Sanford C. Bernstein analyst Jeffery Lindsay has increased his price target 30% for GOOG to $600, on the back of increasing RPCs (revenue per click) that it expects to dovetail with the recovering economy. He estimates Google’s growth to reach 7% for 2009, almost double that of Reuters Estimates’ aggregate analyst prediction of 4%.

Lindsay, in a note to his clients, expects advertiser competition–reflected in RPC–to remain weak through the second and third quarters, but he expects a healthy rebound that will boost Google’s YOY revenue growth to 14% in the final quarter. His estimation completely depends on the recovery of the economy and advertisers’ zest for online advertising to grow their businesses.

Google’s ability to develop inventory has sustained through the downturn–click volume grew 17% YOY in Q1 2009. The weakness has been in RPC, which has taken the steam out of Google’s search revenues.

The market, maybe a bit hungry for some good news from The Google, increased $5.89 in afterhours trading from a Thursday night close of $396.61 to a Friday morning opening price of $402.50. At the publication of this post, GOOG is trading at $407.98 (a 20 minute delay, naturally).

Guest post by Ryan Floyd

Ever since its debut, online’s share of advertising has lagged behind its share of usage. The impressive ROI of search and contextual advertising by Google and its competitors raised expectations even higher, with many saying it was just a matter of time before online advertising earned its share of total advertising spend. Strong double-digit growth online advertising rates through most of the mid-2000s, while traditional media advertising foundered, seemed to corroborate the conventional web wisdom. But can web advertising really continue to capture, dollar for dollar, the spend traditionally spent on television? I’m not so sure.

Even while the online advertising world weathers the current downturn, expectations for a rebound are common. Why? Usage patterns continue to shift, with more time being spent online (particularly watching video and on social networking sites). Online advertising consumes only 8% of total US ad spend, but Web usage comprises some 30% of leisure time among American Internet users (more than half of the entire population). The gap must be filled, right? And what better than an advertising medium that provides exceptional visibility into its value, in the form of impressions, clicks and conversions.

The problem is that the performance basis of evaluating the effectiveness of online advertising is really only the case for search/contextual, and indeed that continues to grow at a healthy clip. Lead generation and transaction-oriented advertising has proved remarkably efficient and cost-effective in many cases. Display advertising’s value relies on the promise of expanding brand awareness and engagement, and current display and rich-media advertising fails to deliver the same impact as a 30-second spot in front of a passive, captive audience. If you remove high quality online video, like Hulu, from the discussion, since it is simply replicating television’s advertising model through a different distribution medium, it gets harder to believe that engagement across social networking platforms or content sites has the potential to create the same market size as compared to dollars spent in traditional media with similar objectives.

It should come as no surprise that the IAB is championing more inspirational, creative online ads, and that startups like VideoEgg are introducing CPE (cost per engagement) and other revenue models that emphasize the depth of users’ interaction with online advertising. When it comes to delivering on its own objectives, the finest online ad creatives have to do a lot to catch up to your average Super Bowl TV ad.

It’s not difficult to imagine that the spend-usage gap will continue to close, but it is easier to imagine that ROI-driven search and contextual advertising will take a larger portion of that growth. Display and rich media will likely fare much worse, growing in dollar terms but far less than the 1:1 spend we’d expect to be flowing to the likes of Facebook and Google publishers from traditional media.

Ryan Floyd is a founding member of Storm Ventures, and sits on the board of directors at YieldBuild. 

The IAB, which announced a new task force to explore new online ad formats, has brought in nine agencies to the table for creative input. The agencies, including Interpublic’s Universal McCann and R/GA, Razorfish, and BBDO, join network heavyweights Google, Microsoft, Yahoo and AOL’s Platform-A and a host of media firms, including CBS Interactive, NYT Digital, and Turner.

The IAB has been pushing for more impactful advertising as a way to pull online advertising out of its current rut, arguing that upping the “creative magic” of online ads will forestall the commoditization of the media. When it comes to display and rich-media advertising, it’s a safe bet that publishers’ goal is for advertisers to recognize the value of “engaged eyeballs” online, paying out the same enviably high CPMs that television spots command. (How do you get website visitors to pay attention for 30 seconds?) Mesmerizing creative, an enticing engagement model, and formats that are harder to ignore enhance the value proposition of display and rich media advertising, and elevate the medium for premium advertisers and publishers above the muffin top ads publishers have been plagued by.

For publishers focusing on contextual text ads, the challenge is related but somewhat different. The value of the ad is related to its vertical and specific offer (RPC), a matter of the ad network’s breadth and advertiser bid ranges, as well as the likelihood that the ad will be clicked (CTR), which is a matter of the strength of the contextual targeting technology and formatting optimization. Publishers and ad networks have less convincing to do of their value to advertisers, since it’s measured in conversions rather than boosts to brand awareness and perception. But the need to overcome subconscious ad blinders is still there, and so the need for innovation is important here, too. (Incidentally, this is one of the values that YieldBuild gives to its customers)

Fighting ad blindness and inspiring a user to notice and engage with an ad is one of the central challenges to both types of online advertising. Innovation is necessary because novelty wears thin after a while, and predictability doesn’t give users any reason to pay attention to or click on ads. Creative types and technological innovators have to be one step ahead of the conscious threshold of the Web users they’re targeting.

Web 2.0 has brought the wisdom of the crowds to shake out the best news content (Digg, Reddit) and web pages (Stumbleupon, Delicious); why not the same to suss out the best ads, which Web 2.0 sites are reliant upon as their principal source of revenue, too?

Mixx, an up-and-coming challenger to the likes of Digg, has launched an aptly-named service called Sifter, that allows its rating-happy userbase to apply their discriminating tastes to ad creatives supplied by Mixx’s advertising partners.  Advertisers can quickly get feedback on the sorts of creatives and messaging that resonate with online users. Participants–limited to powerusers on the site–enter to win prizes based on their rating activity, and, naturally, earn bragging rights and influence on the site through “karma points.”

Of course, Mixx isn’t the first company to entreat its userbase for advertising feedback.  Facebook began allowing users to give feedback on ads last year. HubPages competitor Squidoo had a program by which the number of ad impressions afforded to an advertiser was proportional to users’ rating of the ads (their program is now defunct). Mixx’s Sifter, though, is not data gathering alongside advertising; it’s data gathering about advertising that leverages its site’s user behavior (although those creatives deemed successful could eventually run on the site).

Will it work? Possibly, but there is a risk: the clique of powerusers on a site like Mixx might have particular tastes and sensitivities that are not reflective of the broader Web public, and therefore might provide feedback that’s meaningless outside the confines of the site.

Still, Mixx has lined a couple of clients (LivingSocial and Clorox), and expects to generate $4,000-8,000 per week from the service. If the advertising feedback clients gain is truly meaningful, then expect other sites with a similarly active userbase to try something along the same lines.

In the course of optimizing our publishers’ ads, including AdSense, YieldBuild’s optimization algorithm has learned quite a few things about what parameters make a difference in making your AdSense ads perform best. In some cases, we’ve even been able to distill some rules of thumb that you might consider using if you decide to optimize your ads on your own. We’re happy to share what we know and suggest in this blog post.

Parameters that matter but that Google takes care of

Two things that you can not change but that can make a difference in your AdSense performance are the format of your ads and the contextual match. Fortunately, Google seems to do an excellent job of doing the optimizing for you in each case. Provided you’ve selected an ad unit of an appropriate size (like the medium rectangle, 300×250) and have enabled your account to display both text and image ads, Google will determine which format best fits each spot you’ve selected. Similarly, Google will take a look at your page and determine the best-matching ads by context based on the topic and content of your page.

Parameters that matter that you can tweak

Broadly speaking, there are three categories of parameters that you can tweak as part of your optimization effort:

• formatting
• size
• placement

Let’s take a look at each of these in more detail.

Formatting parameters

Formatting options for AdSense include the color of your background, the border color, font, and border (corner) style. Do these really make a difference? You bet! Data we’ve collected from optimizing a site that we own that uses AdSense to share revenue with our publishers, HubPages, demonstrates two important things:

1. Finding the right background and border colors can have a significant impact on ad performance
2. The optimal color combinations are not necessarily the same for every ad unit on a page
   

If you’re not interested in optimizing each ad unit’s formatting, then we suggest at least applying these rules of thumb, that, while they will not work for every site out there, they will probably get you farther in terms of performance than random guessing:

Background and Border Colors: The best rule to follow, if there is only one rule, is to blend in with your surroundings. So:

• if a page background is white, try a white-background and border ad; if your background is dark green, go with a dark-green background and border ad
• you can also try a slight variation on the background color, just a shade darker, so a very pale gray or cream for white-background pages, or a faintly lighter or darker green on a page with a light-green background
• for ad units embedded in text, the ad unit above the fold should blend, while any embedded ad units below the fold should contrast with the background.

AdSense Border Styles and Colors

• two types tend to work better here – either “borderless” (where the border has the same color as the background) or rounded borders. We’ve seen rounded borders perform generally better than those with square corners.
• for ad units that perform better by blending, choose a borderless border style.
• for ad units that have a different color than the page (either a subtle difference or a highly-contrasting one), try a border color that either matches the background (making it look borderless), or is just a shade darker

AdSense Text/Font Format: Again, blending into your site is the safest rule of thumb. Pick a font that matches your page content, or, if there isn’t a direct match, at least matches whether the font is serif (Times) or sans-serif (Arial or Verdana).

Ad unit size

Google offers a wide variety of AdSense ad unit sizes and formats: Google AdSense Sizes.

However, to get the most bang for your buck, you’ll generally want to go with the three most popular format sizes:

• 300 x 250 (“medium rectangle”)
• 160 x 600 (“wide skyscraper”)
• 728 x 90 (“leaderboard”)

Why? First, all three sizes can display text, image and video ads, giving Google greater ability to determine which of these three formats will work best. Second, they’re popular so there is more ad inventory, particularly among advertisers that use “placement-targeted” (site) buys. Third, they simply tend to perform well-YieldBuild, which tests all ad unit types that can fit on the page, often hones in on these three across disparate sites and page templates.

Where should they go? Here are the general rules:

• 300 x 250  – embedded in content (flush left or right, next to the page content, between blog posts, for instance)
• 160 x 600 – juxtaposed either to the left or right, where you have room
• 728 x 90 – either right below the header or embedded in content right above the fold; the latter tends to perform well, but can require a little finesse to make sure it doesn’t get pushed below the fold for your site visitors

Placement and layout

Where you place your ads and how you organize your ad units vis a vis your content can also have a significant performance impact. In another study we ran on HubPages, we found the precise positioning of ad units-whether they were left-aligned, centered, or right-aligned within a spot on a page-can have a surprising impact on performance, enough to merit testing.

If optimizing is not for you, Google AdSense’s heat map is an excellent place to gather some great positioning advice. We’d also like to add the following four tips:

1. Place your ad units above the fold

This means ad units should be visible when visitors first load your page before scrolling downward. Even though ads below the fold can do well, it’s a trickier proposition and often requires testing to get it right. The footer spot, in particular, is among the hardest to monetize, and usually requires constant changes to the format in order to perform consistently.

2. Use “the L”

Ad units that adjoin each other perform well generally, in a format called “the L”. They should be juxtaposed perpendicularly and placed close to each other, like this:

3. Embed ads in content

This is highly recommended with the versatile, popular medium rectangle (300×250). Embed this unit to the right or left of your content.

4. Make your ad unit layout match your template

A critical piece of positioning advice is to make sure your ads are situated comfortably in the page. Ad units that break up the flow of the page or are not aligned with the structure of your page tend not to perform well, and they can also irritate your site visitors.

There you have it! We wish you good look determining the right combination of formatting, size and layout permutations that make your AdSense perform. Don’t leave any money on the table!

Facebook, with over 100 million users checking their account daily, enjoys tremendous reach within its own network–what the company has struggled with is understanding what these same users are doing elsewhere in order to serve up meaningful (read: high eCPM) advertising. Its first effort to pull in data from off-platform activity, Beacon, had to be drastically scaled back in the face of widespread user, and eventually advertiser, protests.

Enter Facebook Connect, a service a seemingly innocuous, but useful, service to Facebook users. Connect allows Facebook users to use their Facebook credentials to log in to other Websites, for commenting and other site features that usually require registration. The Facebook Connect connection ports over users’ real identities, avatars/profile pictures, and, importantly, privacy and sharing settings.

However, as the two-directional arrow in the Facebook Connect should make clear, information is also flowing in the reverse direction, back to Facebook. With this sort of information, Facebook can vastly extend its reach (in terms of gathering user browsing behavior) and paint a much richer picture of users to interested advertisers.

Now, a source has disclosed to Silicon Alley Insider that Facebook has been ruminating over building its own ad network, but not for at least six months. Advertisers who haven’t been scared off by the Beacon fiasco might be receptive, especially provided the granular targeting that Connect data should offer.

Provided Facebook is able to head off a user revolt once targeting via Connect data becomes apparent, should be successful. Not only has it given a wide swathe of publishers reason to drop its pixel on their sites, it has its own highly-trafficked property prepped to monetize with the resulting data.

A study by SEM firm Efficient Frontier takes a look at the recent downturn in ad spend, and notes that advertisers haven’t gotten stingier, they’ve just gotten more selective with their ad dollars.

Looking at 84 billion ad impressions and 785 million clicks from Q4 2008 through Q1 2009 from its clients’ sites, Efficient Frontier noted a 3.3% reduction in ad spend, but a 10% improvement in ROI. Return on investment increased 30% from January to February alone, and, possibly as a consequence of its collective success, spend increased 6% from February to March.

Quarter-over-quarter, ROI has improved for all search engines. Google Search, Microsoft Live Search and Yahoo Search saw a 10 percent, 43 percent and 12 percent improvement in ROI respectively, due to advertisers shifting towards efficiency in their marketing campaigns.

Why? Due to the economic downturn’s increased stress on revenue, advertisers are shifting to a more short-term focus. Businesses are responding to consumers’ emphasis on price over brand in their own purchasing decisions, and also retracting from spending on brand, an investment whose benefit is realized over the longer term. With respect to online advertising, CPM has increasingly given way to CPC and CPA.

Another interesting statistical tidbit from the study: the number of search ad impressions:

In Q1 2009, overall impressions were up 11 percent, despite the decline in spending. This indicates that more people are searching online and that search engines are optimizing unused inventory by taking such actions as removing minimum bids. On a year-over-year basis, Google Search experienced 20 percent growth in impressions, while Microsoft Live Search saw 10 percent growth in impressions. Google Content trended down in impressions, declining 57 percent, due to continual improvements that enabled advertisers to better target users.

Google is expanding the utility of its search inventory, a bit at the expense of its content inventory, a large portion of which it, naturally, has to pay out for.

Full report download available here.

How large are the US & worldwide display ad market? First, let’s limit the view to display banner ads only, not including related rich media, digital video or sponsorship advertising (which last week’s IAB/PwC included under its display advertising umbrella. This more limited definition of display advertising comprises approximately 21% of the overall online advertising market in the United States.

US Display Market

Like the projections we came up with a couple of weeks ago for the contextual advertising market, we begin with eMarketer’s projections in November of 2008 for years 2008-2012. How accurate were they with respect to 2008? Pretty close to the IAB/PwC number, actually. eMarketer projected $4.63 billion, while the IAB/PwC study estimate turned out $4.68 billion, a difference of about 1%.

2008: $4.6 billion (+5.8%)
2009: $4.9 billion (+6.5%)
2010: $5.4 billion (+10%)
2011: $6.2 billion (+15%)
2012: $7.2 billion (+16%)

Some could plausibly claim the 2008 estimate is overly optimistic, being a positive number (!), although it’s not entirely unrealistic if we expect a mid-year cessation to the turndown and a resumption of reasonably healthy growth. If you believe, as I do, that any downturn is attributable to the temporary economic weakness and not an intrinsic defect in display advertising, then any shortfall in 2009 might be recouped fully in the following years.

Global Display Market

For the worldwide picture, we start with IDC’s market estimates, apply an approximate 20% of that figure attributable to display, and apply similar growth figures as those expected for the US:

2008: $13.0 billion
2009: $14.9 billion
2010: $16.6 billion
2011: $18.1 billion
2012: $20.2 billion

A study by Pricewaterhouse Coopers on behalf of the IAB shows a drop in the until-recently heady growth rates in online advertising. 2008’s 10.6% growth pales compared to 2007’s growth of 26%, and portends even lower (or negative?) numbers for 2009.

A breakdown by formats:

• The total market hit $23.4 billion in 2008, as previously mentioned a 10.6% increase over 2007’s $21.2 billion
• Search (including contextual) still dominates, with 46% of the market by Q4 2008; its share is equal to approx $10.5 billion annually. Search amounted to 42% of the online advertising market in Q4 2007.
• Display accounted for about $7.6 billion in 2008, or 33% of the overall mix. Q4’s $2.0 billion estimate represents a 4.3% decrease below Q4 in 2007.
• Performance-based advertising (CPC, CPA, CPL, etc) continued to outpace CPM advertising, comprising 57% vs 39% in 2008. In 2007, performance-based stood at 51% vs CPM’s 46%.

Overall, not too surprising. We’ve long expected that performance-based online ads, in their various forms, would weather the spending downturn far better that CPM-based ads, primarily display.\

eMarketer, in response to the results to the study and a possible admission that it overestimated the market (twice) for 2008, cut its growth predictions for 2009 in half, from 8.9% and $25.7 billion to 4.5% and $24.5 billion.

IAB PwC 2008 Full Year

Ad:Tech, the worldwide digital advertising conference series, is this year launching its first ADSPACE conference and expo in San Francisco, dedicated to contextual advertising for small to medium-sized publishers. The one-day event will focus on making the most out of AdSense and leveraging similar advertising networks to make the most money possible for online advertisers, particularly when the main alternative–display advertising–is faring poorly.

It should come as no surprise, then, that YieldBuild’s very own Paul Edmondson will be a panelist for one of the conference sessions: The State of Contextual Advertising. Joined by 3 other panelists, including Kevin McCabe, senior product manager for Microsoft’s new AdSense challenger, pubCenter, Paul will discuss the current state of the contextual ad market, the major players in the space, trends, and challenges faced both by advertisers and publishers.

Should be a terrific show, coinciding with the standard-bearing event in the industry.

Click on the ad to the right, and use the promotional code ADSPACEC to get a 20% discount off your ticket!