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JANUARY 22, 2004
By Alex Salkever Searching for Trouble? Keyword ads are big earners for Google, Yahoo!, and AOL, so trademark lawsuits currently in the courts could spell major hassles Search engines have emerged as the Clydesdales of the booming online advertising industry. Just look at Google's upcoming initial public offering, which could value the search giant at $25 billion. Wall Street anticipates the biggest IPO since the dot-com bubble burst. Google's chief competitor, Yahoo! (YHOO ), just announced a wildly successful fourth quarter, with revenues up 132% from a year earlier, thanks in part to surging ad revenues. Seeing dollar signs in searches, Microsoft (MSFT ) is hastily building up its own engine to compete with these two gorillas. What's driving this online arms race? Two words: keyword advertising. It works like this: Google, Yahoo, and other search companies sell keywords to the highest bidders. Whenever Web surfers enter those words into the search box, they receive a list of results that includes spots for the advertiser who bought those terms. Let's say you entered "Resorts in Barbados" in the Google search box and hit "Search." You would get listings from advertisers who paid for placement with the keywords "resorts" and "Barbados." Google puts those listings off to the right side of the screen, clearly marked as ads. Yahoo does the same and also puts paid listings at the top and bottom of the page, sandwiching the actual search results. Ditto MSN Search. OUTSIDE HELP. These types of ads account for anywhere from 50% to 75% of Google's estimated $1 billion in 2003 revenues, according to analysts. A keyword ad network run by Yahoo subsidiary Overture also accounts for an undisclosed but significant chunk of Yahoo's revenues, the same analysts also note. Google and Yahoo claim keyword advertising in search engines is more effective in reaching consumers than other types of online ads, and many advertisers agree. Keyword advertising is also an essential revenue stream for Microsoft's MSN portal and search engine. Right now, Redmond contracts with Overture to provide advertising to match keyword queries for MSN searches. Likewise, America Online (TWX ) contracts with Google for this service, which has been one of the only areas of ad revenue growth for the nation's largest Internet service provider. AOL and MSN share revenues with Google and Overture for keyword ads placed on their search pages. Some hot brushfires are cropping up around this business model, however, and investors might want to pay close attention in the days ahead. Take the complaint of American Blind & Wallpaper Factory, a small Plymouth (Mich.) company that makes both, plus draperies and other products. It owns and operates the Web site Decoratetoday.com. LEFT HANGING. In July, 2002, American Blind sent a letter to Google requesting that it stop selling keywords linked directly to the phrase "American Blind." They also requested that Google cease offering a broad range of keyword combinations, including "american wallpaper discount," "decoratetoday.com," and "American wallpaper." American Blind alleged that Google was selling trademarked keywords to rivals in the blind and wallpaper field, thus confusing potential customers and unfairly capitalizing on American Blind's reputation for quality. Google agreed to remove keyword ads linked directly to verbatim, trademarked phrases. But it balked at removing terms that Google believes to be descriptive, even if trademarked. These included "American blind" and "American wallpaper." After further unfriendly e-mail exchanges last November, Google took the unusual step of asking the U.S. District Court in San Jose, Calif., to quickly and forcefully adjudicate the disagreement. Google's request for a preemptive legal decision was clearly aimed at getting the issue resolved ASAP, in advance of the IPO. The search giant released a statement saying, "Google filed this action because we were being threatened with an imminent lawsuit by American Blind & Wallpaper Factory. We seek to have the court confirm our view that this methodology properly respects trademark owners' rights, while at the same time simplifying the ad targeting process for our advertisers. Such a decision will ultimately benefit the online advertising industry at large, as well as Google."
BW MALL
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