Google has proven its utility for users. Now it's time to show advertisers.

The goal of making search-engine advertising easier and more efficient for advertisers will lead to some major innovations for Google and other search-engine companies over the next year, says Tim Armstrong, Google's vice president of advertising sales.

"Tools are the next frontier," says Armstrong. "All the systems will be getting more automated and easy to use."

That outlook, along with factors such as a rise in reported revenue for search-engine companies, spotlights the likely continued dynamism of the paid-search business, populated by publicly traded companies such as

Overture Services

(OVER)

,

FindWhat.com

(FWHT)

and

LookSmart

(LOOK)

TheStreet Recommends

.

Big Numbers

The privately held Google's status as operator of the most popular search-engine destination for U.S. users makes it a key player in the development of the search-engine business. With Google declining to disclose its financials, the biggest search-revenue generator is likely Overture, which expects full-year revenue to rise from $667.7 million in 2003 to $1 billion in 2003.

As advertisers indicated in a recent panel discussion at a

U.S. Bancorp Piper Jaffray search conference, however, advertising on search engines isn't as easy as they'd like it to be, especially when they're trying to coordinate advertising that involves tens of thousands of different keywords. Advertisers also are seeking better tools for adjusting their ad campaigns -- factors such as the words they bid on and the prices they bid -- in response to variable performance of different parts of their ad campaigns.

Google is on the case, insists Armstrong, though he declines to give specifics, such as what percentage of the company's staff is devoted to advertising tools, as opposed to improving users' search experience.

"We'd like to get well-known as a great company for advertiser experience and ease of use," he says.

Paid search comprises mostly pay-per-click search advertising, in which advertisers bid for placement in the search-results page served to people who use Internet search engines; advertisers pay only when a user who clicks on their advertisement or listing visits their site. But paid search also includes variations such as paid inclusion, in which advertiser's listings are listed in order of relevance rather than the size of the advertiser's bid.

Keeping Track

Search-engine companies have made progress on tools enabling advertisers to set up their campaigns, says Kevin Lee, CEO of Did-it.com, a company that helps advertisers manage their search-engine marketing campaigns.

Where there's room for improvement, he says, are tools that are able to monitor the return on investment of particular campaigns, then automatically adjust those campaigns in response. These services -- which Did-it.com and other third parties offer themselves to search-engine advertisers -- can judge, says Lee, the performance of large numbers of search terms for advertisers.

That way, an advertiser can figure out, for example, whether a campaign is more effective at a particular time of day -- and respond by suspending the campaign during the time of day when it isn't paying off. This adjustment of an advertising campaign midstream, says Lee, "is where it becomes a little more challenging."

Automation is necessary, says Lee, because once advertisers start bidding on hundreds or thousands of search terms, changing bids manually and/or individually becomes logistically impossible. It's also preferable, he says, that one tool can work with a variety of search engines, so a campaign can be managed across several advertising vendors.

Exactly what Overture and Google will be delivering, however, is still unknown. Armstrong promises return-on-investment and keyword-management tools. Earlier this year, Overture purchased a marketing analytics company called Keylime Software.

"Keylime's technology for managing and analyzing the performance of search campaigns represents an additional step in offering advertisers a deeper understanding of their online-marketing effectiveness," Overture CEO Ted Meisel said on a company conference call last month.