Digital Media

It was the kind of detail that only experts in Web traffic analysis could love, but a technical change Google is making turns out to reveal something a lot more people care about: faster search results.

(Credit: Stephen Shankland/CNET)

Specifically, Google is trying out a new way to present search results that uses the JavaScript programming language and the related Ajax interface technology, not just regular HTML, to display the information, Google spokesman Eitan Bencuya said.

The reason: with the Ajax-enhanced search results, JavaScript is used to load the actual search results beneath the unchanging boilerplate above, a tactic that means only the search results need to be loaded on subsequent searches.

"These guys are working hard to make things milliseconds faster. They're always experimenting," Bencuya said.

A few thousandths of a second--trivial, right? Wrong. Google found that shaving a smidgen off the time it takes to show results means that people search more often, and more searches means more opportunities to show search ads.

To provide fast results, Google already uses 700 to 1,000 servers to field each query, so a little speed-up on the browser side of the process can be a relatively cheap way to get an edge.

OK, then, how did this all come to light? On the Google Analytics blog Tuesday, team member Brett Crosby announced a change Google plans to make to the "referrer" code that it passes on to a Web site when somebody clicks a link in the search result.

Those who use their own Web analytics software to observe how their search ads are performing--such as tracking when a Google search sent visitors to their Web site, and what they were searching for when they did--will need to update their software to accommodate the change.

It's an arcane tweak, to be sure, but Alex Chitu of the unofficial Google Operating System blog put the pieces together on Wednesday, guessing that the change had to do with how Google presented its search engine results page.

Specifically, he dug up a March video post by Google's Matt Cutts explaining why a Google experiment in presenting search results had shut off referrer traffic in February.

Bencuya confirmed on Wednesday that the referrer change was indeed motivated by the need to fix the experiment's unintended side effect.

"We made this change so we can continue experimenting with different kinds of test results and not break links in the future," Bencuya said.

He wouldn't comment on plans to bring the Ajax change to a broader set of users.

Google has withstood the current economic troubles better than other advertising-dependent companies, but on Thursday, investors will get to see how well the company's belt-tightening is offsetting the recession's deepening effects.

The search giant, which makes the vast majority of its revenue when people click on ads next to search results, reports first-quarter financial results Thursday after the market closes. So far, though, financial analysts are mixed on whether Google's glass is half full or half empty.

On average, analysts surveyed by Thomson Reuters expect revenue excluding commissions to increase 11 percent to $4.085 billion and earnings to increase 2 percent to $4.93 per share compared with a year ago. Because Google reported $4.22 billion in fourth-quarter revenue excluding commissions, this could be the first revenue drop from one quarter to the next.

Google's Mountain View, Calif., headquarters

(Credit: Stephen Shankland/CNET)

But analysts differ in their assessments.

Broadpoint AmTech analyst Rob Sanderson is on the half-empty side. He downgraded Google's stock from "buy" to "neutral," with this to say: "We believe consensus estimates are too high and need to come down for the first quarter and second quarter...We see the stock as more risky in the near-term and believe there may be a better entry point."

But Oppenheimer & Co.'s Jason Helfstein and Anil Gupta differ, expecting Google to meet or beat analyst expectations based on favorable developments with search ad payments. Despite lowering overall 2009 financial projections because of the recession and currency conversion rate issues, Google's "valuation remains compelling" and the analysts raised their stock price target from $390 to $410.

Ripple effects
Though Google's atypical business means it's hard to apply its fortunes to the overall market, its results have ripple effects.

For example, in the long run, the degree of Google's profitability could have repercussions for the company's high innovation rate. Google has shown the patience to invest in services that at least in the short run are money sinkholes. YouTube is the most prominent example, but newer arrivals include a revamped Google Voice, the Android mobile phone operating system, App Engine cloud-computing infrastructure, and Chrome browser.

A more restrained Google has cut several projects that weren't performing up to snuff, not just online services such as Dodgeball but also potential revenue-generation engines such as print and radio ads. And it's cut hundreds of employees through the process--nearly 200 in sales and marketing, 100 recruiters, 40 in a radio ad project, and an undisclosed number of contractors.

So far, the cuts haven't come close to the bone, but Google is being more careful choosing which projects to explore. Google now has "more focused resource allocations going into 2009...The review process is now a part of how we do business," said Jonathan Rosenberg, senior vice president of product management, as Google reported results from the fourth quarter of 2008.

For regular folks on the Web, that could mean fewer Google services or slower improvements to existing services. For competitors such as Facebook, Yahoo, or Microsoft, that could mean a little more breathing room, though of course no competitor is going to be complacent about the Google juggernaut.

Search ad questions
Google's reticence about financial performance and projections keeps people guessing about exactly how it's faring, and the present economic uncertainty compounds the situation. However, there are some data points worth noting.

First is, of course, how much people are searching. Each new search is an opportunity for Google--or search rivals Yahoo and Microsoft--to show an advertisement.

Next is ad coverage. Search engines must carefully balance showing ads more frequently, which can lead to more clicks on those ads and therefore more revenue, against showing them only when they're relevant to the searcher's query, which increases the likelihood that people will find the ads useful. Irrelevant or spammy ads instill the dreaded "ad blindness," in which people grow to ignore ads altogether.

Nielsen said searches grew 16.7 percent annually to 9.5 billion searches in March 2009, with Google outpacing the market with 27.6 percent growth to 6.1 billion searches. But upon seeing the more closely watched numbers from ComScore, JP Morgan analyst Imran Khan lowered his projections of Google's revenue and profit, and lowered his price target as well from $430 to $409.

"We think U.S. search performance will be weaker than previously expected," Khan said in a research note.

Cost-per-click declines
Bad news for search ad fortunes in general were results from Efficient Frontier, a search engine marketing company, which found that companies spent less per search ad in the first quarter of 2009. However, that effect was offset by greater search engine traffic and higher ad coverage, so it's not clear what the overall effect will be to Google and to search companies in general. The uncertainty is made worse by the fact that many statistics are only for the United States, but search and search advertising is a global business.

Finally, there's uncertainty about just how much effect Google's cost cuts are having. Khan estimates Google's expenses will be cut by about $450 million throughout all 2009.

Overall, though, there's no question that Google dominates a large and growing business. The troubles could be big or small, short or long, but Google's online cash engine remains stronger than those at Microsoft or Yahoo.

Cost per click on search ads dropped in the first quarter of 2009 for all major search sites.

(Credit: Efficient Frontier)

The recession is cutting into the price advertisers are willing to pay to show their ads on search engines, according to a report released Tuesday.

Advertisers bid to have their ads shown next to search results, paying only when people actually click on the ad, but on average, this cost per click (CPC) in the United States is declining on all three major search engines, according to a study by Efficient Frontier. Comparing the first quarter of 2009 to the fourth quarter of 2008, Google's CPC dropped 14 percent, Yahoo's dropped 16 percent, and Microsoft's dropped 28 percent.

Overall, the cost per click declined 19 percent, compared to the year-earlier quarter, and 13 percent, compared to the previous quarter, "indicating that the entire marketplace is deflating, as advertisers cut budgets and spend less," Efficient Frontier said. That's a grim statistic for the search sites, all of which will report first-quarter financial results this week or next.

However, cost per click doesn't tell the whole story. For one thing, search engines are showing ads more frequently, and for another, search volume in general is increasing, both of which mean that there are more opportunities to show ads. In other words, search engines have the chance to make up in volume what they lose in revenue per ad.

Click-through rates are on the rise overall for search ads.

(Credit: Efficient Frontier)

In the first quarter, impressions--the number of times an ad was shown, if not necessarily clicked on--increased 11 percent compared to the year-earlier quarter, the study said; Google's 20 percent increase compared to Yahoo's 1 percent decrease and Microsoft's 10 percent increase.

What fraction of ads did people actually click on? Overall, more than in the past. For Google, 2.38 percent of the time, an increase over 2.27 percent in the fourth quarter but a decrease from 2.55 percent in the year-earlier quarter. Yahoo's click-through rate steadily increased over the last year to 1.16 percent, while Microsoft's declined to 2.19 percent.

Another statistic the study showed was the click-through rate on ads Google shows on its network of third-party sites that have elected to use its AdSense service, which supplies ads based on the content on the Web page. Here, the click-through rate is much lower than for search results, but it's increasing. A year ago, the rate was 0.08 percent, but in the first quarter of 2009, it rose to 0.20 percent, Efficient Frontier said.

Another finding: search advertising is showing a better return on investment as advertisers cut back on poorly performing ads.

The return on search-ad investment increased 10 percent for ads taken on Google, 12 percent for those on Yahoo, and 43 percent for those on Microsoft, Efficient Frontier said.

The return on search-ad investments is increasing.

(Credit: Efficient Frontier)

People are constantly registering new Internet domains, and Google is trying to ensure a good chance its online services show up on the pristine Web real estate.

The company on Wednesday announced a collection called Google Services for Websites that people can put on their brand-new Internet domains even if they don't have lots of technical expertise.

The services let Web site operators add Google ads and two Google search tools, Site Search and Custom Search, using a control panel that Web-hosting companies can offer. The ads come through AdSense, which scans text on the Web site and presents what Google's algorithms determine to be the most relevant advertising, with the site operator and Google sharing any resulting revenue when people click on the ads.

It's smart for Google to try to hook impressionable new customers on its services as they arrive on the Net. And the company is offering incentives to Web hosting companies to offer the services beyond just the idea of helping customers do something useful with their site.

"Web hosters who participate can enroll in the Google Affiliate program which allows them to get referral fees for every customer who creates Google Site Search," said Nitin Mangtani and Dave Kim of Google's enterprise search team in a blog entry.

Google has begun showing ads on search results at its Picasa site for sharing photos, part of its gradual expansion of advertising across its numerous Web properties.

Pages for photos and galleries doesn't show ads, but search results do for some people. The ads are located in a yellow-tinted "sponsored links" section above the photo results for some in the United States. (See screenshot below.)

"As part of our ongoing commitment to innovation, and to help users find new and better ways of getting the information they're looking for, we are currently showing text ads on the search results pages for Picasa Web Albums. This experiment is only visible to a small number of U.S.-based users," the company said in a statement. The ad experiment has been running for "a few weeks," Google said.

Google, trying to increase profitability, has been spreading ads to sites that previously lacked them. Among them: Google Finance, Google News, image search, Google Maps, and Google Earth.

Google is showing ads on search results at its Picasa photo-sharing site. (Click to enlarge.)

(Credit: screenshot by Stephen Shankland/CNET)

(Via the unofficial Google Operating System blog.)

Yahoo's been arguing for years that its two main advertising businesses, search and display, are stronger together than separately, but a new development Wednesday could illustrate just how much truth there is to that statement.

Traditionally, search ads combine a short amount of text with a Web link, but Yahoo is testing the use of display ads such as graphics and video alongside search results in "Rich Ads in Search," described in a blog post Wednesday. The move opens a new chapter in the company's competition with Google, whose search-driven ad system dominates online advertising.

Right now, Yahoo argues one of its strategic advantages is being involved in both search and display advertising. For example, people's search terms help Yahoo better target display ads, the company has said. But so far the company's search and display ads are widely separated operations, with advertisers grappling with independent systems to use both types of ads.

Now that's changing. The company has been testing rich ads for search since the fourth quarter, and now has opened the invitation-only program to more people. Later this year, though, Yahoo plans to integrate them with its Panama search-ad technology, which will make the technology a self-service operation that won't require Yahoo ad sales personnel to manually set up the ads, spokeswoman Kristen Morquecho said Thursday.

Given Yahoo's large base of display advertisers, the move has the potential to change the online advertising balance of power. Google holds the biggest search market share by far, but Yahoo's roughly 20 percent share is considerable, and if advertisers like branded search ads, it could help the Internet pioneer bolster its revenue.

Google hasn't tried display ads in its search results, though it has experimented with "plus boxes," small icons that if clicked can show images. Although Google acquired Doubleclick in 2008, Yahoo remains the leader in display ad technology.

Another reason the ads could appeal to advertisers: a recurring issue between Google and advertisers is the fact that advertisers in the United States can bid on rivals' search terms. Google won one search keyword trademark lawsuit over Geico; American Airlines settled a related suit against Google earlier this year and now is suing Yahoo.

Although branded search ads might not increase Yahoo's search market share, it might produce revenue as advertisers seek to gain more control over their brands shown in conjunction with search results.

Yahoo shows 'rich ads for search' above some searches for specific brands.

(Credit: screenshot by Josh Lowensohn/CNET Networks)

Search vs. display
Yahoo's rich ads "combine the relevance of search with the impact of rich media," Yahoo said in the blog posting. "A small group of advertisers tested it in the fourth quarter of 2008 and saw click-through rates rise by as much as 25 percent. They've also seen improved brand exposure and conversion rates," in which ads result in some sort of action on the part of the people who saw them.

The bulk of Yahoo's revenue comes from showing display ads on Web properties such as Yahoo.com, Yahoo Finance, and Yahoo Mail. Advertisers pay for those ads on the basis of how many times they're shown. But Yahoo has been trying to catch up to Google's power in search ads, which in comparison are paid for when a person actually clicks on them.

Because search ads cost the advertiser money only when people take an action with them, it can be easier for advertisers to measure performance and therefore to justify investing in an ad campaign. In addition, people reveal "intent" when they type in search terms, which can make it easier for computers to decide when to show a specific ad. Because of these pay-per-click and targeting factors, many believe search ads will fare better during the current economic hard times.

Hybrid approach
Yahoo's rich ads for search are a hybrid of the two categories.

The payment mechanism stems from the display ad world. A select group of advertisers pays Yahoo as an extra monthly fee on top of their regular branded advertising elsewhere on the site, Yahoo said. It's a flat fee that doesn't change according to how often the ad is shown.

The targeting comes from the search world, but it's adapted. Where traditional search ads are shown according to a wide variety of keywords used as search terms--"hybrid car," for example--the rich ads are shown only when people search for a small set of specific terms an advertiser has trademarked, Yahoo said.

There aren't issues with the two varieties of ads vying for the same advertising space, though. The rich ads for search are shown in an area labeled "promotional results" above the regular search results. Yahoo shows the search ads to the right of regular search results in an area labeled "sponsored results."

AdSense for mobile search lets others use Google's search engine, sharing the branding and the ad revenue.

(Credit: Google)

Continuing its effort to stake out turf in a fast-growing area, Google on Tuesday announced the ability of mobile phones to show Google-supplied advertisements through a program called AdSense for mobile search.

Google sells ads next to its own search results through a service called AdWords, but the newer development involves a separate service called AdSense that lets publishers show Google-administered ads on their own sites. Google launched AdSense for mobile phones in 2007, but now it's seeking testers for a hybrid offering that involves others using Google's own search engine.

With it, mobile phone makers or mobile network operators can use Google's search engine and search results, sharing in revenue that comes from the accompanying search ads, Yury Pinsky, product manager of Google's mobile team, said in a blog post Tuesday.

The search can be co-branded with others' Web sites, Google said, implying the company is willing to share but not to let its brand vanish altogether.

Google dominates search for computers, but the company and rivals such as Microsoft and Google are scrambling to stake claims in the mobile market, where increasingly sophisticated phones and networks now permit correspondingly better Web browsing. It's a major new area of growth for advertising companies.

(Credit: eMarketer)

Online advertising may be dragging, but one analyst firm expects the market for video ads to grow 45 percent to $850 million in 2009.

An eMarketer study released Tuesday forecast more growth in years to come: $1.25 billion in 2010, $1.85 billion in 2011, $3.0 billion in 2012, and $4.6 billion in 2013. That's good news for sites such as YouTube that are trying to build an online ad market around video, though the size of the market is still dwarfed by other types of ads.

The company also had a relatively rosy forecast for search ad spending, which pays Google's bills and which provided much of the impetus for Microsoft's attempt to acquire Yahoo.

(Credit: eMarketer)

"While search marketing is not recession-proof, it is recession-resistant, with spending growth in 2009 at 14.9 percent, to $12.3 billion," eMarketer said. "Because search is highly measurable, that will help retain many budgets and increase some others, as advertisers look for secure and effective marketing methods to combat the fear inherent in an economic meltdown."

eMarketer forecast search-ad spending would increase to $13.9 billion in 2010, $15.6 billion in 2011, $17.7 billion in 2012, and $19.5 billion in 2013.

(Credit: eMarketer)

TV ads, meanwhile, will shrink from $69.8 billion in 2008 to $66.9 billion in 2009, then down to $67.2 billion in 2010.

The company also predicted a new revenue model in 2009 for social networks, sites that so far have struggled to make a big business out of advertising. "E-commerce will be a growing revenue stream for social network sites. Expect both MySpace and Facebook to enhance their self-serve advertising systems to allow consumers and businesses to buy and sell real-world goods and services," eMarketer said.

E-commerce overall is expected to grow 4.1 percent from $136.8 billion in 2008 to $142.4 billion in 2009. By 2012, it should reach $183.9 billion.

With Google deep-sixing its search-ad deal with Yahoo because of antitrust obstacles, what's next for the beleaguered Internet company?

Setting a new course isn't easy, of course, and Yahoo has less wiggle room without the the $800 million in annual revenue and $250 million to $450 million in new operating cash flow it said it expected during the first year of the Google deal. Now Yahoo has two basic options: continue with its internal efforts to improve its business, or enter into some sort of major transaction with the likes of AOL or Microsoft.

Judging by Yahoo's 5 percent stock price increase Wednesday, investors already had bid adieu to the money from Google and now are getting their hopes up for a major business transaction. Let's look at some of the possibilities for the company.

Yahoo headquarters in Sunnyvale, Calif.

(Credit: Stephen Shankland/CNET News)

Deal?
AOL's online properties include a respectable display-ad business, a modest search-ad business currently powered by Google, and a variety of mainstream Web sites. But acquiring the company would hardly revolutionize Yahoo's business, and with all the overlap, integration would be complicated. What's appealing to shareholders about this prospect is the expectation that AOL parent company Time Warner would supply a good deal of cash--perhaps $2 billion by some estimates--while investing to take a major stake in Yahoo.

Microsoft is the more dramatic option, of course. With Yahoo's enfeebled stock price and Carl Icahn on its board, a Microsoft acquisition is still a possibility, even if Redmond has lost its earlier enthusiasm. But antitrust regulators showed some spine in effectively blocking the Yahoo-Google ad deal, and Microsoft already has a big red flag in Washington. By pooling their search-ad might, Microsoft and Yahoo still wouldn't catch up to Google, but the two might face criticism or resistance over merging their massive instant-messaging and mail operations.

Of course, the narrower acquisition of Yahoo's search-related assets would be a more manageable transaction. But given that Yahoo's search ad business was a relative bright spot in its third quarter, with graphical display ads suffering mightily at the hands of the economic turmoil, selling search would be hard.

Yahoo also has a number of assets in Asia it could sell. The falling stock market prices have diminished the value of those assets, but they're still considerable if Yahoo wants to find a buyer.

No deal?
After Google announced its decision to pull the plug on the partnership, Yahoo said it's focusing on improving its own core business--something it has to do regardless of whether there's a major business transaction.

Specifically, Yahoo called the Google deal merely "incremental" to Yahoo's plans, something that would have provided money to accelerate its plans but not something that changed "Yahoo's commitment to innovation and growth in search."

So what are those priorities? First is giving people a reason to go to Yahoo.

Here, Yahoo isn't so much concentrating on adding new properties as it is trying to get existing users to do more with Yahoo and to attract new users. Central to this push is Yahoo Open Strategy, an attempt to build social interactions into people's use of Yahoo, for example by sharing one Yahoo member's actions with his or her contacts. YOS also encourages the addition of third-party Web applications to Yahoo sites and the use of Yahoo data on others' sites.

YOS has the potential to fire up Yahoo's massive user base--142 million unique users from the U.S. in September, according to ComScore. But it's only being launched now, and it will take months for it to get up to speed, much less to win over Yahoo users and attract new ones.

The second big part of Yahoo's priority list is making money once users come, which for Yahoo, means advertising. But the market for display ads, the traditional graphical variety often used to promote brands, looks grim, and Yahoo's discussion of its involvement there involved a lot of optimism about positioning the company for growth once the market recovers rather than actual growth now.

Don't dismiss Yahoo out of hand, though, when it comes to advertising. The company has clout for online advertising, and it's just begun releasing a new technology called Apt that lets advertisers, publishers, and others join together at a larger scale for operations such as finding inventory where ads can be placed or selling ads for that inventory. Apt shows ads hosted by Google and by many hundreds of publishing partners.

A second ad factor for Yahoo is search. Most believe search ads to be less susceptible to recession-era spending cuts, and this business fared better in Yahoo's recent quarter even without a Google partnership. So no doubt this area is one of Yahoo's highest priorities. Google still dominates the search-ad market, though, and is making improvements of its own that gave it a downright rosy third quarter.

Google would have helped Yahoo's search-ad business, at least in the short run, by matching ads to search results where Yahoo's Panama technology couldn't. But the Google deal also illustrates the dangers of relying on your largest competitor for a major fraction of your revenue. The way the deal collapsed, with Google willing to scuttle it over Yahoo's objections, revealed that it can be hard to align competitors' priorities.

So, although Yahoo certainly isn't out of the woods and arguably is even deeper in, at least it isn't reliant on its rival's goodwill while choosing its next steps.