Google will buy more companies to boost its presence in the booming online display ad sector in a challenge to Facebook, even as European regulators examine its dominant web search position.

Speaking to a small group of reporters on the sidelines of the Cannes Lions advertising festival, Executive Chairman Eric Schmidt said the group would continue to snap up companies that specialized in handling display ads such as banners and video.

It would be good to have more diversified revenue, Eric Schmidt said, just days after Google announced plans to buy AdMeld to grab a larger slice of the market for graphical display ads.

I would argue that we're doing really well there. We started off with largely text ads, and now we have this display business which is going to end up being a $10 billion, $20 billion kind of business. It will be very large.

The vast majority of Google's revenue, which totaled roughly $29 billion in 2010, comes from the small ads that appear alongside its search results.

But some analysts have suggested that Google needs to diversify its business with products such as social networking tools to prevent advertisers moving over to the social network Facebook instead.

According to a report released earlier this week by research firm eMarketer, Facebook will displace Yahoo Inc to take the biggest slice of online display ad dollars in 2011.

With that in mind, Google has engaged in a buying spree of technology and engineering talent to bolster initiatives outside of the search business, including in mobile advertising.

Schmidt said the display business had taken time to develop but said it would now look to make further acquisitions as publishers and advertisers helped it to understand which new services were required.

There's not a list of targeted acquisitions, he said. As the strategy develops it will become clear what the customer needs that we have not been able to build ourselves.

The spending spree, albeit in a different sector, comes as regulators from the European Commission examine Google and its conduct in the search market following a complaint from Microsoft Corp that it systematically thwarts Internet search competition.

Schmidt said he had met with the Commission a bunch of times and said relations were cordial, though he did not know how long the investigation would take.

(Reporting by Kate Holton; Editing by Will Waterman)

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