• by Laurie Sullivan  @lauriesullivan, November 30, 2009

Google has begun quietly shifting its monetization strategy to take better advantage of paid-search ad formats. At least one analyst firm describes the move as the "most significant changes" the search engine has made to monetizing traffic in years.

The report, published Monday, analyzes product listing ads, product extensions, sitelink ads, comparison ads, and the extension of universal to sponsored search. It also examines the boost to click-through rates.

In fact, Broadpoint AmTech Analyst Ben Schachter believes so strongly in Google's move that he raised the search engine's stock price target from $610 to $650.

The Broadpoint AmTech report suggests that while Google believes the new ad formats improve the experience for both consumers and advertisers, Schachter expect that more tests will find the optimal formats. One key risk is that these improvements alienate users who have come to expect a 'clean' layout from Google. Images could make the search engine page too busy.

The report suggests that the introduction of new business models (CPA, comparison ads) and much broader use of images, video, maps, and sitelinks should have a meaningful impact on revenue in the fourth quarter and beyond. These "richer search ads, coupled with ongoing strong query volume and share trends, make us incrementally more confident about the outlook" for the fourth quarter in 2010.

Confident that execs continue to take Google in a positive direction, Broadpoint AmTech analysts increased the fourth-quarter net revenue and earnings-per-share (EPS) estimate by 2% and 3% to $4.913bn and $6.74, respectively.

Contributing to the confidence is a Nov. 24 blog post on Google's Web site explaining the significant change in the way Google presents sponsored links. Schachter seems to think Google is fully committed to the idea that images can improve its monetization strategy, while also improving the user experience and return on investment (ROI) for advertisers.

The simplest way to understand how this will increase sales is by noting that these new ad formats cover a much bigger portion of the SERP (search engine results page). Images tend to draw in people more than text-only ads, Schachter explains. This should raise click-through rates.

The report suggests that Google's shift in ad formats, which should bring higher CTRs, is a direct response to numerous changes taking place at Amazon, eBay, Microsoft and Yahoo. "As we have been saying for months, we have now seen more changes to the search experience in the past few weeks than we have seen in the past five years, and we expect more to come," the report says.