Yahoo, Google look to new outlets

Blockbuster quarters reported by Yahoo and Google this week illustrate the evolution of online advertising into a major economic engine.
Both Internet giants enjoyed big growth that is expected to continue well into the future.

But that future won't be limited to the Web page ads that Internet users are accustomed to seeing today, according to some analysts. Yahoo and Google probably will expand their ad networks to television and mobile phones as online and offline media increasingly converge, the analysts said.

"I think it's certainly possible," said Benjamin Schachter, an analyst for UBS Securities. "There will be testing."

Both Google and Yahoo reported stellar first-quarter results, based largely on the strength of their targeted search engine advertising businesses. The companies get paid each time a user clicks on one of the ads, and lately, the clicking has been furious.

Earlier this week, Google reported a sixfold increase in first-quarter profit. Investors reacted by pushing the Mountain View search engine's shares up $11.59 to $215.81, or nearly 6 percent.

Yahoo, based in Sunnyvale, doubled its first-quarter profit. The Web portal's shares closed down $1 at $34.84 Friday but gained nearly 7 percent for the week.

Extending online advertising beyond its traditional boundaries will be a major topic at Ad:Tech, an Internet advertising conference in San Francisco next week. A flurry of companies is hoping to capitalize on the idea, which is still in its infancy.

Expanding their advertising network beyond Web pages could help Yahoo's and Google's businesses grow after reaching their limits online. The seeds are already in place, according to analysts.

Paul Palumbo, an analyst for AccuStream iMedia Research, an interactive media consulting firm, cited a Google video service introduced last week. Users will be able to download video files submitted to the site by amateurs and Hollywood alike, eventually accompanied by ads, he predicted.

"Google's just like any other part of the media business. They have to exploit their audience," Palumbo said.

"It would be one-dimensional for Google to have paid search and text- based advertising in an environment that is going multimedia."

Google's nascent video service is at https://upload.video.google.com/. So far, the company is asking only for video file submissions and has yet to make downloads possible.

There's no word from Google on whether it will incorporate advertisements into the videos. The terms of service allow for contributors to charge for downloads and for Google to take a cut.

Google is clearly interested in offering more animated advertising. In a conference call Thursday, Larry Page, Google's co-founder, said his company will eventually offer more graphical ads to marketers.

Yahoo already has a head start. It has offered television-like ads for some time -- dancing Coke bottles, for instance -- in a prelude to music videos downloaded from the Yahoo Music area.

More could be on the way through Yahoo's partnership with SBC to offer advanced online services via mobile phones, wireless Internet and television. Such services -- part of an industrywide march to digital convergence -- could start rolling out by the end of the year.

Multimedia ads, Palumbo said, are especially desirable for companies like Google and Yahoo because they can charge a premium for them. Advertisers are interested because they can get their message across more effectively and usually to a more targeted audience than on television, he said.

David Hallerman, an analyst for eMarketer, a research firm that follows online advertising, warned that Google and Yahoo face hurdles when it comes to venturing beyond traditional Web page advertising. Experiments with interactive television have generally been failures because viewers preferred to watch passively.

Converting online ads for mobile telephones is another idea that analysts believe Yahoo and Google are looking into. Text ads that run alongside search engine results are a natural fit, analysts said.

But Hallerman noted that mobile phone users already pay for their phone service and may resent the ads appearing on their screens.