Google Eyes Bigger Brands, Grander Plans

Google’s decision last week to target image advertising across its network of content Web sites signaled the search giant is evolving from a search-focused company to an ad-focused media company.

While Google executives said offering brand advertising does not change its orientation as a search company, it is clearly intent on expanding well beyond the directory-style search text listings that have fueled its meteoric rise. In addition to the content network on non-Google sites, Google is exploring other areas that could attract brand advertiser attention, such as video search and ads in syndicated news feeds, setting up Google to try to change the ad market in the same way it altered the search business.

“They don’t want to be entirely defined as search,” said Peter Meyers, group-planning director at WPP Group’s mOne Worldwide. “They want to be catapulted into a larger category of advertisers and be able to capture more of the brand ad dollars.”

Google has already caused upheaval in several markets it has entered: Gmail changed Web e-mail by offering unlimited storage; Google News is making newspapers rethink their business models; and Google’s Urchin acquisition may alter the Web analytics market. Now, Google is turning its attention to brand advertising.

Google’s move to introduce image ads on its network of thousands of non-Google content sites, which runs the gamut from small blogs to marquee sites like NYTimes.com, comes as Internet advertising booms, and competitors Yahoo! and Microsoft’s MSN report strong demand from top brand advertisers, from automakers to movie studios to consumer goods companies. According to the Internet Advertising Bureau, Internet display advertising sales grew 17 percent to $3.8 billion in 2004, compared to the previous year, making it roughly equal to search spending.

Text advertising alone is “just not going to capture a lot of advertisers’ budgets for cereal or soda pop,” said Jeff Marshall, svp at Publicis Groupe’s Starcom MediaVest Group, which is testing the program with a handful of advertising clients. Advertisers like DaimlerChrysler, AstraZeneca and Novartis have also signed up to run campaigns.

And Google executives admit their direct-response text advertising has not caught on as quickly with the largest advertisers, with less than 25 percent of the 1,000 largest companies advertising on Google at the end of 2004. “It’s become clear that is a vastly under-penetrated space,” Google CEO Eric Schmidt said on an April 21 conference call with financial analysts.

To appeal to brand advertisers, Google last week began a test program for advertisers to target image ads to specific sites in Google’s ad network, rather than show text listings targeted by keyword. Advertisers set a maximum cost-per-thousand impressions price, instead of the cost-per-click method Google has traditionally used. Google is holding a single auction that will determine whether to show a CPM-priced image ad or CPC-priced text listings, based on which would generate more money for the publisher and Google. For example, if Google’s system determined a banner ad from an auto company would generate more money for a wine site than text listings from wine sellers, it would show the car ad.

The auction component is perhaps the biggest departure Google network takes from other ad-representation networks, like Burst Media and Tribal Fusion. “They believe ultimately they can take ad sales out of the process,” said Jarvis Coffin, CEO of Burlington, Mass.-based Burst.

Google plans to widely release the site-targeted ad program in the next few weeks; it is now being tested with a small batch of advertisers and publishers. It is not the Mountain View, Calif., company’s first foray into image ads. Google introduced click-priced image ads to its content network last May, yet Tim Armstrong, Google’s vp of ad sales, admitted advertiser and publisher response has been tepid. “We think with the new pricing format, it should expand,” he said.

Advertisers can create what is in effect a customized ad network by entering the Internet address for a site or topics in Google’s AdWords system. Google then creates a list of suggested sites for advertisers.

The size of the AdSense network, which one agency executive estimated at over 1 billion Web pages, makes it a potentially efficient way for brand advertisers to reach audiences scattered over many thousand small Web sites, or what has become known as the “long tail.”

David Jackson, a former Morgan Stanley equity analyst who publishes a series of stock-related blogs, welcomes an opportunity to open the site up to bigger brands interested in reaching the 3,000-odd investors who visit his sites each day. With no sales staff, Jackson relies entirely on AdSense to generate revenue for his sites. “These small sites are much more targeted,” he said, “and if you can access them, they have much better demographics.”

By taking over all ad sales for such long-tail sites, Google could develop an enormous ad-representation network. “Our biggest obstacle to success at Burst has been the advertisers that say they’ve never heard of any of these sites,” said Coffin of Burst, which sells ads for 2,000 sites. “Google may help us validate this model.”

Google will have an uphill battle, however, convincing its large AdSense publishers, such as iVillage and Weather.-com, to participate. Execs from those sites said the prospect of Google selling its brand ad inventory poses the risk of advertisers bypassing their sales teams. “There’s no possible way that’s going to happen for a top-tier, credible site,” said Paul Iaffaldano, general manager of The Weather Channel.

Google’s site-targeted ad offering has some kinks to work out, ad agency executives said. One drawback is it only accepts basic ad animation—not the rich media increasingly common in brand ads—and it does not provide ad effectiveness measures. “Without the industry-standard tools and the industry-standard formats, you have to ask yourself how valuable it is,” said Ron Belanger, vp of search marketing at Isobar’s Carat Interactive in Boston. Google’s network is also potentially less targeted, since the image ads do not correspond to the context of the page. “Certainly the relevance is not going to be as high,” said Belanger.

Despite the shortcomings, executives agreed Google’s ad network has great potential, considering its vast reach and Google’s proven technological capabilities. “Whenever they do something new, it’s big because of their position in the marketplace,” said Sarah Kim, vp of media for aQuantive’s Avenue A/Razorfish in New York. “A lot of it will be dependent on how it is rolled out and implemented.”