May 22, 2011 7:35 pm

Google predicts surge in online display advertising

The head of Google’s display advertising business has predicted that spending on graphical online adverts, digital video, mobile and other non-search formats will increase almost tenfold in the next few years, as the internet sucks up yet more marketing dollars from other media.

Neal Mohan, Google’s vice-president for display advertising products, believes that many billions of dollars worth of ads will be bought using automated “real-time bidding” technology that will transform how media agencies operate.

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“Our belief is that by Google’s participation we can grow the overall display advertising pie,” Mr Mohan told the Financial Times. “The fundamental problem we are trying to solve is how do we get from [being] a $24bn industry to a $200bn industry in a few short years.”

The digital display market could be worth even more than $200bn, as offline media such as television converges with internet technology, he added. Mr Mohan said the volume of ads traded on its DoubleClick exchange had tripled in the last year. “I have never seen a technology get adopted in this industry as fast as real-time bidding and I have seen dozens and dozens of technologies.”

Real-time bidding enables the advertising that a user is shown to be made more relevant to their interests, location or even time of day, without relying on the context of the website on which the ads appear, as is usually the case for professional publishers.

In a stock exchange-like environment, publishers can offer their unsold advertising space to bidders who can target them at the very last minute, based on, for example, how many tickets are left unsold or stock levels in a warehouse.

Bidding is done automatically based on algorithms and preset rules about how much advertisers are prepared to spend and the profile of user they wish to reach – millions of permutations that can only be executed as an order to buy or sell by computers, rather than humans.

The scheme Mr Mohan describes is a far cry from the bulk-buying, six months in advance of broadcast, that is getting under way in the US TV “upfront” market, where he says agencies “approximate” their desired audiences.

Yet Mr Mohan insists both publishers and agencies will benefit from the shift. A Google-commissioned study found that publishers saw a 188 per cent lift in revenue as a result of participating in its ad exchange. Such a system, if widely adopted, could reduce the costs of buying an online ad from 28 cents in each dollar spent to 2 cents, Mr Mohan said.

Google’s display business, which also includes YouTube, the video site, is worth more than $2.5bn per year, although analysts at Enders have predicted revenues from this unit will be overtaken by Facebook’s equivalent this year.

Mr Mohan said “social signals and social ad formats” would be “interesting aspects” of display, with Google’s “+1” rival to Facebook’s “Like” button expected to appear in its ads soon.

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