Google: It pays to make ads work

Media companies should see Google not as an enemy but as an ally trying to make advertising work on the internet, chief executive Eric Schmidt said yesterday.

Google has a financial incentive to make sure advertising can support companies that supply high-quality content, Schmidt said during an on-stage interview in San Francisco with Ken Auletta, The New Yorker's media reporter. But Schmidt said there's another dimension to Google's motivation, one not often figuring prominently in business affairs.

Schmidt said of publishers' problems making advertising work on the internet: "It's a huge moral imperative to help here."

Happily for Google's moral compass, the company's effort to make money is pointed the same direction. The company is trying to solve the online ad problem in part with DoubleClick, the display-ad company Google bought earlier this year. Google's cash cow is selling text advertisements that appear next to search results, but with DoubleClick, Google hopes to tackle the graphical ad side of the market.

DoubleClick will let advertisers tackle the market for both search and display ads with a unified interface, Schmidt said. "By combining DoubleClick with that [search-ad] architecture, we can provide a single platform for publishers that over time will begin to generate significant revenue for publishers," he said.

Display ads are a business in flux on the internet, however. A new study showed growth slowed for display ads on the web, hurt by a weakening economy. Revenue increased 8.5 per cent annually to $2.9bn in the first quarter of 2008; the year earlier, the growth rate was 16.7 per cent, according to TNS Media.

Viacom has sued Google over copyrighted material on its YouTube site. But, Schmidt argued, media companies attack Google for helping to usher in the digital content era.

Schmidt said: "There is a sea change from one model to another. Many of the criticisms I see seem to be merely about the change, and Google happens to be the messenger. Those changes are going to occur independently."

A key part of making advertising work is making sure ads are targeted at people who are actually interested, Schmidt said. Searching for a subject on a website makes targeting easier, because a search engine can infer people's interests through their search queries but for display ads, it's not so simple. As advertisers figure out how to target ads better, though, they'll curtail spending on general ads, Schmidt predicted.

Schmidt touched on the company's principled agenda several times during the talk.

He said: "The goal of the company isn't to monetise everything. The goal is to change the world." When asked to clarify the statement, he explained: "For the better."

In addition, he said Google's "don't be evil" motto is real, though often misunderstood.

He said: "We don't have an evil-meter we can apply," but it is a real part of company discussions.