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Google: Display Ads That Don't Suck?


One more sector for the company to dominate.


The Internet gutted newspaper classifieds with text ads - and things may get worse in a hurry for the dead-tree industry.

Google (GOOG) plans to sell display advertising pegged to users' interests, making illustrated ads the next to move online.

Surprisingly, Google is playing catch-up. Yahoo (YHOO) and Time Warner's AOL (TWX) offer similar services. Google may have been slow to enter the field because it's wary of privacy advocates who gripe that the search leader already compiles too much information on users. Furthermore, CEO Eric Schmidt said there were 3 major problems facing display ads:

"1. If you have a display property, it's very difficult to figure out which ad to show... We're in the process of building the equivalent of an ad exchange which will allow you to do that automatically and do it with scientific measurements. So today what people do is they use heuristics, and the heuristics in that space are terrible.

"2. The standardization of ad formats. There's not agreement at the level that it needs to be on the standardization of the delivery of the display, and especially around interactive and video ads. The future of display ads is not a static picture, but an ad that brings you in. That tells you a narrative."

"3. In our case is the construction of the business relationships with the large advertisers, which we're still working on."

Like other major webmail services, Google now scans the text of Gmail messages to detect viruses and spam. Google also uses its scanning technology to deliver targeted text ads that appear next to the message box. The text ads are served automatically, and no one reads the content of e-mails.

Individual users won't be tracked by name, and they'll be able to opt out of Google's new display advertising service. Google won't draw information from users' search requests, but from browser cookies. The cookies won't be assigned to a user's email account or documents that contain personal information.

Users who want to participate will be able to select from about 25 special interests, such as finance, cars, computers and sports - and (annoyingly) must update their options on each computer and browser used.

"Behavioral advertising" has prompted yelps from lawmakers and privacy advocates. The Federal Trade Commission last month said companies delivering ads keyed to users' interests should clearly state how the program works and allow users to decline to participate.

The upside: Targeted advertising probably means that most general content on the Internet will remain free. It will have no affect on paid content offered by some websites.

Google is expected to launch its new advertising effort in stages as the company moves into display advertising worldwide. Google serves display ads to its subsidiary, YouTube, but only grabs about 1% of the US display advertising market. That will change - probably in a hurry.

No positions in stocks mentioned.
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