Gmail Display Ads Could Be Next Big Revenue Source

For a select subset of users, Google is testing out a new possible revenue source on Gmail: display ads.

Various media outlets reported that people were spotting display ads on their Gmail accounts in the form of banners. The Mountain View, Calif. based company has since confirmed the display ad launch.

We're always trying out new ad formats and placements in Gmail, and we recently started experimenting with image ads on messages with heavy image content, a Google spokesperson said.

The spokesperson said right now the Gmail display ads are only an experiment. She did not specify whether or not this could be a permanent feature.

While it's an experiment for the time being, one Google analyst, Yun Kim, says the company will most certainly use display ads as its future source of revenue. He says the market potential for this type of business is too great for Google to ignore.

This is a natural progression from Adsense, to include Gmail and follow the practice of other email host sites with display ads, Kim said. Adsense is Google's primary advertising technique, which allows website visitors to place contextual advertising on their sites. Those display ads on email, because of the sheer volume of Gmail users, could be a meaningful part of the overall display business. This is not something to take light of, it's going to be a very meaningful portion of their display business right off the bat.

The move to display advertisements is a way to further monetize Google's web properties. Revenues on advertising from Google's network of sites increased to $8.8 billion in fiscal year 2010 from $7.16 billion in 2009. And that is without a major ad campaign on Gmail, which has hundreds of millions of users worldwide.

The math could speak for itself. Until this experimental launch, the only advertising on the Gmail site in the past has been unobtrusive text-ads on the right-hand site. It's a huge opportunity, Kim said. This is an area where innovation could lead to better monetization.

By putting display ads on its email client, Google is following in the footsteps of Yahoo!, AOL and practically every other email site. Recently, Yahoo! reported display advertising boosted its financials, which were otherwise underwhelming, by $635 million. Social media giant Facebook recently announced it was sponsoring stories. Through this initiative, advertisers could re-publish Facebook messages from a user's friends on display ads.

The ad model has proven to be successful online. Most companies are pursuing advertising to monetize their content: Facebook, Yahoo! and AOL are all the primary players in advertising. There are rare subscription models like The Wall Street Journal, but across the board online content is monetized through advertising, said Clayton Moran, analyst at Benchmark Capital.

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