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Google (GOOG) has generated most of its income from the Ad Words program. When using it, you choose a group of words that you think will come up in an online search. You agree to pay from 1 cent upwards each time your words are clicked upon. Google uses a bidding war technique with its Ad Words program. The highest bidder per word gets to place its website on the top ten of a search page. That program has been fantastic for Google.
At the same time Yahoo! (YHOO) has taken a different road. It chose to offer display ads on search pages. The ads component added to its revenue stream in 2009, making it number one.
Now Google wants to play catch up. It purchased YouTube for $1.65 billion and Double Click for $3.1 billion. It wants to use these components to expand display ads on sites across the web. "Display is now a key business for us" said Susan Wojcicke, Google's vice president of product management.
Neal Mohan is the executive in charge of Google's display business, He stated: "our goal is to bring the science of search to the art of display." To that end Google bought Teracent which customizes colors, language and other elements of a banner ad, depending on who is viewing it.
Advertisers have found that display ads are cheaper than TV ads and are a way to shift focus of their products to the Web.
This year display ads are expected to generate $7.9 billion, up 8.2% from 2009.
Will Google be able to do catch up in the display ad business?
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