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The news that AOL might be allowed to run banner ads on Google turned out to be false, but in the few days before the rumor was quashed more than a few folks in the SEM world were irked. To many, banner ads on Google represented the transition from “Do No Evil” to “Be a Big Corporation”, or to paraphrase George Orwell, from “All animals are created equal” to “All animals are created equal, but some animals are created more equal than others.” But is this really cause for panic? Let’s investigate.

Opponents of Google banner ads basically have two arguments: 1) the aforementioned claim that Google is now putting money ahead of user experience; 2) that banner ads ruin the simplicity and speed which got Google to where it is in the first place.

Argument #1 is pretty silly really, only because money took over at Google as soon as AdWords Select (now just known as AdWords) was launched. Google puts three ads at the top of every page – before the organic results. They host massive parties for their top advertisers. They have thousands more employees dedicated to advertising than to computing. They have even recently began experimenting with larger font sizes for ads while maintaining smaller fonts for organic results.

Putting banners on Google is just an extension of Google’s current modus operandi. Indeed, for purists who long for the days when Google focused only on search algorithms, it should be clear that those days have passed. Gmail, Blogger, Orkut, Maps, News, Base, Earth, Talk, Froogle – only tangentially related to search. And I’m pretty sure that none of these got the green light for development unless there was a clear monetization scheme as part of the pitch.

Finally, let’s not forget that Google already allows banner ads on the AdSense content distribution network. Thus, this Web site, for example, could have a banner showing up on it right now. Google is already in the banner business. This is nothing new.

OK, OK, even assuming that we agree that Google has long ago sided with the almighty dollar, what about argument #2 – that banner ads will ruin Google’s speed and simplicity? This too is questionable. Banner ads that are not heavy on Flash or rich media would likely have a minimal impact on page load time. As for simplicity, Google came to power because they had great search results. That they didn’t have banners on their page was probably nice PR for them, and it probably did attract some initial users, but I suspect that most people today recognize that whether there is a banner on a page or a text ad, it’s still advertising.

There’s a term in the advertising industry called “banner blindness”. Banner blindness occurs when a user sees so many banner ads that he no longer even “sees” them on a page. This is why banner click through rates have dropped from over 1% in the late 1990s to less than .01% today. I think that pretty soon we will need a new term: “text ad blindness.” I predict that click through rates on text ads – now at around 1.5% to 2.0% on average – will also see a sharp decline.

At the end of the day, Google needs to serve ads that generate the highest click through rate possible. This not only increases their revenue per visitor, but it is also a great benchmark to determine whether their users consider the ads on page to be a positive part of the user experience. If text ad click through rates decrease to the level of banner ads, it is pretty clear that users will have concluded that be it a banner ad or a text ad, it is so annoying it is not worth even acknowledging.

So, what’s a Google to do? As Google has done so many times in the past, I suggest they “beta” it, or in non-Google-speak, test it out. What will happen to click through rate if Google serves a combination of banners and text ads? What negative impact – if any – will banners have on Google brand? Most importantly (from Google’s perspective), what’s the impact on the bottom line?

As a Silicon Valley search engine marketing professional, I often remind myself of just how removed I actually am from the average Google searcher. The average Googler doesn’t think about click through rate, conversion rate, ad text length and broad matching algorithms. The average Googler probably knows that a lot of people use Google so it must be the best search engine. People buy $50 bottles of wine because they must be better than the $9 bottle. As someone suggested in a response to one of my recent posts, the wisdom of crowds.

Now to quickly be my own Devil’s Advocate, I will say this: the idea that Google would even consider AOL banner ads on their site does strike me as a potentially bad indication that Google is starting to lose its way. Specifically, that Google has become such a big business that they are starting to lose their innovative spirit and starting to act like, well, a big inefficient corporation.

In this post, I tried to outline some reasons why banner ads on Google could be a well-reasoned strategy by Google to attempt to increase revenue per visitor. But this does assume a degree of reason and forethought that is often absent at giant, old companies. And I do think that there is plenty of history that shows that companies that make it to the top often falter once they get there, due to laziness, hubris, or both.

I always ask people this question: if someone in 1970 had to guess the biggest airline, department store, and communications company in 2005, what would they say? Probably Pan Am, KMart, and AT&T. Pan Am closed up a few years ago, Kmart is struggling with bankruptcy, and AT&T may not be far behind.

Thus, this banner ad issue is not about whether Google has become a money-hungry corporation, but whether they have become just another corporation. The jury is still out.