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ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

MICHELE NORRIS, host:

And I'm Michele Norris.

In this down economy, when companies want to cut costs, they often start with their ad budgets. Advertising industry analysts place losses this year around 12 percent. Ad buys are down in TV, magazines, newspapers and radio. You'll find one of the few bright spots on the Internet, especially ads linked to searches on Google.

In our series on Advertising in the Downturn, NPR's Laura Sydell explains why companies that are cutting their ad budgets are spending more and more and more on Google ads.

LAURA SYDELL: Little shops like this music store in San Rafael, California are the fuel that drives the engine of Google's ad machine.

(Soundbite of music)

SYDELL: That's J.D. Sharp, a sales and marketing person here at Bananas at Large, which sells all kinds of instruments for amateurs and professionals. Now, if you happen to be a musician looking for, say, an electric guitar, Sharp figures you do a search on Google.

Mr. J.D. SHARP (Sales and Marketing, Bananas at Large): That's, I think, the first place they go anytime they need anything. It's the new yellow pages as far as I can see.

SYDELL: Sharp says it's not worth the money to buy an ad in the yellow pages anymore. Customers are searching online, so that is where he wants to put his ad dollars.

Mr. SHARP: I know that if they're located in this county and they're looking for a guitar, and they put in guitar, Marin County or something, that that's a search that's worth paying for.

SYDELL: In fact, Bananas at Large does pay for their ad to turn up when people search guitar and Marin. They work with people like Fred Vallaeys, Google's AdWord evangelist.

Mr. FREDERICK VALLAEYS (Google AdWord): In the case of the guitar company, if they really wanted to control who was seeing their ads, they would probably chose key words like Gibson guitars and much more specific.

SYDELL: Terms like guitar strings or bass guitars. Google helps businesses like Bananas to find the right key words because they want their ads to be relevant and not annoying. When customers are looking for electric guitars, they don't want to see ads for wrinkle cream and flowers.

Mr. VALLAEYS: We do cut off certain ads when the relevance is just not there. So no matter how much you're willing to pay, in certain situations, we'll refuse to take the ad.

SYDELL: In fact, Bananas only pays Google when someone actually clicks on their ad, and they get a discount if users find the ad useful.

Mr. VALLAEYS: So, every time somebody clicks on an ad, it's a vote of confidence from that consumer that this ad was answering their question.

SYDELL: When a small business like Bananas signs up to advertise on Google, they get access to a lot of research tools. For example, Google will let Bananas know where customers are located so that the business can target ads to people in that area.

Google even helps Bananas figure out how to word ads so they get the best results. So, for example, if they try out an ad that says guitars in Marin, then they try out an ad that says Bay Area electric guitars, Google can tell them which one gets more hits.

Mr. VALLAEYS: Google will automatically rotate between the different variations and then tell you this is what drives people to actually do what you want them to do, and then you can stick with that.

SYDELL: Google has developed what might be considered the most streamlined ad machine in history.

Matt VanDyke, who heads up U.S. marketing for Ford Motor Company, says car companies are struggling, but they still have to advertise.

Mr. MATT VANDYKE (Director of Marketing Communications, Ford Motor Company): In an era where marketing budgets are under pressure, search is a pretty powerful tool.

SYDELL: VanDyke says even though his ad budget is shrinking, they are putting more money online, and that means that other outlets aren't seeing those dollars.

While Google fuels itself with ads, newspapers and local television are starving, says Andrew Frank, an analyst at research firm Gartner.

Mr. ANDREW FRANK (Analyst, Gartner Research): It's a perfect storm. With changes to media that are bringing a lot more traffic online along with the economy, it's a very difficult time.

SYDELL: Still, even though Google is sucking up a lot of ad dollars, Frank doesn't think it's the end of television commercial.

(Soundbite of Ford advertisement)

(Soundbite of music)

Unidentified Man #1: (Unintelligible) …from Ford. Drive one.

SYDELL: If a commercial like this one actually airs on television, Google's Vallaeys says their studies show it's likely to drive more online traffic to Ford via Google.

Mr. VALLAEYS: People, for example, when they watch TV, many of them have a laptop on their laps now, and they see an ad about a product they like, and they might go and do a search for it to learn more about it.

SYDELL: Google is dominant because their computer algorithms provide such specific information about searches to businesses. But there is growing competition from the more personable approach of social networking.

Alan Rosen owns the music shop Bananas at Large in San Rafael, California.

Mr. ALAN ROSEN (Owner, Bananas at Large): Being on Facebook, being on Twitter, being on these places where we can actually have dialogues and be human-to-human contact in a sense over the Net, we can develop that relationship, and it's working. People are finding us.

SYDELL: Matt VanDyke says even at Ford, they are using social networking.

Still, for now, no one other than Google really offers a way to know exactly how well your ad dollars are working, and in this economy, that's worth a lot.

Laura Sydell, NPR News, San Francisco.

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