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Sunday, October 30, 2005

Google Wants to Dominate Madison Avenue, Too

IN many ways, Larry Page and Sergey Brin seem an unlikely pair to lead an advertising revolution. As Stanford graduate students sketching out the idea that became Google, the two software engineers sniffed in an academic paper that "advertising-funded search engines will inherently be biased toward the advertisers and away from the needs of consumers."

More quietly, Google is also preparing to disrupt the advertising business itself, by replacing creative salesmanship with cold number-crunching. Its premise so far is that advertising is most effective when seen only by people who are interested in what's for sale, based on what they are searching for or reading about on the Web. Because Google's ad-buying clients pay for ads only when users click on them, they can precisely measure their effectiveness - and are willing to pay more for ads that really sell their products.

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, Mr. Noto estimates, and that is a powerful driver of Google's growth and profits. "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.)

Google already sells its text ads for many other sites on the Internet (including nytimes.com), and is also moving tentatively to sell the picture-based interactive advertising preferred by marketers who want to promote brands rather than immediately sell products. Now it is preparing to extend its technology to nearly every other medium, most significantly television. It is looking toward a world of digital cable boxes and Internet-delivered television that will allow it to show commercials tailored for each viewer, as it does now for each Web page it displays.

Eric E. Schmidt, Google's chief executive, explains the company's astounding success in advertising - and reconciles it with the founders' distrust of hucksterism - by suggesting that advertising should be interesting, relevant and useful to users. "Improving ad quality improves Google's revenue," he said in an interview at the company's headquarters, known as the Googleplex. "If we target the right ad to the right person at the right time and they click it, we win."

This proposition, he continued, is applicable to other media. "If we can figure out a way to improve the quality of ads on television with ads that have real value for end-users, we should do it," he said. While he is watching television, for example, "Why do I see women's clothing ads?" he said. "Why don't I see just men's clothing ads?"

The media and advertising industries certainly see a future in which television ads are aimed at individual viewers. But few outside of the engineering Ph.D.'s at Google think that television ads should simply be utilitarian, rather than entertaining, provocative or annoyingly repetitive - the models that have worked so far. And some media industry executives wonder whether Google, which has already become the most powerful force in Internet advertising, should also become the clearinghouse for ads of all types - a kind of advertising Nasdaq.

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