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Google Tests Image Ads in AdSense Network

After making its name providing ads as simple text links, Google changed tack this week and began offering graphical ad units.

Google advertisers can now choose to display keyword-targeted graphical ad units on the pages of participating publishers in its worldwide AdSense network, which Google says consists of “thousands” of Web sites. Publishers can choose whether 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.

The move, still officially a test, marks a dramatic shift from the company’s disdain for banner advertising. Since its inception, Google’s search engine has not offered any graphical advertising, instead relying on simple text links next to search results to build a business that made $64 million on $389.6 million of sales in the first quarter, according to the Mountain View, CA, company’s recent IPO filing.

Google said the graphical ads would not appear on its own site or on the results pages of its search partners, which include AOL and Ask Jeeves. Google did not rule out eventually deploying image ads on Google.

“If we determine that the relevancy of these image ads can be higher on some Google properties, we’ll be open to that,” said Salar Kamangar, director of product management at Google.

The move clearly sets Google up as an ad network, competing with the likes of 24/7 Real Media, Advertising.com and Burst Media. After early promise, the ad network model lost its luster in the dot-com bust. DoubleClick, which operated the largest ad network, decided to sell its media business in 2001 and 2002.

“The premise is the reason it never worked before is it was not very targeted,” said Kevin Lee, CEO of Did-it.com, New York, a search marketing firm. “Maybe now that they’re targeted they’ll work.”

Advertisers can choose among four standard ad units for their ads: a banner (468 x 60 pixels), leaderboard (728 x 90), inline rectangle (300 x 250), and skyscraper (120 x 600). All ads are static, without animation. Google said each ad would carry a “user bar” that labels where the ads lead.

“We have a much diverse advertising package that we can offer to publishers and advertisers and that includes, of course, rich media,” said Jarvis Coffin, CEO of Burst Media, an ad network with 2,000 Web site publishers.

The graphical AdSense ads will remain performance based and content targeted, with advertisers paying only when a user clicks on the ad.

To make room for the user bar, Google will resize the ads vertically by 11 or 22 pixels. The resizing will change the appearance of the ad, and Google said advertisers could choose to resize it themselves.

“It’s hard to take 25 percent of an ad’s height and none of the width and have it display right,” said Jupiter Research analyst Nate Elliott.

Unlike many ad networks, however, Google will only pay publishers for clicks they receive, instead of cost per thousand impressions, with prices set by auction. The auction for text and image ads will be the same. Google’s algorithm decides whether to serve an image ad or text links based on which will garner more clicks.

Google’s image ads challenge the declining click rates for banner ads. According to DoubleClick's first-quarter ad-serving report, static online ads yielded a 0.25 percent click-through rate. With an average paid listing garnering 40 cents, the units would yield an effective CPM of $1, split between Google and the publisher.

Thanks to the success of paid search, more advertisers are striking direct response deals. The Interactive Advertising Bureau last month said more spending has shifted to ad deals that pay on a performance basis instead of for impressions. The IAB said performance deals rose to 37 percent of spending in 2003 from 21 percent a year earlier. Impression-based deals accounted for 45 percent of deals.

Kamangar said Google would make the program available to both its large publishers, which include top-tier sites like iVillage and NYTimes.com, along with thousands of small sites.

“We think this product will be used by publishers from small to large,” he said. “We set this up for publishers to test this and see what happens.”

Graphical ads could answer some advertiser complaints that text listings running on AdSense sites do not convert as well as search ads. Google recently unveiled a new pricing mechanism that discounts the price per click for many listings on content sites within its AdSense network.

Lee said his own tests since Smart Pricing went into effect showed that it, coupled with improved targeting by Google, had greatly improved conversions from AdSense listings. He said image ads would appeal most to larger advertisers.

“Pretty much any advertiser would agree that, particularly if they have any kind of brand, the opportunity to include the logo in the message will have a branding impact,” he said.

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