Advertising agencies faces Google fears

NEW YORK - Google's search for revenue beyond its wildly popular pay-per-click advertising system has everyone from publishers to phone companies unnerved by the seemingly endless scope of the Web leader's ambitions.

Nowhere is this more closely felt than Madison Avenue, where the advertising industry sees Google encroaching on turf ad agencies and media buyers have considered their own for much of the past century.

Seeking to diversify its revenue base, Google has begun offering advertisers a set of free marketing analysis tools to help customers boost how much they spend on text ads carried by Google.com or affiliated sites. It is selling ads in print publications and expected to move into branded, graphical ads.

These moves, which some see as competing with systems offered by independent companies and ad agencies themselves, has provoked grumbling among many in the advertising industry.

"There is an inherent conflict of interest there," said Brian McAndrews, chief executive of aQuantive, a company that is both a big buyer and reseller of Google advertising but also a rival supplier of ad measurement tools.

"Am I going to use Google to measure my search results on Microsoft and Yahoo? Am I going to use Google to measure my advertising results on ESPN?" McAndrews asked rhetorically during the Reuters Media and Advertising Summit on Thursday.

The company is the top independent supplier of ad-buying tools advertisers use to buy online ads on Google's ad network as well as Yahoo, Ask Jeeves and other networks.

Wall Street analysts estimate that about 5 per cent of the US$10 billion spent on online ads runs through aQuantive's system.

"From a consumer perspective, Google is all good," Merrill Lynch analyst Lauren Rich Fine said in a recent note to clients. "However, Google is starting to attract negative publicity (tied to) its foray into other mediums."

His argument that Google's encroachment into other businesses, including the large advertising agencies, drove Google shares down 4.7 per cent last Monday, its biggest percentage loss in a year.

The stock has since recovered most of its losses, closing at US$417.70 on Friday, but the debate over Google's power to transform whole industries only continues to grow.

GOOGLE GOBBLES GROWTH

The success of Google's keyword search system among advertisers has in just a few years spawned a niche industry known as search engine optimization (SEO) made up of tech-savvy marketers who help companies find ways to insure their websites feature at the top of Google searches and ads.

"Google needs this ecosystem," New York-based Susquehanna Financial analyst Marianne Wolk said of the web if ad agencies, marketing support firms and other industry organizations that help advertisers make use of Google ads.

David Verklin, chief executive of Carat Americas, the largest independent media services company in North America, with $6 billion in customer billings, said Google has the power to create new businesses, but also tear them down.

IProspect, a unit of Carat, is one of the search marketers who have prospered on the back of Google's success. Companies like Motorola pay iProspect to target ads tied to 300 words associated with Motorola wireless products, he said.

Verklin complains Google has begun charging marketing firms like his own $50,000 a month to use Google's ad buying system.

"We're going to try and convince (Google) we think that's a bad idea," Verklin said. "I don't want to have to use one tool to manage Google and my own tool to manage Yahoo and Ask Jeeves and everyone else," he said of conflicts between ad systems.

Advertisers are spooked by the idea of relying entirely on Google to deliver their ads and want independent ways to shop around for the best price and the greatest exposure, he said.

Google hears the growing drumbeat of criticism. Executives say they must do a better job of clarifying their aims.

"When the business was just about ads it was pretty straightforward," Marc Leibowitz, Google's director of strategic partnerships, said in a recent interview.

"There's this notion that Google has a grand master devious plan" to put ad agencies and publishers out of business, Leibowitz said. "Nothing could be further from the truth. "We see ourselves in a symbiotic relationship with them."

- REUTERS