Google Makes Renewed Grab for the Rest of Online Advertising

New DoubleClick ad system heats up battle to create an operating system for digital marketing

Cross-posted from my Forbes.com blog The New Persuaders:

It wasn’t supposed to be this way. Hundreds of well-funded online ad technology companies have sprouted up in recent years, each aiming to make it easier and more efficient for marketers to reach just the target audience they want.

Terence Kawaja, CEO of boutique investment bank Luma Partners, created this now-famous Display Lumascape to show how complex the online ad tech industry has become.

Yet the result is a crazy quilt of companies–graphically illustrated in that mess of a chart on the right–that drives marketers and agencies crazy. The very existence of so many competing products, in fact, has made placing ads online and measuring their impact more complicated and cumbersome than ever. “Venture capital has supported and financed a bunch of chaos,” advertising veteran Randall Rothenberg, CEO of the trade group Interactive Advertising Bureaugriped at a recent ad conference.

The result: Most ad dollars, nearly $200 billion a year, still get spent on television because it’s so much easier.

That’s the problem Google aims to solve with a revamped ad buying system it will announce today at a private Future of Advertising event hosted by its DoubleClick display-ad management and technology unit. (Part of the event will be livestreamed here.) The company, which already dominates 60% of the online ad business–those little text ads that appear on the right and top of the page when you do a search–now has its sights set on the remaining 40% of the industry. That would be the $25 billion worldwide market for display ads, the graphical and video banners familiar on virtually every commercial website.

Google’s goal: Provide the leading one-stop shop for advertisers and publishers to buy ads on websites, mobile phones, social networks, apps, and whatever other new media the Internet spawns. Essentially, it’s building an operating system for ads much like Microsoft did with its Windows for PCs–with much the same appeal to marketers and agencies as Windows has for PC users. “When you’re putting together a campaign, you want everything connected vs. trying to piece it all together,” says Kurt Unkel, president of the online ad buying operation at Publicis Groupe’s VivaKi digital ad agency, a Google partner.

Google’s announcement is the latest salvo in a war to control the next era of digital marketing. After a decade in which Google’s search ads overtook display ads with an unmatched ability to turn clicks directly into sales, many advertisers and publishers expect–or at least hope for–a resurgence of new kinds of display ads that could woo brand advertising dollars from TV. Neal Mohan, Google’s vice president of display advertising products, has predicted that display will be a $200 billion industry in a few years.

Read the rest of the story at The New Persuaders.

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What’s Coming in Internet Advertising: 12 Predictions for 2012

I did my annual predictions first on my Forbes blog, The New Persuaders, since they’re focused largely on the Internet media and advertising I cover there. On that blog, they’re done as separate posts, but I wanted to gather them up in one place here, as I’ve done in previous years. So here’s what I think will happen (or in some cases, not happen) this year in my corner of the technology and startup world:

Facebook goes public, but won’t start an IPO landslide: Facebook will make the signature stock offering of the decade, one that reportedly will value the social network at up to $100 billion. But it won’t launch a thousand IPOs as a gazillion venture capitalists and angel investors hope.

Of course, the first part of that prediction is a gimme. But I can’t go without mentioning it because the Facebook IPO will be one of the biggest stories of 2012. Assuming Goldman Sachs or Morgan Stanley don’t stumble in pricing and selling the offering, Facebook’s IPO will be every bit as important as Google’s in 2004. It will be a sign that Facebook is a real, sustainable company (if there was any doubt left by now), but also a sign that social networking is getting woven into the fabric of our entire online experience.

The second part of the prediction depends less on how the Facebook IPO goes than on how (or whether) the economy recovers. If the recover remains slow to nonexistent and the stock market reflects that, IPOs will be sparse. If we get the slow but growing economic improvement we seem to be seeing now, more companies will go public but not a gusher. But the point is that Facebook is such a singular success that it’s not going to set the tone for lesser (often far lesser) Internet companies.

Facebook’s ad business booms–but not at Google’s expense: Facebook’s social advertising looks promising, but won’t come close to challenging Google’s huge success in search ads this year–maybe ever.

Obviously, Facebook is having no problem raking in the bucks from advertisers eager to reach its 800 million-plus audience–or more specifically, the millions of people in whatever target markets they choose. EMarketer reckons the company will gross nearly $6 billion in ad revenues this year, up from $4 billion in 2011. And that’s before we know anything about Facebook’s likely plans for mobile ads or an ad network a la Google’s AdSense that would spread its ads around the Web.

From reading a lot of articlesyou’d think Facebook is stealing all that money directly from Google. That’s not mainly the case, given Google’s own considerable growth in display advertising, though Facebook’s success may well blunt that growth in the future. Instead, Facebook currently is eating Yahoo’s and AOL’s lunches, and those of many ad networks that, until Facebook ramped up its ad business, were the main alternative for advertisers looking to target sizable audiences.

What would make Facebook a huge Google-scale company is the theft of an entirely different meal: television advertising. After all, Facebook shows much more promise as a brand advertising medium than a direct-marketing medium like Google. It needs only to draw a small fraction of the $60 billion or so spent on television advertising, the biggest brand medium, to be enormously successful. But even then, it’s not mainly a Facebook vs. Google contest.

Facebook still needs to answer a big question, however. That’s whether its “social ads,” which incorporate people’s friends in ads in a 21st century version of word-of-mouth marketing, will have nearly the effectiveness in driving attention and ultimately sales as search ads, which appear in direct response to related queries, often involving products people are looking to buy. The potential is intriguing, and there are some nice examples of how well social advertising can work.

But despite Facebook’s considerable work in providing new kinds of metrics on marketing and advertising impact on its users, marketers and agencies aren’t yet universally convinced they need to spend a lot of money on Facebook ads. After all, they can get a lot of mileage out of their free Facebook Pages and Like buttons around the Web. (Not to mention, it remains to be seen whether these ultra-personal ads will cross what blogger Robert Scoble calls the Facebook freaky line.)

Bottom line: If Facebook is to be the Google of the this decade, its advertising has to at least approach the engagement of search ads, especially as Google itself moves to become more of a brand advertising platform with YouTube and continues its push into display ads. While Facebook is building what seems likely to become a great business on anew vision of advertising that could change many decades of tradition,2012 won’t be the year it closes that deal.

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LIVE at Google’s Chrome OS Launch: “Nothing But the Web”

When Google announced plans for its own operating system, Chrome OS, in July 2009, many observers thought the company had gone a little Microsoft-crazy. Not so, in my opinion. But for whatever reason, the Web-based operating system–described by Google as essentially the Chrome Web browser with a bunch of software drivers needed to run many kinds of hardware–has been late in arriving. This morning in San Francisco, the search giant is expected to announce more details of the highly anticipated software–in particular, the launch of Chrome OS and the opening of a Web app store, plus perhaps the introduction of a Netbook with the OS on it. I’ll be liveblogging the highlights. There’s a bunch of videos queued up on Google’s YouTube channel that I assume will be viewable once the event begins at 10:30 a.m. Pacific. You can view the livestream of the event there too, and Google’s blog post on the event is now up.

And we’re underway, first with Sundar Pichai, Google’s vice president of product management. What’s coming: an update on Chrome (the browser), Chrome Web store, and of course Chrome OS. We’ve been working to make a lot of progress with the open source community.

Google VP Sundar Pichai at Chrome OS launch

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The Long-Awaited Boxee Box Gets a Hollywood Preview

Few consumer electronics devices have been more widely anticipated, at least by the more geeky set, than Boxee‘s settop box for bringing Internet content to the TV–since Google TV debuted three weeks ago, anyway. The uniquely shaped Boxee Box will debut on Nov. 10 in New York, adding a potent new player to the rapidly expanding market for Internet-connected TVs and add-on devices.

Today, Boxee CEO Avner Ronen offered a preview at the Streaming Media West conference in Los Angeles, where such devices are viewed with much more wariness and even fear than in Silicon Valley. First, he offered his version of the landscape (paraphrased at times):

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Bing-Yahoo May Challenge Google. Just Not Yet.

Two days ahead of reporting its third-quarter earnings, Google continues to gain on the combined search engines of Yahoo and Microsoft’s Bing–at least in the amount advertisers are spending on search ads. That’s the conclusion of the latest surveys from two search marketing companies, Efficient Frontier and SearchIgnite.

According to Efficient Frontier, Google’s share of paid search spending rose to 77.9% in the third quarter, up from 75.8% in the second quarter. The reason, according to the company: Even though Bing has consistently provided a better return on spending than Google, the addition of Yahoo’s less effective search ads dragged the combined entity down.

Likewise, SearchIgnite said Google’s share of search spend rose to 80.2%, the highest since first-quarter 2009 and the highest since SearchIgnite began tracking spending in 2007. Even though Bing led the growth in spending among the major search engines, up 21% from a year ago, Yahoo fell 10%.

And things aren’t likely to change anytime soon, adds Efficient Frontier:

Google will likely see relatively significant gains in the fourth quarter as both seasonality and the Bing- Yahoo! integration skew spend in their favor.   The seasonal retail focus of Q4 typically favors Google in spend as they over-index in retail at over 80% share.  The changing efficiency of the Bing-Yahoo! integration will likely see some additional, although likely temporary, spend shift in Google’s favor.

Still, it’s hardly game over for Binghoo. SearchIgnite says click-throughs on the combined service have risen because Bing’s ad-serving formula is delivering better results, so advertisers are ready to spend relatively more–especially since they really want an alternative to challenge Google’s dominance.

What’s more, search advertising looks to be continuing its rebound (as does overall online advertising), the company says:

Paid search spend in Q3 increased 5.8% year-over-year compared with flat growth a year ago and exhibited positive momentum month-over-month, with July growing 4.9%, August 5.8% and September 6.7%. The growth throughout the quarter bodes well for a strong Q4.

Efficient Frontier saw a similar trend and also anticipates a strong fourth quarter:

In Q3 2010, the SEM sector extended its 2010 growth streak. Year on Year (YoY) spend was up 19% with a solid 6% sequential Quarter on Quarter (QoQ) growth. The important metrics of CPC, clicks, and impressions all rose indicating both strong advertiser and consumer demand. Overall return on investment (ROI) in search is up 8% YoY, a critical factor driving the rising CPCs and overall advertiser demand.

Efficient Frontier believes search will grow in the range of 15-20% in Q4. Efficient Frontier’s reason for Q4 search optimism is built on the following three reasons. First, retail has led the way for search in 2010 with consistent growth. Next, Q3’s 19% YoY growth in spend on more difficult comps and slight sequential rise is a positive signal. Finally, strengthening ROI numbers with increasing CPCs bode well for overall advertiser demand.

There’s one wild card this holiday season in online advertising: Facebook. Efficient Frontier anticipates that a lot of advertisers will up their test budgets for ads on Facebook.

Google’s Marissa Mayer Live at TechCrunch Disrupt

Marissa Mayer, Google’s vice-president of search products & user experience, is holding a fireside chat at the TechCrunch Disrupt conference this afternoon. One of the best-known faces of the search giant, she often provides clues to where the look and feel of Google’s signature service is heading. She’s talking with TechCrunch editor and newly minted millionaire Mike Arrington.

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LIVE at Yahoo’s Product Runway

Yahoo’s set to announce a new product strategy shortly at what it’s calling Yahoo Product Runway. I’ll blog the highlights as they come from Blake Irving, EVP and chief products officer ad Raymie Stata, VP and chief technology officer.

And we’re underway, with some observations on Yahoo on Irving’s hundredth day here. Things are great, he says, and what else would he say? Essentially, he elaborates, Yahoo is a killer technology company. Deep connection between labs at Yahoo and the product organization. You’ll see things in the next year or three or five that look different from before–more iterative products, but more unified under Yahoo as a whole.

Yahoo will be something you take with you rather than someplace you go–content, friends, etc. We’re going to be finding a lot of harmony between advertisers and consumers (code for behavioral targeting, I think, which isn’t new, but clearly Yahoo could lead in making targeting more palatable).

Now on to Yahoo’s product vision, a graphic of which looks like part of a periodic table of elements:

* Me, for bringing personal meaning to the Web.

* Ec, for building an ecosystem.

*Si, for creating personal relevance through science and data. 300 million log into Yahoo a month, providing a wealth of data about what those people are doing. Yahoo will start honoring Facebook, Twitter and other IDs.

* Cu, for being where the customer goes. Will see a lot more mobile versions of products, sometimes before Web products. More folks will be typing on glass vs. keyboards before long.

* So, for owning real social relationships on the Web. Social networking is just starting, despite Facebook’s apparent dominance. People still want more control to socialize with lots of small groups of friends.

* En, for “engage and delight.” Best-in-classes news, sports, entertainment, mail, etc.

Now on to products that are being demonstrated here today:

* Mail: Has been re-architected from the ground up, from infrastructure to user interface.

* What’s New page: Twitter integration and other things.

* Search: More visually appealing and with more of an ability to act on the search result. People don’t want to just search, they want answers.

* Lots of Twitter integration, such as the ability to tweet from particular stories on Yahoo.

So we’re going to be moving fast, with more incremental changes to products.

So far, my socks are still on.

Now Stata comes on to tell about the technology underpinnings of all this. Lots of generalities to my ears, but some specifics:

* Relevant, personalized content for consumers. Much deeper than it has been–content optimization on every page, including those of partners such as AT&T. This will produce higher engagement, he says, which is what advertisers want as well.

Yahoo’s services are supported by a cloud infrastructure, a network of data centers of various sizes all over the world, to make the services faster for users anywhere they are.

I think of Yahoo as a big ship, need to maintain powerful engines while swapping some out. But the new engines are now in place.

Now it’s time for questions:

Q: Can you expand on the new search experience? Shashi Seth, who runs this, steps up to explain: We’re going to provide the best guess we can but provide an “accordion” to let people expand on what they really want.

We’re going to need to see the demos outside the conference room, clearly, to judge what Yahoo’s doing on all these products.

Q: On mail, what sort of innovation will we see that goes beyond regular email, which can be inefficient? Irving: Raise the things most important to you on the top (sort of like Google’s Priority Inbox? Sorry…). At its core, Yahoo’s new email service is faster, will incorporate instant messaging as needed.

Q: How are you distinguishing Yahoo search from Bing? And in three years, what will Yahoo be? Seth: On search, Yahoo no longer has to do the backend stuff like crawling and determining relevance. In three years, search won’t look or act anything like what search is today. We’re trying to take the science and tech we used to apply to backend and bring it to the forefront to reimagine what search can be. Nothing specific yet, though–that’s on the come.

Irving: In three years, Yahoo will be a global series of experiences… that are very personalized and targeted. (Uh-oh–sounds a little amorphous again, which is Yahoo’s perennial problem.) I would hope that when you look at us, you’ll say we delivered on that.

Q: Skeptical question asking for specifics, but we don’t get much.

Q: Several of these products now elevate Facebook and Twitter–are you allowing them to drive Yahoo products? Irving: It’s just providing users with what they want to do. But there are holes in what people want to do in social networking. The social networking game isn’t over because we’re doing integration with Facebook and Twitter.

Q: How are you integrating on various platforms like Android, iPhone, Windows, etc.? Irving: We’re a friendly company to do business with, helping companies provide a good Yahoo experience on all the platforms.

Q: What were your misconceptions about Yahoo before you came? Irving: One, I wasn’t sure about the technology company thing (as opposed to a media company that Yahoo kept saying it was). Found that Yahoo at its core is a tech company that finances itself through media/advertising. For another, found that there was in fact a horizontal platform that allows acquired services (such as Flickr and many others) to get off their own platform stack and use Yahoo’s underlying technical resources.

Q: Could you sum that up in a tagline? Irving: I’m in the product team, so no.

And that’s about it.

Update: I think Yahoo might have better off leading with the demos, which were pretty interesting. Yahoo Mail, in beta inside Yahoo but slated to be rolled out to all users this fall, looked fast and clean, and might keep me from my longtime threat to abandon it.

On the advertising front, Yahoo is testing out several new kinds of ads. One, called a Content Mashup, has tabs inside the ad for videos, Twitter, and other custom categories the advertiser can set up and populate with content. Another, called a Digitorial, can run games, videos, polls, and other services inside the ad, all trackable so advertisers know what’s most engaging people. And there’s also an interactive video-in-a-banner ad; when you mouse over the ad, there are links overlaid to other experiences such as games.

And there’s a new search interface coming as well, one that has vertical tabs that let you reach Yahoo content relevant to a particular search result.

Google to Revamp Search Results, Yet Again

Google’s much-teased search event at San Francisco’s Museum of Modern Art gets underway at 9:30 a.m. Pacific Wednesday, and I’ll be there to blog the highlights. (You can also watch it live on Google’s YouTube channel.) Tonight, after checking out the new logo that progressively recovers its usual colors as you type in letters, it sure looked like it had something to do with real-time updating of search results as you type. Google has been testing those for some time, but not in such a forward fashion if memory serves.

The logo replaced an earlier one that involved bouncing balls that interacted with the cursor, which the company said was intended to show how it aims to make search “fast, fun and interactive.” The Guardian noted that the way that logo was coded suggests the next, more interactive generation of Web programming. Google also promised invited press that it would “share our latest technological innovation and to get an inside look at the evolution of Google search.”

I suspect from the hype that there will be much more. Barry Schwartz of the Search Engine Roundtable blog has a few guesses:

(1) AJAX powered search results. Yes, I believe Google will go forward with the AJAX powered search results tomorrow. Yesterday, I and others began noticing 30 results per page, but when I look deeper, it is driven by the AJAX like results. I can search, the URL doesn’t really change, it just adds on parameters, which makes me believe that it is done for analytics software. Why? This is something Google tested in February 2009 and stopped when complaints about referrer data not being sent using these AJAX results. Is it time for Google to go full force now with the AJAX results? It is “faster” for the user, which is a clue from the line above.

(2) 30 results per page is something I personally see myself and so do others. People are reporting it atWebmasterWorld and Google Web Search Help. It does make the results a bit more in your face, giving you more room to scroll. I am not sure if that makes things all that faster, but I guess it does. Is it more “fun,” I don’t know.

(3) Streaming Results As You Type. We know Google has been testing updating results as you type for the past few weeks. Many more are now seeing it, which is even more of a sign that this is coming soon. We have new reports of it at Google Blogoscoped Forums and WebmasterWorld. It does make the search results more “interactive” and a bit “faster.” More useful, I am not sure.

Google has been continually criticized, most recently (and inaccurately) by competitors, as failing to move beyond the iconic “10 blue links.” I suspect whatever Google announces will finally put an end to that epithet.

LIVE: Google’s Q2 Earnings Come in a Little Low

Despite some promising signs of a continued rebound in search advertising, Google reported second-quarter results that met analysts’ revenue expectations but came in lower than they forecast on profits. Shares are down almost 4% in after-hours trading after closing up a fraction in today’s trading.

I’ll liveblog the earnings call starting at 1:30 p.m. Pacific. The release is here, and you’ll be able to view the earnings call on YouTube.

Google’s revenues rose 24%, to $6.82 billion, or $5.09 billion after costs of acquiring traffic, a fraction above analysts’ average $4.99 billion forecast. Profits came in at $1.84 billion, or $5.71 a share–more importantly, absent special items, profits were $6.45 a share, under the average forecast of $6.52 a share.

And the call gets underway with Chief Financial Officer Patrick Pichette, product chief Jonathan Rosenberg, and sales chief Nikesh Arora. Same as last quarter, we’ll miss CEO Eric Schmidt and cofounders and presidents Sergey Brin and Larry Page, who aren’t on the call.

Pichette goes over the numbers, says it was a “solid” quarter. Immediately goes into ads–he says consumer packaged goods giant (and ad spending giant) Procter & Gamble is Google’s largest advertiser.

Display network, including YouTube, is growing rapidly. Mentions new deal with Omnicom, announced today. Very impressive growth at YouTube as brand advertisers like Coca-Cola and Nike see it as a “must-buy.” Pichette crows a bit about Google’s win in Viacom’s suit against YouTube and says Google spent $100 million to win it.

More details on the numbers–you can see those in the release…. “We’re very confident of our future,” he concludes., which is why Google is continuing to hire.

Now Rosenberg, first on search: The Web is much more complicated today than just bringing back links to pages. Caffeine, a new way to update Google’s index almost immediately, is producing results 50% fresher than before (whatever that means). Pace of search innovation is actually accelerating, he says, somewhat defensively.

Rosenberg notes that people simply don’t have to watch ads anymore if they don’t want to–so there’s lots of upside left in improving ads. Carnival Cruises increased ad response by 175% by including click-to-call on mobile ads. 20 quality improvements on Google Display Network–which he says is going “very well.” Advertisers can now target very specific audiences, like women 25 to 34 who are basketball fans.

On mobile: There are now 70,000 apps on Android.

Back to Pichette for the Q&A:

Q: How much of paid clicks are coming from mobile? Rosenberg: Mobile is certainly growing faster than other areas, but no specifics.

Q: Traffic acquisition costs–how will end of MySpace deal affect that? Pichette: Not much.

Q: 1,200 head count increase mostly in search? Pichette: 300 came from acquisitions. Most headcount is in engineering and sales–in four core areas: search, mobile, apps, display.

Q: Cost per click in mobile vs. desktop? Arora: nothing specific I could hear.

Q: How much investment is going into Android? And what’s the payoff? Pichette: Android costs not material to company. Key products recently not developed by Google at all.

Q: Is search activity strong on mobile/Android, or are you losing momentum to apps? Rosenberg: Android searches strong. Pichette: Mobile traffic has grown 500% in the last five years.

Q: Impact of macro economic picture: Pichette: We’ve seen no impact of what’s going on in the macro world to us. Says Google has been doing very well for several quarters now.

Q: Return cash to shareholders given cash flow? Pichette: Just-announced $3 billion commercial paper program provides working capital flexibility. But nothing to announce on share buybacks.

Q: Advertiser and user adoption of new ad formats having impact on results yet? Rosenberg: Click to call ads on mobile are doing very well.

Q: What are operating margins in display ad business? Pichette: Display has slightly lower margins than search, especially including DoubleClick.

Q: Why is rest-of-world growing relatively faster, and which areas? Pichette: Brazil and India growing very well, though lower CPC (click prices) because there’s a lot of auction competition.

Q: Potential for revenues beyond advertising in mobile, such as apps? Pichette: Yes. But ads are nascent, so still a big opportunity.

Q: Why such a large increase in general/administrative costs vs. marketing? Pichette: Recruiting machine growing. Also legal costs–lots of them.

Q: Is YouTube profitable yet? Pichette: No comment, but “we are incredibly pleased with YouTube.” Over 1 billion monetized videos per week.

Q: Are you selling display ads mainly to existing search customers or new customers? Arora: Both, but more integrated search and display campaigns.

Q: With consistent paid-click growth of 15%, what’s driving that? Pichette: Continued move of ads from offline to search ads.

Q: Why cap ex and hiring on the rise? Pichette: “For us, the recession is over.” So need to invest in big opportunities like mobile and display.

Q: Will Google change how it measures or does searches (Microsoft’s and Yahoo’s auto-roll slide shows end up being counted as searches): Rosenberg: No. Those are not bonafide, user-driven searches from an advertising point of view.

Q: Any more details on which regions/countries doing especially well? Arora: Brazil, India, Russia, France, Australia… and others.

Q: More light on CPC and why it’s down a bit? Rosenberg: Conversion rates are improving, which drives CPCs up. Emerging markets, mobile, and longer-tail queries that aren’t as monetizable lower them.

Q: China update: Pichette: Revenue is not material, but “decent” revenues for Q2. Too sensitive to talk much more.

Q: Click-through rate on mobile vs. desktop: Rosenberg: Won’t break that out.

Q: Any detail on Omnicom deal? Arora: Generally, there’s a move from site buying to audience buying. Need system like Google’s ad exchange to buy across many sites and ad networks. Ad agencies want a common platform for all these networks.

Q: What kind of growth have you seen for search remarketing? Arora: We don’t do search remarketing. Only on display side.

Q: How decide what to pay for acquisitions? Pichette: Three factors in acquisitions: talent, intellectual property, and price. We look at many companies we don’t buy because they aren’t a fit. Or they cost too much.

Q: How additive are mobile searches? Rosenberg: No data, but intuitively “vast majority” are additive.

Q: Impact of Viacom ruling on ability to monetize YouTube: Arora: Lots of opportunities to monetize, including home page (which don’t necessarily involved any issues in the YouTube suit). Pichette: Otherwise, no comment because case in still on appeal.

Q: How rank YouTube, display network, and ad exchange, as display opportunities? Arora: They’re all complementary. Pichette: These are each billions of dollars opportunities.

And that’s it.

Search Ads Continue to Surge; Good News for Google?

Given the even sorrier state of the economy a year ago, it’s not hard for any industry to show an improvement. But even though search ads didn’t slump nearly as much as every other kind of advertising, it’s continuing to show strong improvement, according to a new report from search marketing firm Efficient Frontier. That’s likely to bode well for Google, which reports its second-quarter earnings on Thursday. From the report, released this morning:

In Q2 2010, the search marketing sector continued to bounce back, shrugging off a still uncertain economic environment. Year on Year (YoY) spend was up 24%, with a 9.7% increase in spend Quarter on Quarter (QoQ), partly due to a recovery in Cost Per Click (CPC) prices which rose across all of the major search engines. Overall, return on investment (ROI) in search was up 4% YoY and 10.6% higher than last quarter (Q1 2010). Search marketing growth continues to exceed the 2010 outlook of 10-15% due to increased consumer demand, which results in higher pricing as indicated by higher CPCs.

In the first half of 2009, search felt the adverse affects of a sputtering global economy. In sharp contrast to a year ago, search marketing in Q2 2010 is showing a strong recovery. Marketers shook off the continued economic uncertainty and capitalized on improving return on investment from search advertising to grow sales volume.

The retail sector leads the recovery with 38% growth in spend YoY and 16% growth QoQ, a pace that far exceeds the typical modest quarterly rise in Q2. Building on the momentum of Q1’s strong growth, retail CPCs continue to grow at 18% YoY and 17% QoQ, indicating a growing aggressiveness on the part of advertisers in this sector. Consumers are also playing their part in driving the recovery. Impression volume in the retail sector was up 65% YoY, signaling continued consumer interest in online shopping.

Here’s the rundown, sector by sector followed by Efficient Frontier:

• Retail: Spend was up 38% YoY due on strong consumer and advertiser demand.

• Travel: Spend was up 10% YoY on CPC gains.

• Finance: Spend was down 2% YoY due to a decrease in CPCs that was largely offset by volume growth.

• Auto: Spend was up 6% YoY on CTR and CPC gains.

Meantime, while Microsoft’s Bing search engine continues to gain, it’s at the expense of Yahoo, not Google, at least when it comes to search spending. Efficient Frontier says Google continues to hold 75% of search spending, while Bing has 6.4%, up from 6.1% in the first quarter, and Yahoo’s share fell from 18.7% from 18%.

Another search marketing company, SearchIgnite, reported similar trends. It says search spending rose 14% in the second quarter, accelerating from 11% in the first quarter. Spending on Bing rose 26%, giving it a 6.2% share, Yahoo was up 3% to get 15.4% share, and Google remained dominant with a 16% uptick, hitting 78.4% market share.

ComScore’s latest numbers also show Google lost a small amount of search market share to Bing and Yahoo, though analysts note that a change in how comScore measures searches makes the shift’s significance uncertain.

All that indicates Google’s second quarter will look pretty good. Analysts on average are expecting its revenues to rise almost 23%.

Investors will be looking forward more than back, however. Google is notoriously stingy with outlooks, so for now Efficient Frontier’s will have to suffice, and so far, not surprisingly given the iffy state of the economy, it’s a mixed picture:

The last two quarters have shown strong growth in terms of SEM spend (20% YoY in Q1 and 24% YoY in Q2) and we expect the positive trends to continue for the second half of the year. CPCs continue to make a strong recovery, indicating growing demand and larger advertising budgets which should continue to contribute to the expected growth in the coming quarters. However, weakness in the European economy might negatively affect Q3, so we remain cautious as we keep our SEM growth expectations in the 15-20% range. Should we continue to see strength in Q3, and taking into account typical strength in Q4, the year could surpass our already upwardly revised expectations.

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