Google: Are Ad Concerns Overblown?

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Count communications equipment provider Polycom (PLCM) among those advertisers. Barbara Baldwin, senior director of Polycom's global brand programs, says her company has no plans to reduce spending in 2008. "During a recession it's really important to maintain a consistent presence, rather than dropping your campaigns and then trying to restart," she says.

New Measures

Rather than siding with the bears, some experts look at numbers like those reported by ComScore as added reason to question the value of clicks as a proxy for online advertising and, more generally, online spending. Large numbers of clicks, for example, can be indicative of click fraud—a way of artificially inflating the presumed value of an ad (BusinessWeek, 10/2/06). "I think click-through was not a great measure to start with," says Michael Leo, co-founder of Avenue A/Razorfish, which was acquired by Microsoft (MSFT), and current CEO of ad software and consulting company Operative. "I don't think clicks tell us what is going on."

Google is in fact taking steps to reduce the number of clicks that are unlikely to translate into real sales. It's doing that in part by reducing the area around an ad that can be clicked on. The belief is that if ads are more effective, marketers will pay more for them. The company also rolled out a new product enabling customers to bid on the cost of an "acquisition," such as an actual sale or other customer transaction, rather than on clicks.

And on Feb. 25, Microsoft announced a new "engagement mapping" service that measures the effectiveness of an ad based on such factors as the number of times the ad was served and consumer interactions with the ad, including clicks, time spent watching a video, and whether users eventually visited a linked Web site. The idea is that consumers are often influenced even by ads they don't click on and that some related purchases happen long after the consumer has seen a marketer's message online. "This myopic fixation on clicks really does a disservice to the publishers who are putting together the inventory and the advertisers who are not getting a real sense of the performance," says John Chandler, principal analyst at Atlas, a division of Microsoft's advertiser and publisher solutions business.

Waiting for Earnings

The intent of these new measures is to better judge the volume of activity resulting from an ad, as opposed to simply counting the number of clicks. On Feb. 12, Starcom USA, Tacoda (AOL's (TWX) ad targeting outfit), and comScore released a study asserting that 6% of the online population accounts for more than 50% of the ad clicks. These heavy clickers, however, account for few of the online purchases. "Optimizing for clicks tends to get you an audience with a propensity to click," says Daniel Jaye, Tacoda's president.

Of course, the clearest measure of the health of the online advertising market is the amount of money the Web titans—especially its dominant player, Google—make. And those numbers won't be revealed until Google, Yahoo, Microsoft, and Time Warner report their first-quarter earnings in April.

Holahan is a reporter for BusinessWeek.com in New York.
With Spencer E. Ante in New York.