In the three short days since Google announced their Chromecast TV dongle, it's already become the hottest gadget of 2013 ? even though nobody has one yet. The ingenious little $35 web-to-HDTV transmitter immediately sold out on Amazon and BestBuy.com on its first day of availability, and all of your online and brick-and-mortar retailers are pushing delivery dates for new orders well into August. Demand is so overwhelming that Netflix bowed out of a "three free months of Netflix" deal that came with the purchase of a new Chromecast within just 36 hours of the starting the promotion.
Sounds like people are losing their shirts! With the whole Internet worth of streaming goodness being brought to your high-definition screen and weeks' worth of backlogged Chromecast orders waiting to be filled, you'd think Google would be charging way more money for a Chromecast. It's the simple law of supply and demand! Do they even know what they're doing here?
Oh, Google knows exactly what they're doing here. Yes, Google is selling the Chromecast device at a loss. On purpose. Google is positioning Chromecast as a "loss leader," a product on which a company intentionally loses money knowing that they are generating future revenue.
It's kind of like that one time you got a fabulous new LaserJet color printer for just $49, but ended up eventually buying $300 worth of ink cartridges from the same company. They sucked you in with the surprisingly affordable printer, but they made good money off you in the long run off the overpriced accessories.
Think of the Chromecast in the same way? except Google won't make money off overpriced ticky-tack accessories, they'll make money off your data. Chromecast may be the most powerful TV advertising tool ever, because it can deliver customized ads more surgically than traditional TV ever could.
Network and cable TV cannot pick and choose ads down to the individual viewer level. Google has already mastered this strategy, and they're doing it with your YouTube ads. Google has the agility to target individual ads to individual people.
You had better believe that Google will keep a massive database on everything you've ever watched via your Chromestick. They'll know what you watched, how long you watched it and which device you're streaming from. Your smartphone purchases and e-receipts sent to your Gmail all feed into the same massive database, so Google will broadcast ads based on their reams of data on your behavior.
You may have noticed by the banner ads you see online that Google knows what you buy online regularly. They also know what you're considering buying and just haven't pulled the trigger on yet. Chromecast gives Google the power to apply that knowledge to the ads you see on TV. They can then sell this knowledge to advertisers at a very premuim rate because they can promise an audience that is demonstrably interested in the product.
So Google will make up their money they lost selling that cheapo $35 Chromecast at a loss. In fact, they will make up that money several billion times over.
This article is part of Allvoices? series on ad:tech, the largest, longest-running digital marketing and technology event. Check out allvoices.com/adtech for more of Allvoices? ad:tech coverage. This series is supported by ad:tech.
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