Most investors know that Google (NASDAQ: GOOG) has been milking its cash cow--search advertising--since its inception in 1998. About 97 percent of Google's revenue comes from search advertising. Products like Adsense and Adwords generate the majority of the company's growth, while other services like YouTube, maps, docs, mail and even the search engine itself that most consumers are accustomed to using in their everyday lives are really there to funnel more eyeballs to the ads on Google.
But while Google has quickly dominated the Internet as a gatekeeper of sorts, there are many companies that have found a viable business model under the search giant's wings. You've probably heard about the importance of search engine optimization (SEO) and why it's vital for any website to have it. The whole point of companies using SEO is to get the attention of search engines--particularly Google--and pop up high enough in the results pages so that consumers can see their website. Whether they're content farms like Demand Media (NYSE: DMD) or web marketers like ValueClick (NASDAQ: VCLK), these companies have found their comfort spots within the Google empire. When it comes to these businesses, the keyword is "keywords."
Though Google isn't the only game in town--Microsoft's (NASDAQ: MSFT) Bing and Yahoo! (NASDAQ: YHOO) Search combine to make up about one-third of the remaining search market--it is the biggest and shiniest of the bunch.
Search Advertising Stocks
For web marketing companies like ValueClick, QuinStreet (NASDAQ: QNST), Digital River (NASDAQ: DRIV), and InterCLICK (NASDAQ: ICLK), getting the right eyeballs (internet traffic) to the right places is essential for their business. In fact, that's essentially their business. While there are different strategies that these lead generation and online marketing companies use to drive traffic and, in turn, convert into actionable consumers for their clients, strategic search advertising is a huge portion of that.
Companies bid against each other for prime real estate on Google's search results pages. The strategy involves bidding on key search terms that are relevant to the company's products. This provides the advertiser with targeted traffic that have a higher conversion rate than the general population. But these companies aren't the only ones bidding for these highly sought after spots, companies of all different industries have in-house teams doing the same as well.
Organic Search Stocks
Even though they're trying to take advantage of the same thing, there's a slight difference when it comes to organic search marketing. This is what's been causing all of the hullabaloo over Google's algorithm change. Essentially, because some companies--like those pesky content farms--have figured out how to exploit Google's complex calculation on what websites and web pages to bring up when someone searches a keyword, the company has made a conscious effort to fix those weaknesses.
Content farms like Demand Media essentially write low value articles stuffed with keywords to show up higher on the Google results pages. This means higher traffic and means that the companies can charge its clients more to advertise on their websites. What's interesting here is that former rival search engines like Yahoo! and AOL (NYSE: AOL) have now shifted their strategies to take advantage of Google's search engine rather than compete against it.
So much of what these companies do hinges on Google and its precious algorithm. Just take a look at what happened to the industry when Google adjusted its search algorithm recently. Interestingly enough, Yahoo's Associated Content saw a 93 percent drop in visibility. Yet also surprisingly, Demand Media, one of the most notorious--if not the most--content farms on the internet actually received a bump. But Google says it isn't done yet, so investors looking into this industry should definitely be on high alert.
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