Google has pushed to expand the reach of its paid listings on content pages and entice more of its search advertisers to try them, as its content listings become more important for the company's growth.
Last week, Google told its thousands of AdSense publishers that it would change its terms of service to let them display up to three ad units per page instead of just one. Two weeks earlier, Google told users of its Blogger service that they could show AdSense listings on their Web logs.
The moves come as Google confronts a need to continue its meteoric growth following its $1.7 billion initial public offering last month. The Mountain View, CA, search giant still derives the vast majority of its revenue from search advertising, yet its AdSense ad program for content sites could offer the company's best avenue for growth, some analysts say.
“It's where a lot of the growth is going to have to come from, unless they can convince a lot more people to search a lot more often,” said Kevin Lee, chief executive of New York search marketing firm Did-it.com.
AdSense listings' importance likely will rise as Google confronts slower growth in search advertising. Jupiter Research predicts search advertising's growth rate will moderate sharply in the coming years. The company predicts paid listings' growth will drop from 40 percent last year to an average of 15 percent over the next five years.
Contextual listings, though still a small market, are expected to expand greatly in the coming years. U.S. Bancorp Piper Jaffray in November forecast the contextual listings market would expand from $300 million in 2004 to $1.4 billion in 2008.
A dearth of search inventory is to blame for the slower growth rate, according to Nielsen//NetRatings. The research firm has found that the number of Web searches has not kept up with advertising demand.
Google hopes to satisfy that excess demand through AdSense listings, which appear on thousands of small Web sites and 60 percent of the top 100 Internet sites, the company said. Google will not disclose how many sites carry the listings, but they have become nearly ubiquitous in the 18 months since it launched the program in February 2003.
AdSense inventory could grow exponentially with the official release of Google's e-mail service. Google has not set a date for its release of Gmail, which shows AdSense listings next to e-mail messages, but it could produce millions of page views for AdSense listings.
Google also has offered AdSense publishers the chance to display image ads in a further effort to build its distribution network.
Despite Google's aggressive moves to expand AdSense inventory, some search marketers have been unconvinced they are a suitable proxy for search, in which a user shows direct intent through a search query. Some search marketers opted out of AdSense listings. Unlike rival Overture Services, Google does not have a separate auction for content listings.
In his keynote address at Search Engine Strategies in August, Danny Sullivan, editor of industry newsletter Search Engine Watch, cited contextual advertising as a threat to search marketing.
“Just because an ad is sold on a performance basis doesn't mean it's search,” he said.
In April, Google sought to answer criticisms that content listings did not provide nearly the same conversion rate as search by introducing Smart Pricing, a system that adjusts the pricing of content listings based on how well Google judges the ads convert. Google does not disclose its formula for discounting clicks with Smart Pricing.
Lee said Smart Pricing improved AdSense for some clients, though the program still does not let marketers treat content listings completely separate from search, with a different auction and the ability to craft copy specifically for content pages.
“It's going to be a decision a marketer's going to have to make based on what their volume goals are,” he said.
As a further lure for those on the fence, Google last month began offering search advertisers credits of up to $1,500 for trying AdSense now that Smart Pricing is in effect. Google does not disclose how many advertisers have opted out of AdSense content listings.
AdSense will face increased competition in coming months. Overture already offers content listings through its Content Match program, which shows ads on Yahoo, MSN and ESPN.com. Smaller players have emerged in the market, and some have taken distribution deals from Google. CBS MarketWatch dropped Google for paid listings from Kanoodle, for instance. USA Today recently began showing Kanoodle listings, after the expiration of its exclusive paid listings deal with Google.
Adriaan Bouten, vice president of technology and business development at USAToday.com, said the site would show a combination of Google, Kanoodle and other paid listings in the future.
Other contextual listings companies, like New York-based IndustryBrains, have concentrated on niche content areas like technology and providing back-end systems for content sites to run their own listings marketplaces. By focusing on narrower audience segments, IndustryBrains says it can offer publishers higher click prices than AdSense. The Motley Fool recently chose IndustryBrains after testing AdSense.
“Google and the other networks give a broader reach, whereas IndustryBrains is very targeted with the audience,” said Elke Wong, vice president of marketing and product development at IndustryBrains.
