Google Will Make $2.5 Billion in Display Advertising

Still a Rounding Error on Search Business, but a Sign of Progress

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NEW YORK (AdAge.com) -- For almost its entire existence, Google has been a one-track business: online search advertising. It's been trying to change that with expensive forays into display, mobile, video and even TV and radio.

How's it doing? Google has been trying to signal momentum to the market for years, but today, during earnings, it put some numbers behind it, and as Senior VP-Products Dan Rosenberg said, they all begin with "b."

Patrick Pichette
Patrick Pichette Credit: Google
The company said it is selling $2.5 billion in display ads on an annualized basis, based on its third-quarter performance, including banner ads, video on YouTube, mobile advertising, DoubleClick AdExchange and the Google display network.

Strikingly, the company's global mobile business has grown to $1 billion on an annual run rate, and that YouTube is selling ads on 2 billion video views a week. Mobile ads are counted twice, as both mobile and display, said Chief Operating Officer Patrick Pichette. The numbers were offered without context or a means to compare with the past, and the company said it is breaking them out for informational purposes one time only, and wouldn't do so again in the future.

"We're seeing great momentum on new businesses," Senior VP Jonathan Rosenberg said on the earnings call. "We're firing on all cylinders in display."

Google issued the numbers after a quarter in which its core business -- search advertising -- is booming. Google posted revenue of $5.48 billion, a 25% gain over the same period last year, with profit of $2.17 billion at a 32% increase. The company's stock has fallen close to 14% year-to-date, but surged more than 8% to $589 a share in after-hours trading.

"Search is still the heart of the web," Mr. Rosenberg said. "As the internet continues to explode, there are more websites, more video, more people coming online. The first thing they usually do is search."

Analysts on the call also inquired about any plans Google may have to offer social-based search results. Microsoft's Bing recently announced a partnership with Facebook to generate social-based search results where, for example, a user searching for movies might see what their friends on Facebook may have posted about movies they have recently seen or "liked."

Google currently doesn't show results from Facebook. CEO Eric Schmidt, who uncharacteristically participated in the earnings call, said: "Over time, as we get more information as to who your friends are, we'll make search better, but that will be up to the user to share that information with us. We want users to be more logged into Google, because the more logged in they are, the better results we can give them." Mr. Schmidt did not make clear exactly how the company plans on indexing that kind of information or from which source.

Given the explosive growth of mobile commerce, including the proliferation of Android operating system, analysts inquired whether Google might possibly adopt Apple's app-store model, where users pay for particular applications. Mr. Schmidt said the company will not go the route of Apple, preferring to get as many users -- and applications -- onto Android in order to better sell advertising.

Despite the company's aggressive pursuit of new revenue opportunities, such as display advertising, it still commands the search business with 73.3% of total U.S. search-advertising revenues for 2010, according to eMarketer.

Said Mr. Rosenberg: "Search is still the most-monetizable moment on the web."

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