Google Reinvents AdWords with Auctioned CPM Ads

With its latest ad push, Google steps outside of search marketing and into competition with some of its Web-publisher partners for brand advertising dollars, analysts and marketers say.

SAN FRANCISCO—As online advertising executives gathered here this week for the AD:TECH conference, one company kept being mentioned—Google.

Google Inc. had gained attention because of its announcement earlier in the week that it was moving into impression-based online ads and letting advertisers target those ads to individual sites in the Google AdSense network.

Googles latest advertising direction points to its interest in broadening its advertiser base to attract more brand advertising and in competing more directly with traditional sellers of banner ads, analysts and marketers said.

Googles approach also puts an auction twist on so-called CPM (cost per 1,000) advertising that could worry some of its publisher partners who already sell banner ads.

"It has become clear that Google is a media company and makes a lot of money from advertising," said Gary Stein, a senior analyst at Jupiter Research, a division of Jupitermedia Corp. "This is about them building out their ad network, and its not about search."

Until now, Googles advertiser program, called AdWords, focused exclusively on pricing sponsored links and image-based ads based on the number of times a user clicks on them.

This form of advertising, called pay-per-click, can be effective for generating leads once there is demand for an advertisers product, but it falls short in creating awareness about a product or company, Stein said.

By entering the CPM-advertising world known for splashy banner ads, Google is attempting to attract a bigger set of advertisers. In particular, Google might be able to lure larger consumer-brand companies such as Proctor & Gamble Co. and Kraft Foods Inc. with CPM ads, since they have been less likely to buy pay-per-click ads, Stein said.

/zimages/5/28571.gifClick here to read about Yahoos test of pay-per-click banner ads.

Along with snaring more advertisers, Google is responding to a frequent request from its current advertisers, who want to be able to better target where their ads appear in the thousands of Web sites in Googles AdSense network, said Andy Beal, vice president of search marketing at Morrisville, N.C.-based WebSourced Inc.

"Advertisers biggest criticism of Google has not so much been that they want a CPM model but that they want to know where their ads are going," Beal said. "Its a bold move by Google because it could reduce the revenue from individual advertisers."

A reduction could come from an advertiser deciding to run more ads targeted to specific sites rather than running them across the AdSense network. But by deciding to offer site targeting in a CPM model, Beal said, Google also is offsetting any potential loss by gaining new types of advertisers.

Whether Google can replicate its pay-per-click ad success in the broader CPM model remains to be seen. Its biggest challenge likely will come from its publisher partners, many of whom sell their own CPM-based banner ads.

In its approach, Google is selling CPM-priced ads using the same auction-based model that it popularized with click-based ads. Advertisers bid on the maximum amount they are willing to pay per thousand clicks for placement on a specific site.

That auction model flip-flops the market dynamics in traditional banner advertising, allowing the advertiser to set the price rather than the publisher. The fear among publishers will be that the Google auction model will give advertisers a back door onto their sites at a lower rate, said Fredrick Marckini, founder and CEO of search-marketing firm iProspect Inc.

"This was a move no one expected, but if you believed that Google would stop with search ads you were wrong," Marckini said of Googles CPM model. "They have been developing an auction environment that could translate in all forms of online advertising."

/zimages/5/28571.gifClick here to read about Googles early testing of ads in RSS feeds.

One analyst suggests that publishers concerned about losing advertisers to Google should consider opting out of the site-targeting ads.

Charlene Li of Forrester Research Inc. wrote in a report that Googles move is likely to strain relationships between publishers and advertisers. She expects that publishers will begin to more seriously consider selling their own contextual ads through third-party bidding services such as Quigo Technologies Inc. or IndustryBrains Inc.

With its CPM push, Google also introduced additional ad formats. It added the option for animated graphical ads alongside its static banner and text-based ads.

"Its unlikely that Google will stop at offering only animated graphical ads," Li wrote. "Its likely that rich media and online video ads will also be options in the future."

/zimages/5/28571.gifCheck out eWEEK.coms for the latest news, views and analysis on enterprise search technology.