Why Google+ Doesn’t Need Ads

By Amir Efrati

Google Inc. this week unleashed a slew of updates to its Google+ social-networking service and hinted that ads were coming.

Since Google unveiled its competitor to Facebook and Twitter two years ago, the Web juggernaut has kept the site free of ads in order to build up its base of users without annoying them with marketing messages.

The Google+ team has considered introducing graphical or photographic ads that look just like other Google+ posts that would show up in a person’s activity stream, according to people who were involved in discussions. That model is similar to some of the ads on Facebook.

But Google+ may not be ready for advertising. There are doubts about whether the social network can come up with a novel ad format that is both attractive to brand advertisers and can reach a lot of active users. Both of those pieces are necessary if Google is to benefit from selling advertising directly on the service.

Before we dive into why Google should hold off on splashy social-network ads, let’s acknowledge that it seems counterintuitive for the company to sit on the social-media advertising sidelines.

Google needs new ad formats as the company’s Web-search advertising business matures. That business grew at less than 20% over the past year, down from around 35% in 2011.

While Google’s overall market share in online ads has been increasing slightly and the company remains the industry leader, executives have fretted about Facebook’s potential to chip away at that advantage over time, even though it’s a smaller company than Google by several orders of magnitude.

Some within the company believe that social media ads could both diversify the ad-revenue stream and better compete with Facebook, especially since the category is growing quickly, particularly on mobile devices. Facebook’s advertising revenue has been growing at an annual rate of more than 60% while Twitter’s revenues are growing by more than 100% annually.

But there has long been another school of thought within Google that social media ads don’t hold a candle to the kind of search-based ads that propelled Google’s success. There have been numerous internal debates about Google+ ads, starting in early 2012, according to a person who was involved in them. It was unclear whether the ads proposed initially would be effective, move the needle for Google and support Google+’s purpose. Some forces argued that such ads wouldn’t add much value to Google+ users or to advertisers, in large part because there weren’t enough active users to see the ads, this person said.

Google+’s traction with users — a big factor in whether ads there would make sense — has been notoriously difficult to gauge.

Google+ head Vic Gundotra on Tuesday said 300 million people were “active in the Google+ stream” every month, up from 190 million in May. The comments make it sound as if those people navigated to the main Google+ destination site, plus.google.com.

But according to people who have worked at Google, the reality is less impressive. The Google+ stream is broadly defined. In the past, statistics about active users in the stream included anytime a person clicked on the red Google+ notifications in the top right corner of their screen while they were using Web search, Gmail, or other Google Web services. The person didn’t actually have to visit plus.google.com to be counted as “active.”

Comparing Google+ to Facebook purely as a social destination site is difficult, but one previously undisclosed statistic might help. In the middle of last year, fewer than 10 million people visited the Google+ stream at plus.google.com every day, according to a person who had direct access to that information at the time. During that same time period, Facebook had more than 500 million daily active users, according to Facebook. (The Facebook figure is somewhat inflated because it includes people who took an action to share content or activity with their Facebook friends via third-party websites, not just people who visited their main Facebook newsfeed, which is equivalent to the Google+ stream.)

There’s no doubt that Google+ is growing. The network’s mobile app comes preinstalled on hundreds of millions of Android-powered smartphones and tablets activated every year, including in regions where people are coming online for the first time and don’t have a Facebook account.

Google’s social network serves many purposes for Google besides allowing people to share photos and videos with friends like they do on Facebook, and for video-conferencing. Google has been integrating elements of Google+ in Web search, YouTube and other sites, making it an integral part of many products. And the company is using Google+ to turbo-charge its own existing advertising businesses. Long ago it started bringing some data from Google+ to into search ads, a move that ad agencies say helped improve the ads’ effectiveness.

The company is using Google+ to tie people’s online activities to their real names and determine who those people’s friends are and what they are interested in. By integrating Google+ across its many properties, Google has said it can obtain some of this information and be able to target people with more relevant ads, including on its Web-search engine. And Google’s recent privacy-policy changes gives the company the freedom to incorporate a person’s Google+ information and photo into ads.

For those who think the market is too big to ignore, Google also is benefiting somewhat from the rise of social media ads on Facebook. Earlier this month it struck a deal with Facebook to allow advertisers to use Google’s tools to buy ads on Facebook. That could marginally improve Google’s “exchange” business, which helps advertisers buy graphical ads across the Web.

For Google, the real secret sauce of social is deploying the demographic and personal-interests data – the same data that makes Facebook ads targeted and valuable in the first place – across the entire Google network. If Google obtains and wisely uses enough of that data, then gumming up its social-network with ads might not be necessary.

A Google spokeswoman didn’t respond to multiple requests for comment.

Follow Amir on Twitter and Google+

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