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Some Businesses at Mercy Of Google See Hope in Bid

By Kim Hart
Washington Post Staff Writer
Thursday, February 7, 2008

Phil Davies relies heavily on Google for his two online businesses. The search engine drives half the traffic to his antiques retail Web site. But when Google recently made a change to the algorithm that it uses to rank sites, it bumped his down in the results and made pages within his site invisible. That sent traffic -- and sales -- plummeting.

So he's keenly interested in Microsoft's $44.6 billion bid for Yahoo. For Davies, it is a possible alternative to Google.

"It almost destroyed our business -- the amount of control that company has is frightening," said Davies, who eventually recovered by recoding his pages to conform to Google's requirements. Davies also allows Google to sell advertising on his news distribution site, BigNews.biz, and that marketing revenue has become a large source of his income.

In many cases, working with Google has become essential to an online company's existence. The majority of the world's Web searches are powered by Google, and online firms pay top dollar for advertisements that pop up alongside every search result.

With Microsoft's bid to take over Yahoo, the face-off over the online advertising industry has hit full tilt. Google is in the midst of trying to complete its acquisition of DoubleClick, a leader in display advertising. Yahoo is also strong in that area. Microsoft, in turn, recently acquired aQuantive, a company specializing in technology that targets ads based on Web surfers' habits. Both companies view the need to build up their roster of advertisers and publishers -- Web sites like Davies's that attract the viewers who might click on the ads -- as central to winning that battle.

Google has the edge right now. Its unmatched reach on the Web, both through its dominant search engine as well as its large base of advertisers and publishers, has allowed it to wield so much power that it can shape markets, anoint winners and declare losers, and set prices for advertising, leaving customers like Davies feeling they're at Google's mercy.

Many Web sites trying to reach online consumers think they have to do business with Google to be visible on the Internet, and some are starting to resent the lack of choices, said Shar VanBoskirk, an analyst with Forrester Research, a market-research firm.

"There does seem to be an attitudinal shift," she said. "Two years ago, Google was everyone's salvation," because it enabled small Web site owners to easily make money by selling ads, she said. "Now people feel like it has too much control. They may prefer to work with a player that doesn't have as much power in the market."

Recent defectors from Google to Microsoft include CNBC.com and Viacom, the parent company of MTV, Comedy Central and other entertainment properties. Both were high-profile losses for Google.

There are two ways to advertise using Google. One of them involves using Google's AdWords, the advertising system that allows marketers to buy ads associated with certain search terms. Every time an Internet user searches for a keyword on Google, the company's software conducts a split-second auction for the top spot on the paid advertising results.

The second method involves allowing Google to sell and place ads on other sites.

Separately, the actual results of a Google search, which are not bought or sold through advertising, are displayed in the center of the page, ranked according to Google's own proprietary calculation based on relevance of content as well as the number of other sites linked to it.

VanBoskirk said some smaller online firms and retailers often get frustrated with Google's process for ranking pages for search results because the process seems to change arbitrarily.

"But working with Google is still the only way to reach the largest audience," either through search or with advertising, she said. "It's the Catch-22 of Google."

That is precisely Davies's bind.

"I wouldn't mind trying other [ad-search companies], but Google's the biggest player out there with the biggest pool of advertisers, which makes it very appealing," Davies said. He's had lackluster results using Microsoft and Yahoo. "I just can't bring in the same amount of income," he said.

Some Web entrepreneurs complain that some of Google's policies restrict their business in other ways.

Jerry McLaughlin, chief executive of Branders.com in San Mateo, Calif., which sells promotional products, pays to list his company with Google AdWords to drive customers to the site. But Google doesn't allow a company to advertise similar products in the same search. As a result, McLaughlin said he has to choose which of his 14 brands to advertise, like his site for watches and his site for clocks, for example, because he cannot advertise both.

He said he has also decided against acquiring companies that have similar content to his current properties because it could adversely affect his Google standings.

"I can't take the risk of more or less disappearing from Google, so I have to factor it into all of my business decisions," he said.

Digg.com, the well-known Web site that ranks articles by their popularity, used to rely on Google's Adsense but recently agreed to let Microsoft sell ads across its site.

"We could get a much better deal by entering into a contract with Microsoft, which has the size and reach" to manage our site, said Jay Adelson, chief executive of Digg.com. "We couldn't get that from Google."

While the Microsoft-Yahoo deal could create a powerful online ad network for brand marketers, it most likely would not displace Google's dominance in search, said Matt Rosoff, an analyst with Directions on Microsoft, a research firm that follows Microsoft's strategy.

"There are a lot of other ad networks out there," he said. "But when it comes to search, Google, can't be ignored."

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