Google launches Web display-ad marketplace

Already the world leader in search-based advertising, Google Inc. (GOOG-Q491.723.430.70%) is making an audacious move to become the Web's display-advertising stock exchange.

The search giant today launches a new service called DoubleClick Ad Exchange. Essentially, it's a clearing house for display advertising – a real-time auction marketplace where the world's biggest advertisers bid for space on the world's most popular websites, with Google squarely in the middle.

“Display advertising on the Web today – image ads, video ads, interactive ads – are not really living up to their full potential,” Neal Mohan, Google's vice-president of product management, said in an interview. “The reason is, across thousands of advertisers, thousands of publishers, thousands of different ad formats, it literally takes thousands of hours to get a display campaign up and running.”

As a result, Mr. Mohan said, lots of advertisers “just simply give up or drop out,” even though display advertising is often the most effective way for them to get their message out.

Currently, Mr. Mohan said, many publishers see up to half their display ad slots sit empty.

“It'd be sort of like an airplane taking off every single day where more than half the seats are simply unfilled because it's just really hard to buy those seats,” he said. “At Google we think this entire system could be a lot better.”

The newly revamped Ad Exchange represents Google's most significant foray into an area where its competitors have staked much of their online efforts. Yahoo Inc.'s Right Media Exchange service, for example, has more than 120,000 buyers and sellers, and handles more than nine billion transactions a day on average. Executives at some of the world's biggest online names, including Yahoo and AOL, have described display advertising as an area of major focus, even as the market for such advertising has taken a hit as economic conditions soured.

Technically, Google's AdSense program constitutes perhaps the largest display-ad program in the world; however the vast majority of the ads on that service are composed of text, rather than images, video or other rich content.

Google will be integrating its AdWords and AdSense programs into the new exchange, adding a massive base of online inventory at launch time. Advertisers will be able to bid in real time for space offered by publishers. Publishers, on the other hand, are guaranteed to sell their product at the highest bid price, and can set a reserve limit. Google takes care of billing and invoicing, and makes money by claiming a share of the ads transacted through its platform.

The exchange is another step in the strategy Google pursued when it acquired DoubleClick in 2008, said Forrester Research interactive marketing analyst Nate Elliott. The exchange model is particularly helpful for “low-quality inventory” that may not appeal to the biggest advertisers, he said.

“The beauty of the exchange model is that you're no longer losing value because your inventory is simply not valuable to one marketer.”