Tim Armstrong, Google's president of advertising and commerce for North America, said YouTube will play an important part in what Google expects to be a significant increase in display advertising revenue for the company. So far, most of Google's revenue has come from a single ad format: the pay-per-click text ads delivered along with its search results and in third-party sites in its ad network.
Google would be "disappointed" if this year and in 2009 it doesn't attain a significant presence in the display ad market, Armstrong said. Financial analysts have noted for years that, while Google's revenue and profit growth has been astounding, it has been based almost exclusively on pay-per-click text ads.
For example, in November, Yahoo ranked first in the US in display ad impressions with a 19 percent share, followed by News Corp.'s Fox Interactive (16.3 percent), while Microsoft came in third with 6.7 percent, according to comScore. Google took seventh place with 1 percent.
Google has been trying to diversify its ad revenue stream in recent years, making moves not only in online display and video advertising but also in non-Internet ad markets, such as radio, TV, print and even billboards. However, those efforts haven't yet yielded any significant results.
Recent evidence of how jittery investors feel about Google's dependence on pay-per-click ads came about two weeks ago when the stock took a beating after comScore reported that Google's paid clicks had suffered a 7 percent sequential decline in January, compared with December.
On Monday, Armstrong tried to put a positive spin on that statistic, saying the decrease in paid clicks had been due, in large part, to Google's initiative to improve the quality of those ads' delivery, meaning that with more precise ad targeting, users had to click on fewer ads.
Still, Google's stock has continued to slide, dropping almost $100 since that comScore report, to close on Monday at US$413.62.