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Those little ads linked to topics that users are actually interested in – have turned Google into one of the biggest advertising vehicles the world has ever seen.
This year, Google will sell $6.1 billion in ads, nearly double what it sold last year, according to Anthony Noto, an analyst at Goldman Sachs. That is more advertising than is sold by any newspaper chain, magazine publisher or television network. By next year, Mr. Noto said, he expects Google to have advertising revenue of $9.5 billion. That would place it fourth among American media companies in total ad sales after Viacom, the News Corporation and the Walt Disney Company, but ahead of giants including NBC Universal and Time Warner.
Hidden behind its simple white pages, Google has already created what it says is one of the most sophisticated artificial intelligence systems ever built. In a fraction of a second, it can evaluate millions of variables about its users and advertisers, correlate them with its potential database of billions of ads and deliver the message to which each user is most likely to respond.
Because of this technology, users click ads 50 percent to 100 percent more often on Google than they do on Yahoo. “Because the ads are more relevant,” he said, “they create a better return for advertisers, which causes them to spend more money, which gives Google better margins.” (Yahoo is working on its own technology to narrow that gap, and so is MS.)
How it all began ?
Larry Page and Sergey Brin were exceedingly ambitious from the day they started Google, but the job of finding some source of revenue fell to Omid Kordestani, an amiable former Netscape sales executive who was brought to the company in 1999 by K. Ram Shriram, another Netscape alumnus and an early Google investor. Mr. Kordestani explored a range of ideas, including charging users for searches as well as selling Google’s technology to corporations or to other Web sites – notably Yahoo – that were less shy about selling ads.
Eventually, in 2000, Google started to sell ads on its own site, but they were only a few lines of text placed above the search results. There were no graphics and no banners. At first, these ads – and later, a second form of text advertisement that ran down the right side of the page – were sold at fixed prices. But such an approach would not last long.
In early 2002, a Google employee, Salar Kamangar, now 28, convinced Mr. Schmidt and the founders to switch to an auction-based system like the one set up by Bill Gross, the head of IdeaLab. Mr. Gross had created Goto.com, a search engine made up entirely of ads, where advertisers paid only if their ad was clicked on, and the advertiser who bid the most per click was listed first. (Goto was later renamed Overture Services and then bought by Yahoo, an early Google backer that has become its fiercest rival.)
GOOGLE introduced its current system for determining which ad to show on which page late last year. It is a wonder of technology that rivals its search engine in complexity. For every page that Google shows, more than 100 computers evaluate more than a million variables to choose the advertisements in its database to display – and they do it in milliseconds. The computers look at the amount bid and the budget of the advertiser, but they also consider the user – such as his or her location, which they try to infer by analyzing the user’s Internet connections – as well as the time of day and myriad other factors Google has tracked and analyzed from its experience with advertisements.
“If someone is coming from a particular location, a certain ad may be more popular there,” explained Jeff Huber, Google’s vice president for engineering. “The system can use all the signals available, and the system itself learns the correlations between them.”
This technology is both amazing and potentially frightening. Google already collects and keeps vast amount of data about what Web pages and advertisements each of its users click on, and it can evaluate that history – and compare it with that of hundreds of millions of other users – to select the ad shown on each page. For now, Google says it identifies users only by a number in a cookie it places on each computer that uses Google. It says it has not connected the vast dossier of interests and behavior to specific users by name. But that could change as Google offers more personal services – like e-mail messages and social networking – and works more tightly with partners who already have such personal information.