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The New York Times
SAN FRANCISCO — Google is pushing for a second act.
The company has built its fortune almost entirely on the back of small text ads, which appear alongside its search results and on sites across the Web. Now it is stepping up efforts to make inroads into graphical display ads, a business long dominated by Yahoo [YHOO
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Google’s [GOOG
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] chief executive, Eric E. Schmidt, has said repeatedly that display advertising offers one of the company’s best prospects for expansion, now that growth in its text ad business has slowed significantly. The new advertising exchange is a cornerstone of Google’s display strategy, and one of the main reasons Google bought the ad company DoubleClick last year for $3.1 billion.
Google executives say the new system, called the DoubleClick Ad Exchange, will greatly simplify the process of buying and selling display advertising, allowing many more publishers and advertisers to benefit from it.
“The objective from the outset is to grow the display advertising pie for everybody,” said Neal Mohan, vice president for product management at Google.
But both in display advertising and in advertising exchanges, Google finds itself in the unfamiliar role of underdog. As one of the Web’s biggest publishers, and a seller of ads on a network of top sites like eBay [EBAY
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] and hundreds of newspapers, Yahoo is the king of the display advertising business. In 2007 Yahoo bought Right Media, a pioneering ad exchange whose business has grown steadily since, in part because many of the ads that run on Yahoo are brokered through it.
Still, analysts say Google’s push into the business could shake up the market. DoubleClick has had an ad exchange for some time. But the new system will automatically allow hundreds of thousands of advertisers and publishers who now use Google’s AdWords and AdSense systems to run their ads and ad space through the exchange.
Analysts say that should expand use of the DoubleClick exchange and allow brand advertisers to easily run campaigns that reach virtually everyone on the Internet.
“Marketers are going to be able to effectively reach 100 percent of the Internet audience and do so at a high frequency,” said William Morrison, an analyst with ThinkEquity Partners. “That is very difficult to do on the Internet right now, outside of a handful of major Web sites like Yahoo and a few others.”
Ad exchanges have been hailed as the future of the industry for some time, yet Mr. Morrison said that they only account for between 10 and 15 percent of the display advertising business. He said it was unlikely that the DoubleClick exchange would catch up with Yahoo’s exchange within the next year. But the Google exchange could become dominant over the long term, especially among premium brand marketers and publishers, he added.
Yahoo said it welcomed the competition. “We are very confident in our capabilities,” said Frank Weishaupt, the company’s vice president for North American marketplaces. “We will continue to innovate and do our best to control our own destiny.”
Some industry executives say that the DoubleClick exchange will give advertisers more flexibility than Yahoo’s, allowing marketers to aim their ads more precisely at certain types of customers and to buy one ad spot or “impression” at a time.
When a person requests a Web page from a site that is participating in the exchange, the publisher notifies the exchange that space on that page is available. It might also let the exchange know something about that person, based on his or her past online activity or shopping habits. Advertisers bid on the ad space, offering different amounts depending on the person’s attributes, the time of day and other factors. The winner’s ad is then slotted into the page. All of this happens nearly instantly.
“Now it’s a shift to, each and every request comes over, you’re able to see the attributes of that impression, then able to respond with a fair market price for that impression,” said Joe Zawadzki, chief executive of MediaMath, which advises agencies on exchange-trading strategies.
But Mr. Zawadzki said that Yahoo, and perhaps other exchange operators like Microsoft [MSFT
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Mr. Mohan of Google said that the exchange will allow publishers to fill their ad slots with the highest-paying ads. But some ad executives said that the exchange, if successful, could mean headaches for high-end publishers, as it would allow advertisers to reach their intended audiences more cheaply on other sites.
“They’re going to have to compete, from a performance perspective, with the long tail,” said Curt Hecht, president of the VivaKi Nerve Center, the digital research and development arm of Publicis Groupe.
Google’s path to the display advertising business has been tortuous. The company began tackling the market years ago. Unable to make serious headway, it bought DoubleClick, and since the deal closed more than a year ago, Google has been integrating DoubleClick’s technology with its own advertising systems. Mr. Mohan said that the new ad exchange was a major milestone in that integration.
Yet in the last few months, Google has also lost a number of advertising executives, including David Rosenblatt, the former chief executive of DoubleClick, who was president of display advertising for Google. Michael Rubenstein, who oversaw the original DoubleClick ad exchange, also left recently to join a start-up.
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