Online Advertising Redux

Google was once merely a search engine. For years it focused ruthlessly on its core functionality--the math that drove the algorithm, which produced the most relevant search results. Their success produced all the traffic they could handle. But they didn’t sell anything. Then in 2002, it happened. Keyword based text ads stated appearing along the right column of search results. Suddenly lots of traffic was becoming lots of revenue. Shortly thereafter the Google AdWords program enabled advertisers to run almost instant campaigns using Google's self-serve, no-minimum bid, max-spend-per-day system. Google was quietly building up incredible profits, but exactly how much nobody knew--at least not until Google went public in August of 2004. (Images to the left show Google's growth since then and they just announced 63% profit on $3.66 billion in revenue, exceeding industry expectations again for the first quarter of 2007.) Once the world got its eyes on the unbelievable profits of Google AdWords, the wheels of online commerce began turning at rates unseen since the dot-com bubble era. But this time the bubble isn't full of gas; it's full of cash.

Google is still an excellent search engine, but as far as the kind of company it is, it's no longer merely a search engine. It's more like a media giant. Case in point: their recent announcement of the $3.1 billion acquisition of DoubleClick. Clearly Google is committed to maintaining their dominance as an online media machine. Oddly, its transformation into a media company is part of the reason they are having problems with both their $1.8 billion acquisition of YouTube and their copyright challenges regarding their book search feature. As a neutral search tool, indexing and retrieving data helps everyone and nobody would take a second look at their service. But with scads of cash in play, suddenly their marginally legal practices regarding storing of electronic copies of copyrighted materials no longer feels entirely neutral.


I review Google's history to emphasize how big online advertising is and how fast its growing. The thing that amazes me about Google’s AdWords program (as well as Yahoo! and MSN's advertising networks) is that, as big as they are, anyone with the smallest of ad budgets can easily participate. Just fill out a couple web forms and within minutes you're posting ads alongside search results. I’ve written about Online Advertising with Google AdWords and the basics covered in that newsletter are still the same. But there are new features, players and practices to review.   next >