Google and Yahoo have been fighting it out over which company will dominate the online advertising business, with Google maintaining the upper hand so far.
But in the competition for contextual text ads — those small sponsored links that run adjacent to related articles online — both companies are facing a challenge from a tiny but growing adversary named Quigo Technologies, a New York-based ad service that bills itself as an alternative to the giants.
In the last year and a half, a trickle of large media sites like ESPN.com, FoxNews.com and Cox Newspapers’ 17 sites have stopped using Google and Yahoo and instead signed up with Quigo.
What Quigo offers is transparency and control in what can often be an opaque business: advertisers pay Yahoo and Google for contextual ad placement on a wide variety of Web pages, but get little say over where those ads run or even a list of sites where they do appear.
Quigo, by contrast, gives advertisers not only the list of specific sites where their ads have appeared but also the opportunity to buy only on specific Web sites or particular pages on those sites. It also allows media company sites like ESPN.com and FoxNews.com a chance to manage their own relationships with advertisers.
Although Quigo remains a small competitor, with less than 10 percent of the contextual ad business, its growing success has apparently persuaded Google, which is accustomed to calling the shots in all aspects of its business, that it has to change the way it sells the sponsored link ads in the future.
At stake is a growing portion of the online ad business, as traditional media companies try to monetize every corner of their Web sites. Contextual ads generated about $2 billion in revenue last year, or 13 percent of online ad spending, according to eMarketer, an Internet advertising research firm. About 60 percent of that money went to Google, David Hallerman, a senior analyst at eMarketer, said.
A central point in Quigo’s pitch to publishers is that it will let them keep control of their relationships with advertisers.
“We are gaining a lot of share,” said Michael Yavonditte, the chief executive of Quigo. “This has become a multibillion-dollar industry with no clear second-place company. There’s a lot of opportunity for other companies to put their own stamp on it.”
Here is how this contextual advertising has traditionally worked: Google and Yahoo post ads on hundreds of thousands of Web sites, but both operate as blind networks — they do not tell advertisers which sites their contextual ads run on. Instead, the advertisers buy keywords for ads across Google and Yahoo’s vast networks of Web sites, including the home pages of big media companies and the smallest of bloggers.
It would be akin to an advertiser buying space on 100 national television programs, but not being told when the ads ran. Google and Yahoo argue that because advertisers only pay when the ads are clicked on, that more specific information is irrelevant.
Nor has Google allowed advertisers to bid for keyword ads on specific Web sites — say, ESPN.com. Quigo says blind network buying lowers the prices that premier Web publishers receive because advertisers bid expecting an average site rather than a well-known, desirable one.
“Google, Yahoo and most other blind networks sit in the middle and own the advertiser relationships,” said Henry Vogel, the chief revenue officer of Quigo, which was founded in Israel in 2001. “By outsourcing their performance marketing programs to them, publishers get a check but little else. They don’t really build any longer-lasting strategic assets.”
Both Yahoo and Google play down Quigo’s inroads into the business. Emily Fox, a spokeswoman for Yahoo, said her company was not aware of losing any contextual text ad clients to Quigo other than ESPN. Kim Malone, director of online sales and operations for Google AdSense, said Google did not worry about Quigo.
“The David-and-Goliath story is always a great account,” Ms. Malone said, “but I think in this case, it’s just not accurate . We have a number of large publishers who have tried out other solutions, and they always come back.”
In response to further questions about Quigo, though, Google said it was prepared to make changes to its AdSense service that mimicked Quigo’s approach, an unusual step for a company accustomed to mapping the terrain in every aspect of its business.
In the next few months, Google’s advertiser reports will begin listing the sites where each ad runs, Ms. Malone said. She added that advertisers on the Google networks would soon be able to bid on contextual ads on particular Web sites rather than simply buying keywords that appeared across Google’s entire network.
Still, Ms. Malone said she did not see much of consequence coming from the changes. “We don’t expect a lot of demand for that placement targeting,” she said. “It’s the brand, the display advertisers who care where they run.”
But ad executives have another view.
Jason Clement, associate director of search engine management at Carat Fusion, an agency in the Aegis Group that buys online ads for large advertisers, says the lack of transparency has kept some large advertisers from spending heavily on contextual ads.
In a contextual advertising test on Yahoo and Google, some clients report bad experiences with their ads’ showing up in odd places. For example, Mr. Clement said a large client of his saw an ad run late last year alongside an article that said soy milk might be linked to homosexuality.
Mr. Clement said he frequently received calls from clients about odd placements, and, he said, they worried about click fraud — a practice in which people click on ads solely to make money for the sites that carry them.
“Last year was really the year of testing these contextual networks,” Mr. Clement said. “We had essentially pulled all of those big advertisers off of the ad networks by the end of the year.”
ESPN switched to Quigo from Yahoo last fall, in part, because of Quigo’s transparency, said Ed Erhardt, the network’s president of customer marketing and sales.
“When it’s blind advertising, you know, it’s just a different kind of buy,” Mr. Erhardt said.
Advertisers will often pay more for ads on sites like ESPN.com than they will for ads on little-known blogs, executives said. Quigo’s transparency about where ads run encourages advertisers to spend more for each click than they would on Google or Yahoo, said Jason Klein, co-chief executive of Special Ops Media, an interactive ad agency.
“Because traditional networks are blind, I’ve always assumed that many of the places where your ads come up are on B- and C-level sites,” Mr. Klein said. “With Quigo, you know it’s on ESPN.com, not Joe Schmo’s sports blog. It’s a premium site, and you’re willing to spend more money.”
For the big media companies, Quigo offers another advantage: it allows them to sell their own contextual ads and run the ads under their own brands rather than Quigo’s. In many cases, ads placed by Google run under a header that says “Ads By Google.” More important than the label, though, is that media companies can sell their advertisers Quigo contextual ads, whereas Google handles all of the sales for its publishers. That lets media companies, where advertiser relationships have long been important, keep control over those ties.
Cox Newspapers used Google AdSense for about two years, but in July, all Cox sites were shifted to Quigo for the text ads.
Cox wanted to sell its own contextual ads and have its brand, rather than Google’s, be the one advertisers see, said Tonya Echols, director of business intelligence at COXnet, the Internet division of Cox Newspapers, a part of Cox Enterprises.
“We’re already talking to advertisers,” Ms. Echols said. “We already have those relationships. We’ve been in our markets for decades.”
While Quigo sells the ads for some media companies, like the Martha Stewart Weddings site, others are selling their own ads. Newsday.com, which began working exclusively with Quigo in 2004, has brought more than 600 advertisers into the Quigo system, Mr. Vogel said.
The contextual ad business is still a small part of large publishers’ revenue from their Web sites. Display and video ads tend to be more lucrative, but this does not mean that media companies ignore the contextual business.
Mr. Vogel said he was not worried about Google’s coming changes to make its system more transparent. He said Quigo would remain distinct because of the priority it placed on giving publishers control and information about advertiser budgets, and its proprietary formulas that select the best ad placement and designs.
Forbes.com, which is Quigo’s most recent convert, was an early participant in Google’s AdSense program, and then switched to another third-party provider called IndustryBrains before coming to Quigo this month. Jim Spanfeller, chief executive of Forbes.com, said switching from Google was “a dollar-and-cent thing.”
“We could make more money with somebody else,” he said.
At the newspaper chain McClatchy, contextual ads are just shy of 2 percent of the company’s online sales, said Christian Hendricks, the vice president for interactive media.
McClatchy is currently testing Quigo’s ads at four of its papers, including The Fresno Bee, to compare it with Yahoo and Google. Mr. Hendricks said McClatchy was attracted to Quigo because it sells ads specifically for the individual newspapers, rather than using a blind network.
“What we’re trying to do is maximize revenues,” Mr. Hendricks said. “At this point, it looks like Quigo is performing better, but it doesn’t mean it will stay that way. All the other networks have to do is start selling our brands.”
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