Thu, Nov 23, 2006 - Page 9 News List

Google navigates an offline course

The Internet search powerhouse has made no secret of its ambition to move into selling advertisements in traditional media

By Louise Story  /  NY TIMES NEWS SERVICE , NEW YORK

Major Internet sites are showing a strong and growing interest in the advertising business and traditional ad firms are starting to get worried.

Google has been leading the way, building on its online ad strength by striking deals to sell advertising in traditional media like newspapers and radio. Meanwhile, eBay is developing an ad-buying system for TV spots for a group of large advertisers like Wal-Mart. And Monday, Yahoo announced a deal with 176 newspapers that did not include offline ad sales, but newspaper executives left that option open.

Ad executives say it is hard to know where Google and the other Internet giants will stop.

"The fox is in the henhouse and it's going to gobble a good part of this business up before anybody realizes they're history," said Gene DeWitt, president of DeWitt Media Solutions.

Google's push into the offline world of advertising comes as traditional media companies have increasingly linking up with the online giants that have been stealing their customers and advertisers.

The traditional media companies -- like newspapers, magazines and television and radio networks -- are hoping they can reverse their fortunes and share in some of the success of the Internet instead.

The offline ad market, in the meantime, provides the kind of growth opportunity that Internet companies like Google are looking for, stock analysts said.

"What these enterprises clearly need is to identify new marketplaces to expand into to justify their valuations," said Youssef Squali, the Internet analyst at Jefferies & Co. "And that's exactly what Google and Yahoo are doing."

Google executives have made no secret of their ambitions in the area of traditional ad sales, saying they can save marketers money on print, radio and TV spots, while taking a commission in the process.

Google is testing ad sales for more than 50 newspapers and plans to make newspaper ad sales a permanent offering sometime next year.

Next month, Google plans to sell radio ads through the online auction system it uses to sell Internet ads. And it has indicated to analysts that it is considering moving into TV and direct-mail ads.

Consumer brand companies have turned to advertising agencies for decades to design their ads and negotiate where and when those ads run. Media buyers at ad firms plan and negotiate ad placement with publications, TV and radio stations and, more recently, Web sites. Placing ads is big business for the media buyers at agencies, because often they are paid based on how much the ads cost.

Ad sales in traditional media totaled nearly US$150 billion last year. The entire US ad market, which also includes direct mail, outdoor ads, yellow pages ads and online ads, is worth about US$286 billion, according to Robert Coen, chief forecaster for Universal McCann, part of the Interpublic Group.

Internet ad revenues have been growing by more than 30 percent a year and this year about US$16 billion will be spent online.

But, as Google pointed out in its annual report last year, large advertisers would likely continue to focus most of their ad budgets on traditional media.

To advertising executives, Google is the "frien-emy," both the friend and the enemy, said Martin Sorrell, chief executive of the WPP Group ad company, at a recent industry gathering.

Agency executives said Google, the friend, could provide agencies and media companies with the technical systems they sorely need to modernize ad purchases.

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