On Tuesday Google had their analyst day, which was focused on articulating their strategy and explaining the underlying dynamics of their remarkable success. I've described Google as a "Long Tail company" before, so I was delighted to see that this is the way they now describe themselves, too. You can watch the webcast here (the image above is slide 10) The San Jose Mercury News report (free reg req'd) on the meeting also discusses the Long Tail strategy.
What Google has done is to find and monetize the Long Tails of both advertisers and publishers. These include millions of small companies and individuals who may never have advertised before, at least not nationally. They were considered sub-scale--too small to be worth a call or visit from an ad salesperson, possible too small to even think of themselves as an advertiser at all. But Google ads are self-service, cheap, and performance based (pay-per-click), which all combine to dramatically lower the barrier to entry.
Matching these advertisers are hundreds of thousands of previously sub-scale "publishers", from blogs to niche commercial sites. Most are too small to have their own ad sales business, but they can now run relevant Google ads by just adding a few lines of HTML to their site. About half of Google's business now comes from such "partners", rather than from ads sold against search results themselves.
Eric Schmidt, Google's CEO, explained how these millions of small-to-midsized customers represent a huge new Long Tail ad market. "The surprising thing about The Long Tail is just how long the tail is, and how many businesses haven't been served by traditional advertising sales," he said. Google now has revenues of more than $1 billion a quarter, a least half of which is made up of Long Tail advertisers by this definition. This is, needless to say, just a glimpse of what's still to come.