Google Advertising Model Under Threat?

A Bloomberg story reports that specialized online ad agencies such as Quigo are successfully gaining share at the some of the very biggest (and therefore most profitable) advertisers. Quigo allows advertisers to specify what sites their ads run on. Quigo also allows publisher to use their own sales force rather than Google’s. Other ad agencies are similarly targeting their offerings to satisfy the special requirements of large advertisers.

The potential impact of erosion of Google’s ad model is sufficiently serious that some investors have cooled on the stock.

From Bloomberg:

Time Inc.’s Vivek Shah spent six months assessing whether Google Inc., Yahoo! Inc. or Microsoft Corp. could most effectively attract advertisers to the magazine publisher’s Web sites. His decision: none of them.

In June, Shah awarded the three-year, $100 million contract to Quigo Technologies Inc., a closely held New York company that will handle ad space on more than 15 sites, including and

After beating down rivals, Google’s dominant position in the $40.6 billion online advertising market is showing cracks. Google has mined keyword auctions, where the highest-bidding advertiser may end up on a heavily trafficked news site like the New York Times and the lowest bidder might end up on an obscure blog –neither knowing in advance where their ads will land.

Quigo (pronounced KWEE-go) targets better-known publishers such as Time, ESPN and Slate, arranging deals that let online advertisers specify which pages they want to appear on rather than taking what they get. While Google now offers a similar bid-by-page option, Quigo may have an edge as the model’s pioneer.

“They accommodated what we wanted to do,” said Shah, who is president of Time’s Fortune/Money Group and formerly ran digital publishing.

With Quigo, publishers can sell ads directly, using their own sales forces. Other Google rivals, such as EyeWonder Inc. and PointRoll, specialize in video and animated spots, which are growing in popularity.

Sales growth at Mountain View, California-based Google slowed to 58 percent in the second quarter from 77 percent a year earlier. While the company now sells ads embedded in YouTube videos and on Web sites customized for viewing by mobile phone users, those initiatives have yet to prove they can generate the same growth rates as its main business.

“It’s heavily dependent on a particular segment of the business to make money,” said Kevin Landis, who manages $700 million as chief investment officer of Firsthand Capital Management in San Jose, California. He said he hasn’t added to his Google holdings since early last year in part because of the company’s reliance on search-related ads. “It’s scary if that ever started to go wrong.”….

“This is a game where scale really matters,” said Kim Scott, director of online sales and operations for Google’s AdSense, the program it uses to auction spots. “It’s really important to have a huge number of advertisers and huge number of publishers.”

Some advertisers are looking for alternatives as Google’s power grows, said Greg Sterling, an analyst at Sterling Market Intelligence in Oakland, California.

“They have vulnerabilities and weaknesses,” said Sterling, who has tracked Internet firms for almost a decade. “Ironically one of those is their success, scale, power.”

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