Google Shuns Behavioral Ad Targeting -- for Now

Google(GOOG Quote) says it has reservations about behavioral targeting, a fast-growing but controversial form of online advertising.

But a close look beyond the company's rhetoric shows that the search giant isn't about to pass up any new growth opportunities, either. And while the company is taking the opportunity to position itself as concerned about privacy, it's also quietly positioning itself to be a big player in the field.

Rather than pass up on the possibilities offered by behavioral targeting, a technique that takes user characteristics into account in deciding which ads to display, Google is instead taking a different approach. That's good news for Google investors, who need the company to capitalize on new advertising possibilities if it hopes to achieve its heady growth targets.

But the intricacies of the company's position about behavioral targeting, which invokes the privacy concerns that frequently surround Google, may be widely misunderstood.

On Tuesday, Reuters published a story titled "Google wary of behavioral targeting in online ads," suggesting that the search giant may avoid the rapidly expanding ad category, which takes into account many aspects of a Web surfer's online activity in deciding which ad to show.

But a close look at Google's carefully crafted position about behavioral targeting suggests that the company may be much more inclined to use the technique than the headlines suggest.

Rather than avoid the rapidly growing market -- behaviorally targeted ads accounted for only $350 million in spending during 2006, but that number is expected to grow to $3.8 billion in 2011, according to eMarketer -- the company may just be taking a different approach.

For starters, just what kind of behavior to target seems to be a point of distinction between Google and competitors like Yahoo!(YHOO Quote). Yahoo! recently launched a new SmartAds program that will use demographic information about things like gender and age when deciding which ad to display. But Google, for the time being, has decided to steer clear of taking that type of information into account. While a new feature it announced last week will post ads based on the sequence of queries a user puts in -- rather than just a single query -- the system stops short of drawing on any other information it has about the user.

And though the company plays up its high-minded concern for privacy in avoiding personal information, Google also has a more practical reason. It can do just fine without it.

"Currently, our system incorporates a large number of signals such as the user's query, the user's location, type of site, content, and the advertiser's landing page when targeting and ranking ads," a Google rep says. "For targeting ads on search result pages, we have seen no evidence to suggest that explicit demographic information from users will substantially improve ad quality or effectiveness."

The timing of Google's announcement that it is very concerned about privacy issues may not be a coincidence, either. Its proposed acquisition of online advertising company DoubleClick is being scrutinized by regulators because of privacy concerns. Expressing concerns about user privacy helps cast it in a better light.

Still, with the growing clout of behavioral targeting, it may not be as easy for Google to opt out of the technique in the future. Fortunately for Google investors, though, the company seems to be making all the necessary moves for such a scenario, despite its public reluctance.

"When you look at the difference between what they say and what they do, you see they are becoming more prepared for behavioral targeting," says Roy Shkedi, CEO of AlmondNet, a behavioral targeting firm. Schkedi cites as evidence the newly launched serial query assessment system, Google's decision to track a user search histories, and recent remarks by a Google executive that the company could track user behavior more closely in the future.

Google is not being deceitful, Schkedi adds. The company is correct in saying that it does not use behavioral targeting at the present time. But it is also careful to leave the door open for the future.

At the end of the day, though, the company will be forced to move further into the field, Schkedi says. That's because its competitors would otherwise be able to poach publishers that use Google ads to make money. With more information about users, companies like Microsoft (MSFT Quote) and Yahoo! could charge higher rates for ads and hand over a bigger check to publishers.

Abstaining from more behavioral targeting over the long haul would "make their competitors delighted and make Google lose and be out of the game," Schkedi says.