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Google Sees Brand-Advertising Opportunities

After building its business through direct-response search listings, Google is likely to expand into brand advertising.

Speaking to investment analysts on the company's first-ever earnings call last week, Google executives said its fledgling effort at distributing graphical ads was an important initiative for the company. Google has begun to test the display of graphical ads on Google Image search.

“Currently, it is a small component of our business, but we think it has a very exciting future,” CEO Eric Schmidt said of graphical ads.

Google's image search engine has indexed more than 880 million images from the Web. A Google spokesman said the test began recently.

“It's a limited test and we're serving the ads on a small percentage of queries,” the spokesman said.

In May, Google began offering advertisers the opportunity to display keyword-targeted graphical ad units on the pages of participating publishers in Google's worldwide AdSense network, which consists of thousands of Web sites. Publishers can choose whether or not to display the image ads and where they appear on the page. Google said its ad system would determine whether to display an image ad over a text ad based on relevance and performance.

“I think what you're seeing with our foray into image ads and other products is that we are serving a larger and larger base of advertisers and users,” said Larry Page, a Google co-founder and president of products.

The company spokesman declined to say how many sites have chosen to run the image ads, which do not include animation. However, none of Google's large AdSense partners, like NYTimes.com and Forbes.com, are displaying them.

“We are only starting to get more and more publishers, and more space for them,” said Sergey Brin, a Google co-founder and the company's president of technology. “I think that's something that's going to need to evolve, because there are a number of technological features that need to be added to them.”

Graphical ads, traditionally used by brand advertisers, could signal a move to diversify its advertiser base beyond direct-response marketers to attract brand-advertising dollars. The Google spokesman also declined to say how many of its 200,000-plus advertisers had chosen to run image ads.

“I think they've realized that no one will buy search to do branding, so they need a new offering,” said Jupiter Research analyst Gary Stein.

Jeff Lanctot, vice president of media at ad agency Avenue A/Razorfish, said image ads have piqued some advertisers' interest in AdSense content ads.

“I think Google is actually pretty well-positioned to garner brand dollars,” he said. “They have significant reach through their content network and they have smart targeting.”

For now, the graphic ads shown through AdSense are priced on a click basis. Display advertising is often sold on a cost-per-thousand-impressions basis. Stein said Google is unlikely to simply adopt CPM pricing, but could instead have a hybrid system that charges a flat fee for impressions on top of click charges.

Page told investors that the company has a direct sales force that works with major advertisers that typically spend the most on brand advertising.

“I think it is really a natural transition for us,” he said of selling image ads.

The Google spokesman said the company is selling image ads both through its direct sales force and its agency relations team, led by Chris Theodoros. Lanctot said Theodoros made early efforts to build strong relationships with agencies that will likely pay off as it rolls out new products to meet advertiser needs beyond direct response.

The move into display advertising would come as that part of the online ad market has started to perk up. While much of the industry's growth in the past year was driven by search, display advertising showed 24 percent year-over-year gains in the second quarter, according to the Interactive Advertising Bureau.

Schmidt said any moves Google makes would keep with its mantra of only serving relevant ads that users find useful.

“We just don't do untargeted ads,” he said.

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