Proximic: Ad Tactics to Challenge Google

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Increasing Targeted Ads

Surprisingly, some two-thirds of all queries on the Web now don't go through big search engines such as Google but rather through specific sites, says IDC's Feldman. Somebody looking for a book, for example, is more likely to go to a specific site like Amazon rather than Google, she explains. Sites with highly targeted audiences are thus valuable to advertisers, but "the number of queries that are monetized is far less then it could be because not everybody has Google Adsense," says Feldman. "Any company that can deliver better, more targeted leads is going to be able to command a higher price because the pay-per-click is going to be higher."

Proximic hopes to deliver just that. "There are 200,000 vertical interest groups on the Internet, and that number is growing, but publishers don't have adequate access to revenues in those specific environments," says Pieper, the company's chief executive. "That's why there is a need to increase the number of targeted ads."

The biggest concern for the startup is that so far it has only signed up a few publishers to carry these targeted ads. They include British newspaper The Independent (which is coincidentally a BusinessWeek.com content partner) and New York's Nature Publishing Group. But if Proximic can scale up as promised, it will be possible to begin matching targeted ads to niche user groups and blogs, says Pieper.

Under fire

Another advantage over Google, Pieper adds: Proximic is able to deliver targeted ads without impinging on anyone's privacy. The company's technology doesn't use behavioral targeting or historical data, practices that are coming under growing fire from concerned consumers. Proximic's matches are based only on the content of a particular page.

Co-founder Nitsche is a math whiz who has specialized in sophisticated algorithms and pattern-matching technology. In 1984 he won the world microcomputer chess championship by designing a chess program that operated on a computer with only five kilobytes of memory—smaller than most e-mail messages today. After two decades of research, Nitsche is using the same kind of pattern-matching technology to link digital buyers and sellers on the Net. The depth of Nitsche's work helped him snag $8.87 million in funding from Munich venture capital firm Wellington Partners and the venture unit of German media giant Holtzbrinck Group.

A Young, Volatile Market

By winning over large catalog-owners as customers, Proximic avoids having to make thousands of deals with individual merchants. Instead, the company will index these large sites and then serve up matching products as text ads along with relevant content links. Revenues generated from the ads will be shared among the catalog owners, content publishers, and Proximic.

Still, even if Proximic can demonstrate better matches, no one predicts it will be easy to take on Google. But like other contenders, Proximic has everything to gain. The digital advertising market "is still young, volatile, and prone to disruptions," says IDC's Wiede. "It took only five years for Google to get into the position it's in now; there is no reason why five years from now somebody else could not do the same."

Schenker is a BusinessWeek correspondent in Paris.