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Google bullish on advertising system; By Richard Waters in Mountain View

Google executives promised an acceleration in the recent efficiency gains seen in its search advertising system on Wednesday, potentially opening an even wider gap as rivals Yahoo and Microsoft struggle to catch up.

The confident prediction, made during the company’s annual analyst day, follows last week’s news of big gains in “monetisation”, or the amount of advertising revenue it generates from each search, in Google’s latest quarter.

“There is still substantial headroom in monetisation,” said Nick Fox, director of product management in the advertising division. “The quality of ads is still quite low” – meaning further improvements in serving up relevant messages could still bring big advances.

In a characteristically expansive presentation on Google’s long-term prospects, executives also turned a particular spotlight on online applications such as Gmail and Google Docs, which have recently been given a more central role in the company’s strategy. “It’s as large as the early internet in terms of its opportunity,” said Eric Schmidt, chief executive officer.

He added that improvements in browser technology and changes in the behaviour of internet users meant many personal computing applications were about to move into “the cloud” – the network of data centres run by Google and others.

In one sign of how much room for improvement still exists in its ad system, Google recently slashed the number of adverts it carries alongside its search results to try to weed out the least relevant messages.

“We’re showing a very low number of ads relative to what we were historically,” said Mr Fox. That had left a large volume of unsold search inventory that Google believed it could make money on as it reached more specialised and local advertisers, he added.

The search company said it had built a bigger team of specialists in the past year to develop and test potential improvements to its advertising.

Thanks to the resources, Google had been able to make 20 separate improvements to its search advertising system during the third quarter of this year, compared with only “two or three” in the same period a year before, said Mr Fox.

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October 25, 2007 By HIGHER IMAGES INC | POSTED IN Industry Secrets