Contextual Advertising, Part 2 of 2

In Part 1, I discussed contextual ads and their role in the inquiry marketing mix with Google’s Susan Wojcicki, director of product management. (Full disclosure: my company is a reseller of both Google and Overture’s contextual and PPC search ads).

This week we continue the discussion, covering publisher relationships and the conversion equation. How does the existence of a contextual ad unit and marketplace improve publishers’ fates (and fortunes)? How will it benefit advertisers?

A marketplace for contextual ads exists because of the large numbers of advertisers “owned” by Google and Overture. To grasp this, you must think of its advertisers as inventory — a strategic asset that makes this possible. So many companies in so many categories advertise so many different products. They run so many different, specific search ads. That’s what enables a contextual ad marketplace.

When content sites support themselves with advertising, their sales team (or agents) sell their inventory. They approach individual advertisers and pitch each one. Google and Overture can assure publisher there will be available ad inventory for any page of any site. All their ad space will be sold. Even the largest media resellers don’t have enough advertisers to create such a market.

Google has two programs for content publishers: AdSense for smaller publishers; and Premium for large ones. Ad Sense is easy for publishers to set up.

Susan’s description of the process is as follows: “[Publishers] fill out a form. We [review] their Web site [for quality]. They log in, get a piece of code. They can choose different ad formats, customize the color [and background], and have access to [near real-time] online reporting so they can log in and see how much money they’re making.”

Google works directly with larger publishers through the Premium Ad Sense program, and even offers a revenue share. In many instances, Google will actually buy the ad space on a CPM basis.

Susan: “[Often] we’ll negotiate a rate on a CPM or revenue share basis believing that we can monetize it better. We give large publishers the option to brand [the contextual ads] as Google. We do make sure they are always marked as ads. We give them control over colors, backgrounds, etc.”

Wow. Google must be buying tons of advertising. I suggested to Susan Google may be the world’s biggest online advertiser:

“We probably are the world’s largest online advertiser. I wouldn’t be surprised.”

Conversion?

Trying to get someone to go on the record with specific, network-wide conversion figures for contextual advertising is tough, perhaps impossible. Susan claims Google’s own studies show conversion rates for contextual ads rival search ads:

“We have looked at hundreds of advertisers. We hired a professor from Berkeley who looked at their [conversion] information over 17 weeks. He indicated that the conversions were similar to that of search. If the ad converts for search, it converts for contextual.”

The truth turns on this professor’s definition of “similar.”

In terms of a contextual ad’s performance against banners, Susan points out some banners aren’t content-targeted, and people generally only see one banner at a time. She suggests this is another reason why contextual ads outperform banners.

“People like it when they see more than one advertiser. You want to see all the haircut providers. It makes the space more valuable to the user,” she explains.

There’s still some controversy over pricing and flexibility. A contextual ad’s cost is determined in the auction, not the contextual marketplace. That’s akin to pricing a car in California, then selling it in Kabul. Susan’s defense: those “similar” conversion and click-through rates.

Flexibility is limited, too. Advertisers cannot specify a site that works well, or opt-out of one with clicks that don’t convert. Susan hints that if enough advertisers request such a feature, it would likely be offered.

Death of The Banner?

Contextual advertising is growing, in part by usurping banner ad real estate. Susan is quick to point out there’s a place for both. But she believes the quality of search combined with the power of contextual ads create additional inventory.

“By providing a good search experience, people do more searches. People generate more content,” is Susan’s reasoning.

She suggests a virtuous circle, a breakthrough for me. I’d always believed the only way search engines could cause people to perform more searches was to reduce the quality of the results, so they’d have to perform more searches to find what they wanted.

Susan rightly points out when people have a good search experience, they’ll search more often. As they become accustomed to search solving their problems, they’ll go online more often. Content developers will build more content for more visitors from more searches.

A high-quality search experience does create a bigger pie. It’s a case for the power, perhaps the origins, of the shift toward inquiry behavior.

Google vs. Yahoo (Overture)

Susan adds one more competitive thought:

“Advertisers go where the inventory is. They’ll go to where they see their clicks converting. If they are able to get a lot of clicks and they convert, that’s where they will spend.”

Overture, too, has a robust and valuable contextual ad program. I wanted to speak with them, but no one was available before my deadline. I’ll cover Overture’s product in more detail soon.

Just as advertisers will go where the inventory and conversions are found, a search audience will go where their questions are best answered. If you’re not currently testing and measuring contextual ad units at Google and Overture, you may be missing a significant audience share.

Online marketers should maximize their reach and test the contextual ad unit. Share your results and I’ll report them in a future column.