Advertisers spend billions seeking online customers

Matthew Powell grew up in Texas and remained a die-hard fan of the San Antonio Spurs even after his career as a structural engineer brought him to Seattle.

He's very opinionated about the NBA team, and in January he started a Web log, a personal online diary where he posts his reflections. He attracted enough of an audience after search engines picked up his blog that he started advertising on his site through a Google program called AdSense.

Google now places advertising directly on Powell's page, based on the content there, and gives him a few cents whenever someone clicks on one of those ads. So far he has made about $7.50.

"I have a good job that pays me good money, and here I am writing for a blog and making a tenth of a cent for every hour I put into it," he said. "I enjoy the absurdity of things like that."

Powell has become a minipublisher, and in his own small way is part of an advertising industry that has been revolutionized by search engines. Paid search advertising has grown from nearly nothing a few years ago to a $4 billion business last year, and is expected to approach $7 billion or more by 2008.

Across town, Brian McAndrews works the big-money side of search advertising. He's chief executive of aQuantive, a Seattle-based digital marketing company that spent $87 million last year as the largest buyer of search-engine advertising in the country. The company, which buys the ads for paying clients, made a $26.5 million profit last year on $158 million in sales.

As search engines have grown more important, McAndrews said, aQuantive's customers are asking for more help advertising on the keyword-based bidding system used by Google and other companies.

The system is fairly simple. Advertisers write their own ad text and choose what search phrases the ads should be associated with. A real-estate agent in Bellevue might pick Bellevue home prices and Bellevue real estate.

Then the advertisers set the maximum amount they would pay each time their ad is clicked. Generally, those willing to pay the most rise to the top of the advertising windows on search-results pages. Google ads appear across the company's network of Web sites, including blogs like Powell's.

Brian McAndrews, chief executive of aQuantive

The system opened up advertising to the little guy. Small-business owners can spend $30 a month and see what happens. The blogger with a passion for basketball can get a cut.

"Search did bring more people online because it was a way for people to quickly understand intuitively how online advertising could work," McAndrews said.

The field is growing more complex, and even becoming the target of fraud. In some instances, people are clicking excessively on ads, leaving advertisers to pay for those superfluous clicks. In other cases, some Web-site owners with ads on their pages are themselves clicking on the ads to gain more income than they really should.

Microsoft and other search engines are improving their ability to target advertising. Microsoft is developing its own version of Google's system, and plans to use it to sell ads for television and other platforms.

Microsoft said it will target its ads so precisely that advertisers could even sell to men or women in specific age groups and salary ranges. It plans to buy data from the Experian credit bureau to help make those assessments.