May 10, 2004 4:00 AM PDT

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Search engine leader Google is close to releasing new tools that could expand its profitable keyword-advertising business and fuel growth as it prepares for a highly anticipated initial public offering, according to sources familiar with the plan.

The technology aims to enable Google to examine the Web sites of large advertisers and to develop automated lists of keyword combinations that are likely to turn up in search queries, the sources said. If successful, the system will match more searches to advertisements, and thus boost revenue.

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What's new:
Google is preparing new tools that could expand its profitable keyword advertising business and fuel growth as it prepares for a highly anticipated initial public offering.

Bottom line:
The new system will match more searches to advertisements, creating new revenue as well as risks by increasing Google's reliance on automation.

More stories on this topic

An analysis of search-engine advertising suggests there is significant room for growth in this area. Only 40 percent to 45 percent of the 120 million Internet searches a day in the United States are currently linked to an ad, according to research firm ComScore Networks. But such a service could also create new risks for Google, which has stumbled in the past with automated advertising efforts.

Google, which is preparing for a $2.7 billion initial public offering later this year, would not comment on the project. But executives at companies working with Google said such a service is in the works.

"There is something like that on the horizon," confirmed Kevin Lee, chief executive of Did-It.com, a prominent search-engine marketing company that works with advertisers to test Google products before they are released. "All the search engines are experimenting with what is the best way to allow large advertisers to get the right number of listings into their engines."

Over just a few years, search engines have seen enormous success selling keywords, giving the highest bidder for a queried word the right to display ads above and to the side of query results.

As much as 95 percent of Google's $991 million in revenue last year came from the sponsored listings that appear on its Web site and on those of its partners.

Meanwhile, sales from U.S. search-engine marketing will reach a total of $2.1 billion in 2004, up from $1.6 billion last year, according to Jupiter Research. By 2008, sales are expected to hit $4.3 billion.

But search-engine advertising has barely gotten off the ground, and there are still many legal and business questions to be answered. For example, a limited number of keywords will always command the greatest interest. That means search engine companies face the specter of a revenue ceiling--unless they can put an ever-widening circle of obscure terms and phrases to work.

But that, too, could create complications. In seeking cheap alternatives to popular terms, marketers might be forced to manage massive lists of keywords. They may well have to push constantly to dream up previously overlooked combinations of search strings that work well for their products and services.

The brass ring
External factors could also curtail growth projections. At least one trademark holder has sued Google, seeking to prevent the search company from selling its trademarked words to advertisers. Google has already taken steps to bypass such concerns in the United States. But if the courts deem that trademarks are off-limits to Google and other search engines, sales could suffer.

As a result, Google and other search engines are highly motivated to develop ways of expanding their inventories of keywords. One way to do this is to use technology to automate tasks for large marketers, for example, to help them choose keywords in order to place ads on a search engine.

All the search engines are experimenting with what is the best way to allow large advertisers to get the right number of listings into their engines.
--Kevin Lee,
CEO, Did-It.com

Google and Yahoo-owned Overture Services already offer tools for broad matching and for phrase matching. These let marketers buy one keyword, or a set of keywords, that can appear in many search variations. For example, with broad matching, a marketer can bid for exposure on the term "running shoes," but also show up on a query for "shoes for running." With phrase matching, that marketer might also show up in results for "purple running shoes."

Most large, sophisticated marketers are taking advantage of these tools to leverage search. Ninety percent of marketers with an annual ad budget of more than $1 million are using ad-matching tools from Google or Overture, according to Jupiter Research. Advertisers that show a preference for Overture, however, tend to use such tools more, Jupiter has found.

Now, Google wants to take the technology even further. Its proposed service would allow marketers to pay to have a Web page examined more often for inclusion in sponsored listings, according to one source. Instead of having to bid on thousands of keywords, a large advertiser--such as Amazon.com--could rely on Google's search technology to automatically create connections between its Web pages and related search queries. Amazon would pay Google to examine thousands of its pages and to serve an ad whenever the software deemed it appropriate. Amazon would pay an amount previously bid at auction for those pages, whenever people clicked on its listings.

In this scenario, a Web surfer who searched Google.com for "Stevie Wonder" might see a sponsored listing for "Stevie Wonder at Amazon.com," for example. Amazon may not have bid on those granular keywords, but Google's crawlers will have found CDs and books on the musician during the engine's indexing and will have automatically placed an ad based on that query.

Mind over machine?
By contrast, Overture takes a slightly more human approach to advertising. It employs slews of account managers who help marketers invent new keyword combinations to drive people to their online stores, according to an Overture representative. It also offers technology that lets marketers measure the effectiveness of their search campaigns, as well as of campaigns via e-mail, Google or banner ads.

"We work with advertisers closely to make sure they're bidding on the most possible keywords," said the Overture representative.

Managing keyword campaigns is a nightmare, and lots of keywords are left on the table.
--James Lamberti,
research director, ComScore
Similar technology has been put to use by Yahoo and others in so-called paid-inclusion programs, which increase the chances that Web pages will appear in search results in exchange for a fee. Yahoo's service promises that participating Web pages will be indexed more frequently than those on other sites, thus increasing the chances that searchers will find the most recently updated pages, for example.

In the same way, Google's proposed service would accept data feeds from retail marketers, in order to index those pages more often. But unlike Yahoo's paid inclusion, Google would not allow commercial listings to appear in its general Web index.

Experts said search companies run the risk of trading off relevance for reach. More-obscure terms may turn out to serve ads to an audience that is less receptive to clicking on them.

"With sponsored listings, you don't get to target the end of the tail--that big stream of searches that happen rarely. Because who's thinking of all those queries?" said Danny Sullivan, publisher of newsletter Search Engine Watch. "With paid inclusion, your site speaks for you. So the two need to have an intersection, and that idea has been to use automated tools to populate both services...The downside is that if you're automating, the targeting may not be as good."

Google has faced criticism of its automated marketing tools in the past. In one case, it served up an advertisement for a suitcase maker in a news article about a murder investigation in which body parts were discovered in a travel case.

Nevertheless, ad-matching technology could become essential as search queries get more complex over time. And as Web surfers get more savvy, they tend to enter more search terms for better results, according to search experts.

"The limitations of search-engine marketing are the burdens on marketers. Managing keyword campaigns is a nightmare...and lots of keywords are left on the table," said James Lamberti, a research director at ComScore. "A move from a manual to a highly automated process will be the next big shift for the industry."

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Bad Move
The whole reason Google is so popular is because it yields relevant search results. If paid advertisements are going to come up at the top of searches to the frustration of users, does Google think that people are going to keep using it?

I understand companies have to make a profit, and this will search bring in more ad money initially. But when those ad companies realize that Google site visitors start dropping dramatically, do you think those ad companies will continue to pay big money to Google?

At the very least, I hope that Google has enough decency to its loyal visitors that it will at least tag such ad search results with some kind of "AD" label.
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I won't be Googling...
The last thing I want is to be bombarded by advetisements when I am searching for information. While I do a lot of shopping on line, I also do a lot of research. I consider it a bogus find if I am led to an advertisement. And as a rule of thumb, I do not click on ad links. I like to be in control of who attempts to sell to me. I'm not going to hand over that power to a search engine bent on making a buck.
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