Google ad sales outpace all comers
| Updated 10/30/2006 8:06 AM ET |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cosmo Buono calls himself a technology "dinosaur." But look to this longtime New York City piano teacher for insight on how Google (GOOG) keeps setting financial records.
Buono wanted to find contestants for an international piano competition he's staging. A student recommended that he advertise on the Google search engine, so he went online to give it a try. Now, when anyone searches for "piano competition" or "international piano competition" his ad appears near the top of search results.
His budget: $50. His response: 35 new contestants, so far. "I was up and running in 15 minutes," says Buono, 54. "For somebody like me who isn't comfortable with the PC, it was quite a revelation."
Google set a record again this month with a 70% third-quarter revenue jump that has Wall Street salivating. The stock hit new heights last week to nearly $500 a share. Citibank analyst Mark Mahaney says it's poised to hit $600.
Since it went public two years ago, its share of Internet searches has nearly doubled, while its ad revenue continues to dwarf rivals such as Yahoo (YHOO) and MSN (MSFT).
How does Google do it? With millions of customers such as Buono, who use its simple and ever-expanding search advertising program, AdWords, to reach customers. Google is on a roll because it is "the best and most used search engine," says Mahaney. "More people want to do searches on Google than Yahoo."
A simple concept
AdWords works on a simple concept: Advertisers offer their wares for a fee in the "sponsored search" section of search results, which appear on Google as well as AOL, Ask.com and EarthLink. Clients bid on keywords — the phrases people use when searching — and pay if someone clicks on an ad. Advertisers can pay from a penny to more than $1 per click, and set a monthly budget.
"The entire process of signing up was really simple," says Buono. "If I can do it, anyone can."
Google makes updates to AdWords every two weeks. The program has greatly expanded beyond the simple search ad. What's new:
•Geo-targeting. Clients can choose which ZIP code they want their ad to appear in, and can have the ad appear on Google Maps.
•Time-slot preference. Want your ad to run only from 9 a.m. to 5 p.m., when people are at work? No problem. Advertisers can refine their campaigns down to the hour.
•Starter edition. For folks who want a simpler, speedier way to get an ad online. Google asks new advertisers to type in their ZIP code, website address, a 10-word ad, monthly budget and keyword search terms. Click "continue," and type in contact and payment information, and the ad is online.
"We're trying to make the process less intimidating," says Richard Holden, Google's director of product management.
Don't have a website? No problem. Google says 50% of small businesses don't have one. It will create a bare-bones site for new clients, with a basic listing that includes phone and e-mail contact, ad copy and a photo.
Permeating the Web
The companion to AdWords is AdSense, which expands the text ads across hundreds of thousands of websites and blogs representing what Google says is 80% of the Web. website owners share in revenues whenever an ad is clicked.
Clients include tech sites such as Engadget and Macworld and big guns such as MySpace (NWS), The New York Times (NYT), The Washington Post (WPO) and Slate.
Last week, Google moved to increase the reach of AdSense with a tool to let anyone create a narrow version of its search engine for a website or blog. A blogger with a fan site devoted to Beyoncé could add a search tool devoted to the singer. A wedding-planning site could tweak it to only have results from florists, caterers and venues.
website owners get the service free in exchange for showcasing Google ads.
"In terms of potential earnings, this is the biggest one to look at," says Chris Winfield, who runs 10e20, a New York firm that works with clients on Google advertising campaigns. "Millions of people will put this on their pages, and Google ads will be all over those pages."
This summer, Google began offering advertisers the ability to run video ads on the AdSense network.
Businesses upload an ad — which can be created with consumer-level video equipment and software — directly to Google. They choose the types of sites they want to appear on, from general interest to those devoted to beauty tips, entertainment or more.
"You walk into the buildings at Google, and can feel the blood flowing," says Rich Silverstein, of Goodby, Silverstein and Partners ad agency. "Instead of saying "We can't do that,' they say, "Let's see if we can.' " His agency created a video ad for automaker Saturn that ran on auto enthusiast sites via Google. The ad begins in outer space and ends by whisking the viewer to his or her local Saturn dealer. The ad was "geo-targeted" by ZIP code, with each ad tailored for the local market. "This is a relationship between the viewer and a company that's never been done before," says Silverstein.
While Google popularized search ads, the form was invented by Goto.com (later known as Overture), which Yahoo acquired. But Google has far exceeded Yahoo in customers and revenue.
Yahoo is revamping its search ad program to make it easier to use and more profitable. After several delays, it is to make its debut early next year. Last week, Yahoo said its earnings fell 38%, due to softer ad sales.
Google's lead over Yahoo is bigger than Wall Street realized when Google first was planning to go public in 2004, says Mahaney. "Yahoo is trying to play catch-up, and they're finding just how difficult that is."
Microsoft recently introduced its own answer to AdWords, Microsoft adCenter. But "MSN has 10% of searches, and Google has 50%," says Winfield. "It's good traffic, just not enough of it."
Google has been criticized by Wall Street analysts for being a one-trick pony. It makes all its money from search ads, while Yahoo has display ads, subscription fees and partnerships with high-speed internet providers. In search, says analyst Greg Sterling of researcher Sterling Market Intelligence, it is not too late for Yahoo to catch up. "Local advertising is a huge, $100 billion market, and advertisers want multiple options," he says.
