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Google Re-Wows Investors With Ad Quality

Google last Thursday erased doubts raised by Internet metrics firm ComScore about its paid click growth. It reported that paid clicks on its sites and partners' sites grew about 20% globally from the first quarter of 2007 and about 4% from the fourth quarter of 2007.

Since then, Google's stock has risen about 25%. Never mind that ComScore makes a good case that Google's paid click growth in the United States has actually decelerated. (Like the rest of the U.S. economy.)

Google didn't merely exceed investor expectations -- a feat made possible by ComScore's pessimism in the first place, analyst Henry Blodget points out. It confirmed that online advertising can be more effective when properly targeted.

"We're showing fewer but much better ads ... and that's a key part of the Google success story," Google CEO Schmidt told investors on last week's conference call.

Google's ongoing effort to improve ad quality appears to be paying off, and that's a great thing for the online ad industry. If Google can continue to refine ads to make them more relevant, which in turn will prompt more people to click on them, advertisers will pay more for the better results and Google will make more money.

One way Google should be able to further improve ad quality is by preventing its ads from appearing on spam sites. (Perhaps you've chanced across spammy Web pages crammed with 1,000 links and generic content, ostensibly for the benefit of visitors.) Any such improvement will be welcomed.

Another way, one that's more controversial, is through behavioral targeting, which has to do with showing users ads that reflect user interests and actions. Such ads tend to perform better than pitches made without any knowledge of the viewer.

The continued ability of Google, not to mention AOL, Microsoft, and Yahoo, to use consumer behavior to improve ad quality depends on the willingness of consumers to accept behavioral tracking. And at present, the signs are not good. A study published last October by the Samuelson Clinic and the Annenberg Public Policy Center found that most consumers believe that privacy policies at Web sites prohibit current online advertising practices.

The online ad industry recognizes the danger of proceeding without consent from consumers. That why the Network Advertising Initiative provides a way for consumers to opt-out of behavioral targeting. (Google has yet to embrace that principle with regard to search data retention.)

But it remains to be seen whether the self-regulatory approach preferred by the industry will be sufficient. E-mail marketing had self-regulation and then federal regulation, and still banks can hardly communicate with their customers without prompting them to wonder if the message is legitimate.

Google and its peers will have to work hard to make sure that behavioral targeting occurs in a way that people will accept, and that may become a lot harder if behavioral targeting ever catches on with cybercriminals.

In a way, it already has. What is spear phishing but a malevolent form of behavioral targeting? Conversely, what is advertising but a benign form of social engineering?

Google may well continue to improve ad quality. At the same time, it may want to think about advertiser quality: It won't take many unethical uses of behavioral targeting data to encourage consumers to opt-out.

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