So people have been talking about the idea of Google shifting from simple search advertising to a combination of search and banner ads for a long time.  Rumors have circulated for as long as I can remember and there have even been some occasional more formalized news-worthy pieces indicating that the idea has validity.

Shankar Gupta reported in Online Media Daily today that “…Google Appears to be testing a new display ad network that will sell ads on a cost-per-thousand impression basis, according to a report that surfaced this week on the blogosphere.”  The blogger, John Chow wrote:

“Google offers display and video ads to AdSense publishers on CPC and CPM format.  Google has been hand-selecting sites that they want to put in front of Fortune 1000 companies … the only way to get into the display network is if Google invites you.”

John’s supposed participation in the program prevents him from sharing too much detail, however, he indicated that he was advertising on The Techzone (http://www.thetechzone.com) through the program.  I searched the site’s source code and could not find any ad server redirects other than Google’s ad sense advertisements.  All image ads are being directly served by The Techzone:

<iframe src=“http://www.thetechzone.com/banners/XL_Memory_160x6001.html” width=160 height=600 hspace=

vspace=0 frameborder=0 marginheight=0 marginwidth=0 scrolling=no align=no>

</iframe>

Now, personally I do happen to know that this story could have some validity to it.  In Q1 Google was doing some investigation into publisher ad servers.  They were putting out feelers as to what features were specifically available from current solutions on the market – “seeing what was out there.”  They were interested in things like inventory management control, forecasting, inventory allocation and campaign management.  The de factor motto of “buy-it vs. build-it” was thrown around.  More than enough time has passed since then for Google to have either acquired, integrated or even developed a publisher ad serving solution and they could easily have since initiated a beta stage implementation like that which has been described by John Chow and now reported in the Online Media Daily.

What would all of this mean?  What would the implications of Google serving banner ads have on the industry?

Adwords is the dominant search mechanism in the industry.  Google is certainly the number one search advertising medium for advertisers.  It’s the first place you buy when you put search into your plan, and you spend the most there.  If you are an SEO provider, you integrate with Adwords before you do anything else. 

If Google is to introduce banner advertising it would make sense that they will have a very strategic approach and a costly one for the advertiser.  We’ve watched them systematically increase the price-point of search.  It is now more expensive to buy search terms on Google than on any other network.  And it becomes incrementally more expensive the longer you run your campaign and more successful you are.  See some of my other posts, like Banners vs. Search, where I talk about this further.

I can definitely see how the beta program would be reserved for select advertisers and the CPM rates would be held at very high CPMs like John Chow mentions in his blog: “The goal being to sell these big companies display and video ads at a very high CPM – unlike the AdSense network, the display network is 100% CPM based.”  If the program gets going with a core base of premium advertisers at a high rate it will establish precedent of high rate levels for when the program is opened up to everyone else.  Banner advertising on Google could actually pull premium advertising rates back up across the industry as other content providers see advertisers demonstrate a willingness to spend higher CPMs on Google – that is if Google is successful.  Interesting impact.  Afterall, if you’re willing to pay more to advertise on Google, why not for the most premium placements on WSJ or ESPN or other top-level sites?

All of this is predicated on one thing, the response rates have to be there.  Google’s banner advertising program, dubbed “Google Display Advertising Network” is not banner ads on the Google Search Engine but rather across the AdSense network.  So it’s not like we’re talking about contextually placed ad banners on the search pages like on Yahoo Search.  Will the click-thru rates be there?  I guess you have to wonder whether the click-thru rates are exceptional on the sites in the network to begin with.  And then of course you have to wonder if the advertisers that are to participate in the program are capable of good response rates, of generating creative capable of good response rates, and so on.  There are a lot of variables in the mix here that need to happen for Google to be able to maintain the high CPMs it may start with upon releasing such a program.  Like anything, market forces will eventually push something like the Google Display Advertising Network to where it should be.  CPM rates may stay high or they may fall in line with the rest of industry and CPC could be introduced for the lower-valued inventory.  Google could even acquire more inventory and become a significant CPC network that rivals the other networks – even beginning to offer things like behavioral targeting – oh boy.  Integrate the reporting with Google Analytics and you have some serious competition. 

But for a while, in the more immediate term if all of this is really true and happening, Google could demand a premium CPM for banner advertising that advertisers would potentially be willing to pay that could drive a wild stock price onward and upward!

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