Google Faces More Competition for Contextual Listings

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Despite its dominance in the new market for contextual paid listings, search giant Google faces rising competition from rivals claiming better systems for showing advertiser links on Web sites.


Google, which released its AdSense product last March, has a big lead in the contextual listings market, signing up marquee sites like NYTimes.com, iVillage and Weather.com in addition to thousands of sites worldwide through a self-service option. The Web sites display listings from Google's 150,000 keyword advertisers. Publishers and Google share the revenue generated each time a user clicks on an ad.


Google hopes AdSense can build on the success of its paid search listings. With contextual listings, advertisers' keyword text listings are placed on Web pages with relevant content. For example, a page about a New York Knicks game might display advertiser listings for NBA merchandise or tickets.


Thanks to its head start, Google has faced little competition in the space. Its biggest paid search rival, Overture Services, has proceeded cautiously with its contextual listings product, particularly after being acquired by Yahoo in July. Google took out the biggest rival to AdSense, Sprinks, which boasted distribution deals with CBS MarketWatch and Forbes.com, by acquiring the New York company in October and shutting its service two months later.


Now Google faces new threats to its dominance. Three former Sprinks executives moved to third-tier search provider Kanoodle to replicate the Sprinks listing system as ContextTarget. Unlike Google, Kanoodle does not search a Web page for its meaning. Instead, it divides Web sites into categories and sells positions to advertisers.


Kanoodle won over one of its former distribution partners, CBS MarketWatch, which found its listings more relevant than Google's. Jupiter Research analyst Nate Elliott said that despite nagging doubts about their relevancy, AdSense listings generally match the Web page's content.


"Overall, I think the targeting is not bad," he said.


Google also faces more pressure from Overture, which this year expanded its Content Match listings distribution to more than a dozen sections including real estate, travel and news. Content Match listings also appear on parts of MSN and ESPN.com. Overture said it has no plans to widen its distribution network to thousands of sites like Google's, preferring instead to maintain strict quality controls.


"It's a matter of how well we can control the leads and the traffic to our advertisers," said Paul Volen, an Overture vice president.


With thousands of Web sites in Google's network, some advertisers have voiced concerns that their ads appear on low-quality sites that produce less-qualified leads. This was underscored by a recent Google test to include contextual listings in e-mail newsletters.


Some startups see room for more players in contextual listings to capitalize on AdSense's perceived shortcomings. IndustryBrains, New York, provides paid listings for some specialized finance and technology Web sites. The company has responded to publishers' desire to control the relationship with the advertiser by offering a private-label service. IndustryBrains executives said this has appealed to high-quality, brand-conscious sites like BusinessWeek Online. IndustryBrains boasts more than 50 U.S. publisher partnerships, including the Web site networks of tech publishers IDG and CMP Media.


Quigo, New York, is testing its contextual listings product called AdSonar, which it plans to release as a listings network in a few months. Michael Yavonditte, Quigo chief executive, said AdSonar offers more relevant listings while giving advertisers more control over where their listings appear.


Elliott said the biggest threat to Google's dominance in the space is the feeling that advertisers overpay for leads generated by contextual listings as opposed to search listings.


"The marketers feel those clicks convert at a lower rate and they're overpaying for them," he said.


Overture responded to advertiser qualms by separating the bidding process for its contextual listings from its search listings last month. Google maintains a single bidding process.


The market for contextual listings remains small, worth about $100 million last year, according to U.S. Bancorp Piper Jaffray. The investment bank expects that figure to grow to $1.4 billion by 2008.


Elliott said contextual listings would stay strong because they give publishers a chance to make money off inventory that otherwise would go to waste while advertisers seek more leads than search engines can deliver.


"I'm a fan of contextual listings," he said. "It just has to be done right."


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