The departure of dMarc Broadcasting's co-founders from Google Inc. surprised many industry observers but not Google Chief Executive Officer Eric Schmidt.

Speaking Tuesday at the 2007 Bear Stearns Media Conference in Palm Beach, Florida, Schmidt said that Google expected dMarc co-founders Chad Steelberg and his brother Ryan Steelberg to move on at some point after Google acquired the radio advertising company last year.

"The founders, who are entrepreneurs, have gone off to do their next company, which is what we expected them [to do]. They're very good and we wish them well," Schmidt said.

Google didn't announce that Chad, dMarc's chairman and CEO, and Ryan, dMarc's president, had left the company, but confirmed it after the news leaked out. MediaPost Publications reported it first on Feb. 9, saying also that the brothers had left unhappy over differences regarding Google's radio ad strategy.

Google handled the matter quite tersely, refusing to say when the Steelbergs had left and whether they had resigned or been fired. This fueled speculation that the separation had been unfriendly and that Google is having trouble articulating a coherent plan to push into radio advertising.

On Tuesday, Schmidt said Google continues using the dMarc system to place radio ads in smaller markets, while negotiating "larger distribution deals." Google paid US$102 million in cash for all outstanding equity interests in dMarc, and agreed to make up to $1.136 billion in additional payments when and if certain performance goals were met.

Google generates 99 percent of its revenue from online ads, primarily the pay-per-click ones it serves up along with its search engine results and on third-party Web sites. Its overwhelming reliance on this particular type of ad is seen by experts as a risk, and the company has been trying to diversify into other types of online ads, like banners and video, and into offline ads, like radio, print and television.

In television, Google is conducting "a couple" of ad insertion trials, and trying to measure whether its ad system provides incremental value over the medium's traditional system of placing and targeting ads, he said. "If those trials are successful, we will expand," Schmidt said.

In pursuing other ad markets, Google's approach is to apply the targeting method that has worked so well for it in pay-per-click ads. In those, Google serves up ads that are thematically related to the user's search-engine query or to the content of a third-party site. Despite its eye-popping revenue and profit growth in recent years, Google isn't close to having perfected its ad targeting system, Schmidt said. "We're nowhere near any sort of limit in that area," he said.

In fact, Google's key competitive front is ad-targeting technology from companies that come up with new or improved approaches, Schmidt said. "The advertising story I'm telling you now isn't a secret anymore. People have studied what we've done and they understand it," he said, adding that applying its targeting technology to the mobile space is key for Google.

On a related note, Google hasn't felt any adverse impact from the new pay-per-click ad system rival Yahoo Inc. rolled out recently, Schmidt said.

Schmidt also said that Google's new Checkout online transaction and payment service could in the future strengthen the company's plans for cost-per-action (CPA) ads. While in pay-per-click ads, advertisers pay whenever someone clicks on their ads, with CPA they only pay when users perform a specific action after clicking on the ad, like making an actual purchase.

IDG News Service

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