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Last Updated: Thursday, 3 May 2007, 20:14 GMT 21:14 UK
The online battle for advertising
By Rory Cellan-Jones
Technology correspondent, BBC News

Google employees
Staff at both firms look relaxed but work hard to be the best
They both inhabit airy London offices where the furniture is funky, the clothes are casual and the talk is of cutting-edge campaigns.

But these two companies are not advertising agencies.

Welcome to the new faces of Britain's advertising industry - Google and Yahoo.

Both companies now have big London operations, and it is clear when you step through the doors of either Google's Victoria offices or Yahoo's building on Shaftesbury Avenue that these businesses are all about advertising.

What's more, London is the location for a toe-to-toe battle over who is to be number one in Europe's fast-growing online advertising industry.

As the Americans say, just do the math.

Last quarter, Google broke out its UK sales figures for the first time.

In just three months, it hauled in revenues of $578m (289m).

Quadruple that for a rough annual figure, and you get some $2.3bn (1.15bn) - a number which outstrips the total revenue for TV station Channel 4 during 2006 of 937m.

Vulnerable television

Yahoo does not break out its figures for the UK, but it has about 600 people in its London offices and just about all of them are selling adverts or talking to clients about their campaigns.

Yahoo homepage
Expect to see more advertising in more places

Its UK boss, Glen Drury, is keen to point out that - while Google may be big in search-based ads - Yahoo leads the way in display advertising.

And after seeing online advertising overtake print in the UK, he is bullish about further growth.

"Newspapers and radio have been the soft underbelly of the ad market," he says, "but we think television is now rather vulnerable."

Targeted adverts

Over in Victoria Google's UK boss, Dennis Woodside, seems mildly embarrassed when I suggest to him over the free croissants in the company canteen that he is now a big noise in Britain's advertising industry.

Many Google senior executives are engineers, but Mr Woodside, whose own career has been in business consultancy, is in no doubt his job stands or falls on the company's success as an advertising business.

"We're already really strong with very small businesses - people selling everything from golf equipment to garden sheds," he says.

But the focus now is on taking what Google has learnt about selling advertising related to search terms onto another level.

"Everything is going to get more targeted," he says. "So if you are on a website reading about planes, for instance, an advertiser will know more about your interests and be able to sell accordingly."

Adverts everywhere

Over at Yahoo they are preaching the same message.

"We can monitor user behaviour - anonymising it of course - and then match advertising to it," says Glen Drury. "We're going to try to make it so relevant you won't see it as advertising."

Right now, it is clear that Google is the bigger noise - especially now it is buying Doubleclick to get a stake in display advertising.

But the new frontier is mobile search; and here Yahoo hopes to stage a fightback.

This week the company launched its Onesearch product in Europe, claiming it would revolutionise mobile search. The plan is first to attract a big audience on mobiles, then sell them to advertisers.

But Google is not sitting back. The company locates much of its mobile research operation in London and it is looking at where the big advertising audience will be in the coming years.

"There are three billion mobile phone owners in the world, compared with one billion fixed internet connections," says Mr Woodside. "Mobile advertising is already big in Japan, and it's coming here."

A recent survey found the average person already sees 800 advertising messages in a day. As Google and Yahoo square up, prepare to see even more ads - online, on your mobile, everywhere you can imagine.

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