Posted on: Sunday, November 2, 2003
Google, Yahoo search for big payoff through ad auctions
By Leslie Walker
Washington Post
How fitting that Google is considering selling stock to the public in an Internet auction.
Google, you see, isn't just a search engine. It is also a giant, around-the-clock Internet auction, selling advertising on its own pages and on thousands of other Web sites to the highest bidders.
The ad auctions conducted by Google and its chief rival, Yahoo's Overture division, are the biggest story of the year in Internet advertising.
"From almost nothing two years ago, search (advertising) is now a $1.5 billion-a-year industry, growing to $7 billion by 2007," Safa Rashtchy, an analyst at U.S. Bancorp Piper Jaffray, said at an advertising conference in Alexandria, Va., recently.
Google and Overture took a big leap this year, transforming themselves into ad agencies when they extended their auctions for ads appearing in search results to include ads appearing at the bottom of news and feature stories. In its "AdSense" program, Google auctions advertising space on large Web sites run by the Washington Post, the New York Times, USA Today, National Geographic and a ton of smaller publishers. Overture launched a similar program it calls "Content Match."
The system works like this: Advertisers bid the maximum amount they are willing to pay to have their ads appear beside search results, news stories or other kinds of Web pages related to keywords — "Hawaii vacation," say, or "cashmere sweater." Only the top three or four bidders get their ads shown in premium spots.
The jury is still out on whether these "contextual" ads will be as successful as ads married to Web queries. With both kinds, advertisers pay only when someone clicks on the ad. With contextual ads, the search services share revenue with the Web sites on which the ads appear.
Industry analysts have been skeptical of contextual ads, noting that fewer people appear to be clicking on Google's ads when they appear, say, at the bottom of a USA Today story than when they appear next to search results. That may be because Web surfers tend to have a tighter focus when they're searching for something than when they're reading news.
Yet publishers are enthusiastic about Google's tiny text ads because they say more people seem to be clicking on them than on flashy Internet banner and button-size ads.
Perhaps one in 300 people who see a traditional banner ad click on it, and more often it's one in 1,000. By contrast, popular Google ads can trigger one in 20 people to click, though more typically, it's one in 100, according to publishers.
Michael Sullivan buys Google and Overture keyword ads to promote his Internet furniture site, RiverHouseTraders.com. Since he started buying the ads two years ago, he said, traffic has quadrupled.
He credited his nearly $1 million in sales last year to the success of the 300 or so "keywords" he has purchased at Google and Overture — including "wrought iron bar stools" and "wrought iron beds."
Prices for the ads are rising as more advertisers sign up. Google reports it has 150,000 advertisers on board, while Overture has more than 100,000. Yahoo recently bought Overture, which pioneered the sponsored-search model, for $1.7 billion.
Already, rivals are scrambling to catch up. Microsoft Corp. announced this year that it is developing its own Web search technology, IBM Corp. has developed Web search for the business market that could prove to be a sleeper, and Amazon.com recently kick-started a subsidiary dubbed "A9" to develop its own Web search tools.
