Google sells ads, but won’t spend much on them

updated 5:13 p.m. ET Oct. 14, 2007

SAN FRANCISCO - Like a gourmet chef who rarely eats out, Google Inc. feeds advertising services to hordes of other businesses while skimping on its own marketing.

The recipe has been extremely fruitful. While the Internet search leader has sold more than $30 billion in advertising since 2001, Google has become a household name without buying expensive ad campaigns on television or radio or in print.

“It’s almost as if they have this cultural allergy to advertising,” said Mark Hughes, author of “Buzzmarketing,” a book about unconventional ways to build a brand. “It has been an advantage because it has helped keep them cool. They have zigged while everyone else has been zagging.”

This advertising aversion has freed up money for engineers, computing hardware and other resources that fuel Google’s search engine while leaving plenty of profit to keep shareholders happy and lift the company’s stock ever higher.

Some marketing experts view Google as the archetype of an Internet-driven age that has made it possible for startups like YouTube, MySpace and Facebook to permeate pop culture with little or no advertising.

That’s a change from the dot-com boom era in 1999 and 2000 when Internet entrepreneurs went broke paying for Super Bowl ads and other theatrics in a mostly fruitless effort to stand out from the rest of the crowd.

Google co-founders Larry Page and Sergey Brin were among the first to break that free-spending mold, deciding that advertising didn’t make a lot of sense for a company that started out 1998 with just $100,000 before raising $25 million in venture capital a year later. But they have remained marketing misers even as Google accumulated a cash hoard that now stands at $12.5 billion.

The Mountain View-based company believes its austere approach will become more common as major advertisers learn to deploy technology to target consumers.

“We are at an inflection point that could radically change the way marketing is done,” said David Lawee, who became Google’s marketing chief a year ago.

More than 300,000 advertisers already rely on Google’s online marketing platform, which primarily shows text-based ads on the search engine’s results pages and other online destinations.

Google tries to deliver those ads to the people who are most likely to be interested in the messages, making an educated guess based on the words used in a search request as well as information gathered about visitors’ past preferences and Web surfing patterns.

Drawing upon some of the same data-mining techniques, Google is developing marketing tools for TV, radio, print and even video games to help advertisers reach potential customers more effectively — and perhaps less expensively.

Although Google regularly promotes its brand and services on its own online ad network, that soapbox hasn’t been the key to its ubiquity.

Instead, Google has relied on word-of-mouth and the media’s obsessive coverage of its every move to establish a prized brand just nine years after Page and Brin first set up shop in a Silicon Valley garage.

Consulting firm Millward Brown Optimor estimates Google’s brand is worth $66 billion and calls it the world’s most valuable. A separate study by Interbrand estimated the brand’s value at $17.8 billion and ranked it 20th in the world.

While major rivals like Microsoft Corp. and Yahoo Inc. pour more than 20 percent of their annual revenue into sales and marketing, Google devoted 8 percent of its revenue to the category in 2006, spending a total of $849.5 million. Microsoft spent $11.5 billion on marketing and sales in its last fiscal year, while Yahoo spent $1.3 billion. On advertising and promotions alone, Google spent $188 million in 2006 — roughly the same amount Microsoft spends every two months.

Another Internet bellwether, online auctioneer eBay Inc., consistently earmarks 14 percent to 15 percent of its revenue for advertising. Last year, eBay spent $871 million on advertising, with much of the money winding up in Google’s wallet. The Coca-Cola Co., the brand ranked first in the Interbrand survey, spent more than $2.5 billion on advertising last year.

When Google does buy ads, it’s often to recruit employees (the company has hired more than 11,000 in the past three years). On a few occasions, Google also has bought ads to highlight lesser-known products, such as a free telephone directory service, GOOG-411, recently featured on billboards in the San Francisco Bay area and rural parts of New York.

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