Search-based ads help Google stay profitable
By Mary Anne Ostrom and Matt Marshall
Knight Ridder News Service
There's one question Google, the world's most popular search engine, won't answer: How much money does it make?
The privately held company will say only that it has been profitable for nine quarters.
Since searching is free, most of Google's profit comes from online advertising. A Virginia shoe salesman's story illustrates Google's appeal to advertisers: Gary Weiner decided three years ago that his father's 30-year-old shoe emporium should go online. But how would Web shoppers ever find Shoedini.com?
Google and other Internet firms offer a relatively cheap answer for tens of thousands businesses worldwide — short, targeted text ads that appear next to noncommercial online search results. Google labels them "sponsored links."
Advertisers say it works because the search-based ads are relevant to what the online searcher is interested in.
Taking advantage of its position as the most-used general search engine, Google now has jumped to the head of the commercial search pack.
Weiner pays Google anywhere from 5 cents to 90 cents, when, for example, someone searching "Italian shoes" or the brand name "Cole Haan," clicks on the Shoedini.com sponsored link. Weiner says he now spends 40 percent of his Internet ad budget on Google, up from 5 percent a year ago. Shoe sales over the Internet are growing 20 percent a month. He only has one store, in Richmond, Va., but search engines provide him visibility alongside the Nordstroms of the world.
"Google has no idea how many Shoedini shoes they've put on people's feet," he said. Paid-search advertising could become the new gold rush of the Web, say analysts. Big-name merchandisers and e-commerce sites, including J.C. Penney and eBay, are placing paid listings on Google and other search engines.
Revenues from such advertising are expected to reach at least $2 billion this year, and are growing at 40 percent a year. Underscoring the potential, Web users are looking to buy something about 20 percent of the time they type a search-engine query, researchers say. Expanding its ad reach, Google recently announced it would start placing targeted text ads on individual Web pages of partner companies' sites.
Google also makes money from licensing its technology to power Yahoo and America Online search functions, among others. And it sells miniature versions of its search platform, starting at about $25,000 apiece, to businesses for corporate Web site searches.
Success also breeds competition.
Overture Services, the Pasadena, Calif.-based pioneer of pay-per-click paid search, appears to be struggling against Google. But deep-pocketed competitors such as Yahoo and Microsoft are paying more attention to search.
"Google has set the gold standard. Now everyone is trying to measure up," said Safa Rashtchy, a stock analyst for U.S. Bancorp Piper Jaffray. "Clearly, there is a much higher competition level than a year ago."
