Media: All About ... Google and display advertising

Google is taking a big step by opening up to display ads.

If it ain't broke, so the saying goes, then don't try to fix it.

Well, when your company is worth billions and dominates its sector, chances are, there's probably not much broken.

Not that this matters to Google. Despite the search engine's phenomenal success, the company's founders seem increasingly intent on tinkering with their product.

With several spin-off products either already launched or on their way, Google last week turned its attention to its advertising model.

Since its launch, the company has been reliant on two main revenue streams: paid-for searches on the main Google site and AdSense. The latter is a programme in which Google places unobtrusive text-based ads on third-party websites. The ads are traditionally paid for on a click-through basis.

Three months ago, Google started allowing AdSense advertisers to switch from text to static display ads. Then, last week Google announced it was updating the programme to incorporate animated display advertising. Google will now charge advertisers on a cost-per-thousand model. In addition, advertisers will be able to place their ads on the websites of their choosing, rather than have Google make the decision for them.

Google's managing director of UK ad sales and operations, Kate Burns, argues that this benefits all parties - advertisers using AdSense will be able to target their messages better, website users will be shielded from irrelevant marketing messages, while web publishers who are signed up to AdSense will expect to make more money. She also believes the service will enable Google to tempt larger advertisers online.

1 Google currently dominates the search market - according to figures from OneStat.com, it accounts for 57.2 per cent of all global searches.

After flotation, the company's worth was placed at $45 billion when it listed last August.

In the first quarter of this year, Google announced revenues of $1.26 billion (up 93 per cent). The AdSense network contributed $584 million (47 per cent) of this revenue, while the remaining 53 per cent came from site revenues, such as paid-for searches and the shopping service Froogle.

2 The UK Google site was launched in 2001 by Burns, Google's first overseas employee. Today, she reports to the vice-president of European operations, Nikesh Arora. For the four weeks ending 5 March, Google accounted for 63.7 per cent of all UK searches, while its nearest rival, MSN.co.uk, took 7.9 per cent, according to figures from the online research company Hitwise.

3 Microsoft covets Google's market share, so it is not surprising that the company is reluctant to stand still. Unlike most of its rivals, Google has been reliant on only one product. It has attempted to remedy this by introducing new lines such as Google Local and the e-mail service G-Mail. In terms of ad revenue, it has sought to reduce its reliance on paid-for searches by, among other things, introducing a device within G-Mail that electronically scans a user's messages and sends them links to relevant websites.

4 Now that AdSense will be using animated display ads, observers wonder how long it will be before Google allows display ads to creep on to its main search page. Making any changes to the homepage would be risky. Burns denies it is part of Google's plans, adding: "Google is all about being clean, minimalist and quick. Its point is to move people off it quickly.

We're not a portal, we don't believe in stickiness." According to the Internet Advertising Bureau, in 2004 the online display market grew 40.6 per cent to £232.9 million and many predict it will soon overtake paid-for searches as the biggest source of online adspend, so it's hard to see how Google can ignore display for ever.

5 Google may be straying too far from its original non-corporate ethos in opening its doors further to display advertising via AdSense and in considering a UK ad campaign to support its brand. Damian Blackden, the Universal McCann joint managing director, says: "As soon as they start changing the user experience, by asking people to pay for things or by putting out their own messages in the market, they will instantly be seen as more commercial by users. Given that they've historically taken up such an uncompromising position regarding putting the consumer first, users may view negatively any kind of overt commercialisation as selling out."

WHAT IT MEANS FOR ...

GOOGLE

- Google will be hoping that by attracting a wider range of advertisers, its AdSense scheme will become even more profitable. This outcome would help the company reduce its reliance on paid-for searches.

- The original AdSense scheme only offered advertisers text-based ads. By introducing display ads, Google is likely to interest a greater breadth of host websites.

- By finally opening its doors to display, Google is sending a message to the advertising community that it understands the importance of online branding. This is significant for the many advertisers who previously believed Google was only concerned with searches.

- But big advertisers like to shift their ads in huge volumes, and may continue to shun a scheme such as this, which works over a limited number of websites.

ADVERTISERS

- Advertisers taking part in the AdSense scheme will be able to make more of an impact with animated display ads.

- Advertisers will be given more choice. For example, they can either place their display ads on a particular website, or they can tie them in to keyword searches.