Google (GOOG) Grasps At A Straw

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Google’s (NASDAQ: GOOG) shares are trading at $440, down from a 52-week high of just over $747. Investors are worried that its highly lucrative text-based search ad business is slowing with the economy.

Google is about to finish its buy-out of huge ad serving company DoubleClick which will put the search internet company into the display ad business. But, as results from Yahoo! (NASDAQ:YHOO), AOL (NYSE: TWX), and MSN (NASDAQ: MSFT) show, the display ad business is not growing very quickly. Google is buying into a part of the internet revenue model just as it is slowing.

Some analysts believe that Google’s ability to target ads to users will improve the DoubleClick product and allow Google to make more money on the display business. But for now, that is just a convenient theory.

To try to keep as many balls in the air as possible, Google is launching a new program to put display ads onto its web partner’s ad sites. According to The Wall Street Journal "Google is hoping that Ad Manager users will agree to carry some ads Google sells in ad spots on their Web sites they haven’t filled themselves."

The new offering has one big problem. Most websites sell their most visible and valuable advertising units to marketers who will pay them a relatively high price. The "unused" advertising spots where Google wants to place ads with Ad Manager, are likely to be undesirable to most marketers. That means they will only be willing to pay extremely small sums to get this inventory. Ads sold in unwanted spots at the last minute are worth next to nothing.

Will publishers using Ad Manager get a little extra money? Yes, a very little. And, Google’s commission is likely to be very small as well.

It is a clever concept with little economic value.

Douglas A. McIntyre