• by Laurie Sullivan  @lauriesullivan, February 10, 2010

Contextual advertising through AdWords and AdSense has been a cornerstone of Google's business model. The Mountain View, Calif. company built the tools into Gmail to target people with contextually relevant ads based on keywords that appear in email messages.

Now Google has another tool to contextually target people through Gmail. Buzz -- Google's Gmail add-on that the Mountain View, Calif. company unveiled Tuesday -- not only creates opportunities for ads in PCs, but on mobile phones, too.

Today, ads appear in the Gmail inbox next to emails that contain Buzz posts, similar to the way ordinary email messages do -- but no ads appear in the Buzz tab itself, according to a Google spokesperson. Targeted ads appear in the right rail based on keywords in the Buzz email message. And while Google's spokesperson would not confirm how Google will build AdSense into the Buzz tab, industry analysts and insiders are convinced it will happen.

"Clearly it's an attempt by Google to become part of the content-sharing creation trend, which is happening largely outside of Google on Facebook and Twitter," says Forrester Analyst Augie Ray. "The more that Google can gain a window into the way consumers share, the better ads it can serve up. If consumers begin to adopt this tool, it will benefit Google and contextual advertisers through AdSense."

Buzz allows people to share updates, videos, photos, links, and start conversations with friends about interesting things. It goes beyond status messages and automatically pulls images from links, plays videos, flips through photos to share publicly or privately. Gmail users can turn off the Buzz tool by scrolling to the bottom of the Gmail page and clicking off Buzz.

Trip Chowdhry, managing director at Global Equities Research, believes Buzz will likely move Gmail into behavioral targeting because now Google knows more about the Gmail user and friends. He puts the demographic target at single males, between ages 16 and 23.

It's not a stretch to think Google will use Buzz data to increase the relevance of contextual ads, which theoretically could increase click-through rates and conversions, according to Bryson Meunier, associate director for content solutions at Resolution Media. "I'm skeptical that it actually will make the ads more relevant, in part because of Edelman's recent report on trust in social networks," he says. "That's not to say Google won't use the data if a user makes it public and allows them to use it to improve relevance of ads."

Similar to Twitter, the opportunity for brands becomes using the platform to converse and build customer relationships rather than just targeting ads in the margin through AdSense, adds David Gould, president of Resolution Media.

On the one hand, Google needs to take applications social to maintain its lead in search during the next ten years, according to Kevin Lee, president at Didit. On the other hand, social media networks are extremely difficult to monetize, as social ads ask users to stop, ignore their friends and loved ones for a moment, and pay attention to an ad, he says.

"Social ads also reach out to users at the moment when they're likely not to be thinking of purchasing decisions, and an ad that doesn't capture someone in the midst of a purchase decision is certainly a challenge that Google faces across AdSense," Lee says. "The more you enter the realm of pure social networks, such as competing with Facebook, the more challenging it becomes."

Lee says this presents a bit of a problem for Google because the company needs to make its offerings more social, but the more social they make the offerings, the more monetization challenges surface.

Yahoo's attempt to socialize Yahoo Mail last year led the Sunnyvale, Calif. company to introduce more Facebook-like features, too. But Google's push into social might trigger a few red flags -- especially because of the mounds of consumer data the company collects from search patterns, applications and platforms, says Jeremiah Johnston, chief operating officer at Sedo, a trading platform for online domain names and Web sites.

"I'm sure some people will become skeptical about putting more information into Google Gmail," Johnston says. "If you look at the terms of use for Google products, they certainly retain the rights to pick through your data to find ways to make money."

Social networking services like Meebo, Facebook and Twitter began to tie together services allowing easier connectivity. Building social network capabilities into Gmail allows Google to move beyond search engine competitors and compete with Facebook and Twitter. David Goldman, senior search specialist at MRM Worldwide, says since social networking largely relies on mobile, it allows Google to push deeper into the mobile market, too.

Goldman gets jealous tracking friends in real-time surfing on the beach, but imagines the potential of targeting them with ads. "Get your first drink half off at the Boardwalk Bar and Grill," he says. "With every update from my friend's phone, he can essentially walk into any nearby location, show a coupon and save money. This would also allow local small businesses an opportunity to get noticed and reach the right person easily."

Google has the ability to harvest this type of data and integrate it into the many layers of information already gathered about user behavior, and in turn make it more useful for advertisers. So the desire to share information doesn't stop with the PC. Google moved the platform into mobile by identifying signals to algorithmically determine the relevance of a post. Location-based services that determine latitude and longitude support the technology.

The new version of Google Mobile Maps has a layer that displays Buzz posts tagged to a location. People can see public Buzz content posted from mobile phones around their location. That information might include reviews of local stores or restaurants.

"Mobile is a horizontal application that intersects all media channels, including social and it's about information snacking and accessing relevant information on-the-go," says Amielle Lake, chief executive officer at Tagga Media. "These constructs align well with user characteristics of social media, such as sharing information bits that are typically relevant to location and imply that a consumer is on the go, such as @tagga going to Vegas for I-media. Can't wait!"