June 3, 2004, 12:00 AM

Why retailers are getting Google-eyed

What retailers really want to know about Google is not the share price in its IPO but what they must do to harness the power of the pacesetter in online search so they can boost their own sales.

Since Google Inc. announced plans to go public last month, discussion of Google’s financial prospects has filled the pages and screens of business media around the world. But while speculation on share price and disposition has set the investment community on fire, it does little to answer the questions about Google that are uppermost in the minds of those responsible for the near-billion dollars in revenue reported by the search engine-the online marketers whose pay-per-click programs drove 95% of sales.

While Google is hardly the only search engine, it has the status of a phenomenon in the culture of web users. Its penetration there is so pervasive that its name has morphed into a verb. Google’s profile among consumers towers over its competitors’ partly because it’s always been its own branded destination for consumers, and the impending IPO only turns up the volume on an existing buzz. Overture Services Inc. (formerly search engine GoTo and now owned by Yahoo Inc.), Google’s closest competitor, powers an enormous volume of web searches and offers both consumers and advertisers many options and products similar to Google’s-but because it’s never been a destination site, its name is known to relatively few consumers.

20% time

Google’s well-publicized culture of innovation also has raised its cachet. The company gives engineers what it calls “20% time”-while working on assigned tasks for 80% of their workload, they’re paid to dream up and develop new applications with the rest of their time. Some of Google’s most recent offerings trace their roots directly to this initiative.

In fact, between the search options readily visible on its home page and what’s being tested elsewhere on the site, Google seems to be growing more tentacles than an octopus. And as result, marketers are finding managing the various paid and unpaid ways to be found on Google to be an increasingly complex task.

Optimizing for a search engine’s algorithm is, basically, engineering a web page in such a way that it is a.) found by the engine’s spider and then b.) ranks high in search results because its content meets the engine’s criteria for query relevancy.

It’s how marketers first started angling for more Google traffic, and it’s still important, because 70% of all clicks in Google are on such “natural,” or unpaid, search listings. Most of those are clicks within the first three pages of results, as studies have shown few consumers will go any deeper.

But natural search optimization is not what kicked more than $900 million into Google’s coffers last year. To leverage its more than 200 million searches a day into income-while at the same time, it consistently argues, provide a better search experience for users-Google has in the last few years debuted ad products that let marketers secure prominent placement by paying for it. AdWords are paid listings that appear on top of or alongside natural search results clearly identified as sponsored links. Overture is currently suing Google over AdWords, alleging patent infringement. Google has also rolled out AdSense, a year-old contextual advertising program, which serves up sponsored links on relevant content pages of non-commerce-focused web sites.


Froogle, the separate shopping search engine that Google has been quietly developing for more than a year, offers marketers a direct feed into its index at no charge. Some question whether the feed will stay free; though Google insists it doesn’t plan to charge for it. Froogle already serves sponsored links alongside natural search results, as Google does. G-mail, the free e-mail service Google is now testing, uses AdSense contextual technology to “read” the e-mail exchanges of its subscribers and serve up relevant sponsored links alongside. In exchange for their permission to serve the ads, G-mail subscribers get free e-mail service with 10 times the storage capacity of competing services like Hotmail.

The new ad products and its push to serve ads outside of its own results pages give Google more ways and places to display paid ads and scoop its percentage off any resulting clicks. And some observers say the new Google offerings are just the beginning. “AdWords, AdSense, Froogle-there will be others,” says Stuart Larkin, vice president of partner services at search marketing company Performics Inc. “To utilize them you’re going to have to have the right tools and technology.”

Some of the technology that lets site operators manage those programs is available at Google itself. The sign-up process for AdWords asks retailers to enter a cost per click they are willing to pay on the keyword. That generates Google’s estimate of the number of clicks the keyword is likely to receive and what the average position within the paid listings is likely to be, based on the cost per click.

While the calculations give the retailer a read on the likelihood of placement, they do not guarantee a specific position in the rankings, notes David Fischer, director of AdWords at Google. “The order in which your ad appears on the page is based on two factors, your cost per click and your click-through rate. The click-through rate is a great proxy for relevance,” Fischer says. So under the formula, for example, the retailer in the No. 2 spot in Google’s paid listings might actually be paying the engine less per click than the retailer on the number three spot, if it has a higher click-through rate. “The power of the ranking formula is that it factors the two together,” Fischer says. Google also offers a conversion-tacking tool that retailers can use to gauge their ROI on keyword campaigns.

Google has expanded click-through opportunities for itself and the marketers who use AdWords by distributing AdWords across its network of more than 130 search partners. Searches at the partner sites trigger AdWords as well as natural search results from Google. Beyond that, the AdSense network distributes relevant ads to media and other content destinations as large as major metropolitan newspaper sites and as small as Floridata.com, a one-man operation run by a Florida gardening enthusiast.

“AdSense matches qualified leads with merchants and applies that across a broad swath of the Internet. You are able to achieve great reach that way,” says Fischer.

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