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Business 2.0 - Web Article - Google: The Reverse eBay: "gle: The Reverse eBay"
Don't think of tech's latest star as just a search engine. Think of it as a keyword marketplace.
By Erick Schonfeld, February 06, 2004
Most of us know Google as a trusty Internet search engine and the most hyped, most anticipated IPO since Netscape. But there is another side of Google that is familiar to marketers and advertisers. Through a part of Google's site called AdWords, advertisers can bid on the search terms we all type into Google's search box 200 million times a day. AdWords, which launched two years ago, is now believed to account for the vast majority of Google's annual revenue of $700 million to $1 billion (the exact figure is not known, since Google has yet to file its IPO registration statement). If this is true, then Google makes most of its money as a keyword marketplace.
In a sense, Google is becoming a reverse eBay (EBAY), where the customers are advertisers and the inventory is made up of consumers' desires as expressed by their search terms. Google auctions off the search terms and connects businesses to consumers who are looking for what those businesses have to offer. Whoever bids the most for a term and receives the most clicks appears in a sponsored advertisement link either at the top or along the side of the search-results page.
This form of online advertising appears to be working. Paid search is on the rise while less effective forms of online advertising are waning. Overall industry revenues from paid search surpassed banner ads in the third quarter of last year, according to the Interactive Advertising Bureau. And Google counts more than 150,000 advertisers in its paid-search program, up from zero in 2002.
One reason paid search is working is that it is not an annoyance to consumers. It turns out that a lot of people go to Google to either research a purchase or buy a product. "A big percentage of queries we get are commercial in nature," confirms Salar Kamangar, Google's director of product management. Kamangar came up with the AdWords concept and oversees that part of the business today.
Does he think of Google as a keyword marketplace? "You bet," he says. "It is a marketplace where the advertisers tell us about themselves by telling us how much each lead is worth. They have an incentive to bid how much they really want to pay, because if they underbid, their competitors will get more traffic."
Paid search is the ultimate in targeted advertising because consumers type in exactly what they want. For this reason, a general search term like "tropical vacation" is worth less than a more specific term like "Hawaiian vacation." Advertisers pay only for terms that Web surfers actually click on. They enter the keywords they want to bid on and the maximum amounts they want to pay per click and per day, and then Google determines a price and a search ranking for those keywords based on how much other advertisers are willing to pay for the same terms. Some keywords are 5 cents a click and some are $3 or more. With millions of clicks a day, that starts to add up pretty fast.
A big part of AdWords's success is its simplicity. "We built AdWords so it is as easy to use for advertisers as possible," Kamangar says. The goal, he says, is that "five minutes out, the advertiser can start getting leads." But Google is also improving the ability to target ads. Advertisers can choose to display ads only to Web surfers in particular countries or even smaller geographical regions, and they can broaden their terms to include synonyms, common misspellings, and plurals. Google now also offers a way to track the number of clicks that lead to purchases. Expect more refinements down the pike.
The fact is that Google already knows a lot about its users. So why not build deeper profiles by incorporating information about where they've just come from or what they have searched for in the past? Kamangar professes that Google is not interested in such profiling. For one thing, it would raise a whole host of messy privacy issues. For another, Google's business is based on the trust of consumers, so it would not be wise to risk destroying that trust.
But there is an even better reason not to do such demographic profiling: It represents an old way of thinking from which advertisers need to free themselves. Predicting human behavior based on who someone is or what she has done in the past is not something you should build a business around. "There has been research on this," Kamangar says, "but it is not very promising. The searches people do are so unique and diversified that it is hard to predict what they will want based on their past profile." And when you think about it, why would you even want to? Through their actions and words, searchers are giving advertisers a great gift. "The users have very narrowly defined in their own words what they are looking for," Kamangar says. Google is proving that it is much better to let consumers target themselves.