• by Masha Geller , March 31, 2003

What started as a simple, uncluttered search engine has become a cultural phenomenon and quite possibly the world's top online brand. Now it's one of the few online enterprises enjoying soaring profitability. It's Google. And it's ready to rule the online paid search market, having only entered the arena a year ago.

Yesterday, Google signed a multi-year agreement to integrate its search technology and sponsored links with SportsLine.com, Inc., publisher of CBS SportsLine.com) - the fifth member of the Google syndication family after AOL, AskJeeves, Earthlink and Disney.

Michael Levy, founder and CEO of SportsLine.com, said the inclusion of sponsored links from Google's worldwide network of advertisers on all search results pages is slated to provide SportsLine with an additional revenue stream and a valuable service for its users. Company spokesman Alex Riethmiller added that while advertising will always be the core supplier of Sportsline's revenue, "we are always looking for additional streams of revenue to diversify our income and this deal helps accomplishes that objective."

As Riethmiller puts it, with Google, SportsLine "found a partner that has demonstrated an ability to execute, has a proven record of success with their sponsored links program and the overall quality of their search product is second to none."

It's not often that an online service provider gets such high praise from practically everyone who has worked with it, but it seems Google can do no wrong.

In February, just days after fellow search marketing heavyweight Overture announced its plans to roll out a content targeting solution in the spring (analysts estimate the two companies almost equally share the paid listings traffic in the U.S.), Google quietly unveiled "Content-Targeted AdWords." The program all but turned the formerly vague concept of content targeting online into a commonplace advertising approach.

Google uses its algorithmic technology to scan sites beyond those with which it has long-term deals (as with SportsLine), then determines relevant listings to serve. For example, a visitor to a site that contains information about a particular sporting event might see Google's paid listings from advertisers who purchased keywords relating to the event. The listings don't require any extra design effort from publishers as they appear either in the banner or the skyscraper spots that already exist.

At the unveiling of the content-targeted AdWords program, Google announced just a few sites that would use the service, including HowStuffWorks.com, San Jose Mercury News, and Knight-Ridder Digital's properties. To get the program rolling, the company offered its AdWords customers free clicks through March 12, and according to spokesman Mike Mayzel, most of the advertisers who tried the program stayed on and continue to use content targeting. Advertisers are charged on a cost-per-click (CPC) basis with a maximum CPC and a daily budget.

The list of AdWords distributors has also grown. Late last week, Google signed distribution deals with two ad networks, BURST Media and Fastclick, securing Google distribution on about 14,000 of middle-and lower-tier sites, such as FantasyCars.com and Webtoolcentral.com.

The larger content sites remain the big moneymarkers for Google, but BURST Media's CEO Jarvis Coffin says that Google has obviously done the math on this deal and figured that partnering with ad networks is a good way to continue to improve the opportunities for their customers. "They're taking the fight to the people for their advertisers," he said. "Fundamentally, they're helping their advertisers reach people at the point of content -- when they're predisposed to buy or favor certain advertisers. That's what they do at their site and what we do at ours - it's a good match."

The biggest question mark in Google's future seems to be competition from Overture, which last week partnered with Los Angeles-based Applied Semantics to bring the "power of contextual targeting to online advertising." Since 1998, Applied Semantics has developed a now-patented product called AdSense, which extracts the meaning of a web page and dynamically generates ads comprised of search terms and results on the fly.

Applied Semantics officials say AdSense is superior to other paid listings solutions (i.e. Google) because of its filtering capabilities. The filters - objectionable filter, competitive filter, adult filter and relevancy filter - allow online content providers to avoid offending site visitors and readers, ensure advertisers get their ads to the most appropriate demographic audience, guarantee that competitors advertisements will not appear on the site. In today's sensitive advertising climate, newspaper sites, such as USA Today, New York Post, and getlocalnews.com, have already incorporated AdSense technology to keep links and advertisements off of web pages where sensitive issues are covered.

Financial Outlook

Over the past 18 months, the prominence of search as the most effective online marketing tool has risen dramatically, while ways to monetize the search page have been expanding as well. In his new in-depth research report on the online search industry entitled The Golden Search, U.S. Bancorp Piper Jaffray Senior Analyst Safa Rashtchy asserts that the industry represents a major growth market, which he expects will reach nearly $7 billion in worldwide revenues by 2007, growing at a compounded annual rate of 35%. In addition, he believes that the key driver of growth is "the increased popularity of search as the most efficient way to find products and information, and simultaneously the rise of search as the best way for advertisers to find and acquire customers." Rashtchy has identified five key trends that he believes will shape the future of the search industry, and understanding these trends will enable investors to identify potential winners in this growing market. These trends are:

1. Search Capitalism -- Overturism, or the idea of paid search as a market-driven customer acquisition vehicle
2. Googlism -- increased importance of relevance and a race to provide the best search experience,
3. Globalism -- the increased importance of international markets and its impact on the partnerships among search companies,
4. Elitism -- concentration of search among key destinations and the increasing importance of branded destinations, and
5. Realism -- the next phase in search: in-context search.

"The combined outcome of these five trends is that search will expand from its current form to have a much wider scope in functionality and monetization and could become one of the biggest revenue segments for portals around the world," said Rashtchy. "We also expect significant consolidation and merger and acquisition (M&A) activity in the search space, with the value of market leaders in search monetization and technology continuing to rise."

In Rashtchy's opinion, the two most important companies in the search space are Overture Services, Inc. and Google. Among portals, he believes Yahoo! and MSN have the best focus and potential on expanding their search market share, and both are facing stiff competition from Google.