.  The horse led to water may in fact drink!  And critically, that "water,"the search space your potential customer is activating, has not been created by some marketing guru; it instead dynamically portrays the collective "memory traces" of millions, if not billions, of links.

With Google, the so-called page-ranking algorithm that creates a search space for customers is a kind of living repository of all web searchers in a category (football, cars...) and their link-choices, determining which web sites point to each other and weighting the most popular ones more heavily.  So when you advertise, you have not simply created a static advertisement but instead join in an existing cognitive space.  Customers who have "gone before" help show new customers the way. 

You can join in by bidding for words or concepts or by buying banners, enabling you to measure activity and close the loop on your marketing expenditures, i.e., to describe an offering in both buyer and supplier terms.  Thus, Kraft, as supplier, can advertise its Kraft Macaroni and Cheese as a banner; but buyers looking for "easy meals" or "cheap eats" or "comfort food"--all ways that customers might conceive of that product --will also be exposed to it if the company bids for words or concepts. 

When you bid for words or concepts, the "market" you're joining is dynamically "marked to market" every second of the day, making it basically a real-time reflection of customer demand.  Fittingly, such demand is dynamically priced.  At Google, the first to create a market in concepts, everyone bids their highest ("reservation") price and the winner pays the second-highest bidder's price plus one penny.  No one holds back with this approach; it is the optimal way to price in any competitive situation:  you pay what it's worth, and no less.

Clearly this approach to demand is powerful.  Not only is it staggeringly fast, it is market-defined�and priced accordingly.  Moreover, you are forced to think about how you are truly perceived, do you think of your product in the concept terms that evolve as customers click around?  The "mental models" that customer construct around your product or service can be eye-opening.  But you, too, have the opportunity to test the market by creating your own words and concepts and seeing if there's a response.  In sum, there is now an active market in concepts and an efficient mechanism to tap into them.  You pay as you learn, reconfiguring real-time.   

This has a number of important implications.  It is vital to realize that all media will be interactive, if the customer wants them to be.  Put another way, everything will have either Google, or a Google like interface because search is a more fundamental, and more comprehensive category than any other category.  Small devices like phones are even more susceptible to a universal navigator like Google.

Search changes the economies of scale.  There is a window of opportunity in which small brands with clear messages, and flow on the web stand cheek to jowl with the large brands.  Given the fact that few marketers understand the importance of finding the natural concepts that are already in the web, you have a significant amount of conceptual wildcatting going on, on a small budget.  It is like the early days of the Texas oil rush, where the small time person with gumption and guts could stake out new territory.  Entrepreneurs can break through.  There is also a lot less risk for these small brands, because the marketer can have daily, if not hourly, feedback from the advertising spend, which means that minimum efficient scale is much, much lower.  Furthermore, when transactions result, the time between spend and value is much less, so small companies can afford it.  It is a wholesale demassification of the advertising market.

However, within a few years, new big brands will settle in, and the existing firms from Citibank to Kraft will figure out this new medium, and the big brands that know how to listen to the market, not just scream at it, will win. 

So what?  Well, every organization should have a Google strategy.  They are first in line, and it is always good to understand what is going on at the head of the line.  Second, you need to drive your marketing investments to be more accountable, and more measurable.  Third, you should be ready to bring in new talent who can both design and analyze in this new world.  You many not shop interactively, but your customers are, and the kids definitely are, particularly by cell phone.   It takes time to build up the organizational capability to design for this new interactive world where there is a meter on every click, but the rewards (and penalties for not doing so) are great. 

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