Google Buzz: Another Hit

The search advertising sorcerers at Google are continuing to hone their magic formula.

Wall Street analysts have begun to weigh on the company's forthcoming modification of its ad placement rules, which the search leader announced earlier in August.

The buzz is quite positive, with one analyst saying that the tweak could drive Google's revenue as much as 4 percent higher.

According to Google:

"With this new formula, instead of considering your actual CPC [cost per click], we'll consider your maximum CPC bid, which you control. This means that your ad's eligibility to be promoted is no longer dependent on the bids of advertisers below you. Therefore, if you have a high quality ad, you now have more control to achieve a top position by increasing your maximum CPC."

The important thing for investors, according to UBS analyst Ben Schachter, is that the change should have a positive impact on Google's revenues.

"This change will increase [cost per click] and volumes," Schachter wrote in a note to clients this morning. "We expect it to go live globally soon after Labor Day, and see a potentially material impact to revenues with far greater impact in [the fourth quarter]."

Schachter reiterated his price target for Google of $655. Google shares are currently bouncing around $500.

JMP Securities analyst William Morrison said in a research note Wednesday that the change could drive Google's gross revenue 2 percent to 4 percent higher.

Web ad experts agree, somewhat ruefully, that the change should boost Google's revenues.

"By asking people to bid higher, they can presumably collect a higher CPC," Randy Schwartz of Aegis Group's Carat agency told Online Media Daily this week. "It means more money for Google and the publishing partners."

Ben Kirshner, president of Elite Seacrh Engine Marketing told OMD: "It's a huge win for Google from a profitability standpoint."

by Sam Gustin