With a CPC model that meets advertisers' demands, Google's giving Overture some serious competition. But the real threat may be to the paid-inclusion sites.
Google is no stranger to advertising, having had paid listings on its site since "text banners" debuted in December 1999. Last month, the company introduced a new pay-per-click (PPC) payment option for its AdWords program that may make Google more attractive to some advertisers -- as well as establishing the company as serious competitor with Overture.
Google AdWords, introduced in October 2000, is a self-serve program allowing advertisers to create paid listings that appear in boxes running along the right-hand side of the Google search results page. Until now, these ads were sold on a CPM basis, where the advertiser pays each time the ad appears, regardless of whether someone clicks on it.
In contrast to Google AdWords, Overture has always operated on a CPC basis. Regardless of how often your Overture ads appears, you only pay Overture if someone clicks on it. That's why Overture is sometimes called a PPC search engine.
CPC Dominant In Paid Listings
There are pros and cons to both CPM and CPC pricing. When it comes to paid listings, CPC has reigned supreme due to Overture's success. Anyone starting out in search engine advertising is likely to open an Overture account, because of the huge distribution Overture offers.
Overture is not the only company selling paid listings, of course. Advertisers who decide to go beyond Overture are already familiar with CPC pricing and may wish to work within that model. This is exactly why Google added CPC pricing to its own program. Existing advertisers were demanding it, and the company expects to pick up new advertisers if they can easily compare how much they pay per click with Google versus Overture.
"We keep the benefits of the previous program but open it up to a much wider set of advertisers," said Omid Kordestani, Google's senior vice president of worldwide business development and sales.
Google's particular implementation of PPC pricing has a number of strikes against it. The new AdWords Select program costs advertisers much more to bid on some terms than at Overture, due to minimum bid pricing that varies depending on the term's popularity.
It's difficult to know where you will rank, because Google orders ads by a combination of their CPC price and click-through rate. In contrast, Overture's system is easy to understand. If you want to be the top, you pay the most. If no one is bidding on a term, you don't pay over $0.05 for it.
Building Ad Distribution
Overture has huge distribution, but Google's working to improve in this area. Google's own sites already have a sizable share of the Web search market in the U.S. and worldwide. The company hopes gaining new deals will make running ads on Google as much as "must" as many now consider advertising with Overture to be.
EarthLink was the first AdWords distribution agreement announced by Google and was significant in that EarthLink dropped Overture in favor of Google. The news caused Overture's stock to plunge. Positive earnings from Overture and an extension of its deal with MSN helped Overture bounce back.
The plunge in Overture's stock following the EarthLink defection was probably a huge overreaction, in the same way there were concerns about Inktomi, when it lost the Yahoo account to Google two years ago. In both situations, the loss was of only one of many clients that Overture and Inktomi had. They were not knockout punches.
That said, the EarthLink deal is still significant. It's a big win for Google in rolling out a combined editorial and ad product, just as Yahoo was a big win two years ago, when it was rolling out a pure editorial product. Google stands alone as the only search provider with a strong all-in-one advantage of being able to provide editorial results widely praised for excellence and the ability for partners to monetize those results by carrying its paid listings.
Cash to Carry
The big flaw in Google's pitch in the past was that it wanted money for search results, either an amount for each search conducted or a share of advertising revenues that were sold. In a strapped market, that's a tough sell. Sure, you're great -- but I'm going broke. It's no wonder failing portals such as Go.com, NBCi, and Excite all switched to Overture last year. Overture didn't want to charge them -- it wanted to give them money.
Google's removed that flaw. Like Overture, Google can offer potential portal partners money for carrying its results. Unlike Overture, Google comes to the table with a great reputation for quality editorial. No consumer group has complained to the FTC about Google's ads, as happened with Overture last year. No lawsuit over trademark infringement in ads has been filed against Google or any of its partners, as happened last month to Overture and its partner, AltaVista. Google's bundled ad and editorial should be a compelling offer to portals that want to outsource for search.
Is Google a threat to its partners? The argument is that players such as MSN, AOL, and Yahoo won't dump their deals with Overture in favor of Google, because they view Google as a threat. Perhaps. On the other hand, Google has emphatically not added any "sticky" features, such as free email or personalized stock pages, that distinguish the portals. This means Google might not been seen as a competitor. So far, Yahoo has been happy to partner with the company.
It doesn't have to be a zero-sum game. There's space for both Overture and Google to exist in the ad-distribution world. The real pressure will probably be on some of the other major search providers that seek to distribute their listings, the paid-inclusion crowd. Inktomi, Ask Jeeves, LookSmart, and FAST have products that can be hard to understand for advertisers and users. With Google more entrenched in the scene, they have suddenly become less compelling alternatives to Overture.
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