Quigo: The next Google?

Privately held search firm Quigo is quietly winning business from Google and Yahoo!

NEW YORK (CNNMoney.com) -- You've heard of Google and Yahoo! But how about Quigo?

Quigo is not the household name that these other two search giants are. But the privately held company, which competes with Google (Charts) and Yahoo (Charts) in a key part of the online advertising business, is quietly becoming a bigger player.

Google and Yahoo! are the industry leaders in search but a private company called Quigo is gaining some contextual advertising customers with its AdSonar product.

Quigo sells a product called AdSonar to online publishers. AdSonar, like Google's AdSense and Yahoo's Content Match, combs through Web pages and serves up relevant ads based on the text on the page.

CNN.com and CNNMoney.com, for example, use Yahoo's Content Match on their sites and many other online media firms use either Content Match or AdSense. (Time Warner (Charts) owns CNN.com and CNNMoney.com.)

But a growing number of companies are beginning to favor AdSonar. In July, Cox Newspapers, which owns 17 daily newspapers, including The Atlanta Journal-Constitution and Austin American-Statesman, said it would begin using AdSonar.

And earlier this month, Quigo scored a big victory when ESPN.com announced that it would begin using AdSonar this fall. The popular sports news site had been using Yahoo's Content Match. Other sites that use AdSonar are USAToday.com, News Corp.'s (Charts) FoxNews.com and MarthaStewart.com.

How is such a small company able to compete against the Internet's two established search titans?

Banking on wariness of Google and Yahoo

Greg Sterling, principal of Sterling Market Intelligence, a research firm focusing on Internet advertising, said that Quigo is able to sell itself as a company that truly just wants to be a partner to other media firms, and not a rival.

To that end, Quigo is not trying to be an online media company competing with "old" media firms for traffic and ad dollars. Quigo isn't billing itself as a site where people can go to check e-mail, read news, look at job listings or watch videos.

"Quigo is benefiting from a perception of independence. There is general angst about the power that Google and Yahoo have and Quigo is able to sell against that. They have quietly replaced Google and Yahoo in a lot of newspapers for that reason," Sterling said.

Henry Vogel, the chief revenue officer for Quigo, agreed that his firm has been able to take advantage of the fact that it's not viewed as a threat.

Along those lines, Quigo also sells a private-label version of AdSonar that allows web site owners to have a direct relationship with advertisers bidding for placement in the contextual link spots.

With this product, Web sites are able to pocket more of the money from contextual ad sales and wind up with more relevant ads than they'd get from tapping into AdSense or Content Match, Vogel said.

"Google's and Yahoo's publisher networks are blind networks. Google and Yahoo sit in the middle," Vogel said. "So from a publisher's standpoint, you're getting a check but you don't own the relationship with the advertiser. The private label approach makes publishers more money because advertisers will bid up."

Andrew Frank, research director with tech research firm Gartner, said that companies like Quigo can thrive if they focus on a particular niche. And in the case of Quigo, that niche could be local advertising through the private label version of AdSonar for newspaper companies.

"A lot of companies are finding that by focusing on specialized capabilities, they can actually find customers on the publishing side and advertising side that haven't bought into the ad network duopoly," Frank said.

But other big media firms think AdSonar is a compelling alternative to the big boys of search.

Tim Dolman, vice president of strategy and business development for ESPN New Media, said having the ability to sell its own contextual ads rather than rely on Yahoo's network was the main reason ESPN.com decided to switch to AdSonar.

"Yahoo and Quigo both have good products but we liked the idea of having a little more control of our own destiny in having a private label service. Advertisers have the opportunity to buy ads on ESPN.com on its own merits," said Dolman.

Irrelevant results and increased competition create risks

Still, contextual search technology appears to be far from perfect, which raises questions about just how effective this form of advertising can be.

"There's a lot of variation in relevancy. All ad networks are not created equal," said Frank.

For example, CNN.com and FoxNews.com both ran the same Associated Press story about the bagged spinach E.coli outbreak on Friday and this reporter looked at the contextual ads that ran on both sites. (Remember, CNN.com uses Content Match and Fox uses AdSonar).

In the CNN story, there were generic links to "fitness" and "vitamin supplement" ads. But the main contextual links that came up in the CNN story were for Internet phone service Vonage (Charts), mortgage comparison site LowerMyBills.com and ProForm, which makes treadmills and other exercise equipment. Only the ProForm ad can be truly considered a kind of relevant link since the company's products are related to healthy living.

It was slightly better on FoxNews though. One of the two contextual links that came up on the FoxNews story was for diet company NutriSystem. That's more relevant in a story about food than an ad for Vonage. The other ad was more of a stretch but still was health-related. It was for CigArrest, a company that makes herbal gums and lozenges to help people quit smoking.

"Quigo has been savvy and has good technology," Sterling said.

Whether Quigo can truly become a big thorn in the side of Google and Yahoo remains to be seen. Vogel would not comment about how much revenue the company was making or whether or not it was profitable.

But Quigo has some high-profile financial backers, which could bode well for the future.

Venture capital firm Highland Capital, which funded several Net firms that were subsequently acquired, including Ask.com, Lycos and MapQuest, is one of Quigo's biggest investors. Steamboat Ventures, the venture capital arm of Walt Disney (Charts), which also owns ESPN.com, has a stake in Quigo as well.

Still, Quigo isn't the only company gunning for Google's and Yahoo's business.

Frank said that Vibrant Media, a privately held firm that sells a product which places ads that pop up over highlighted keywords within the text of a Web page, is worth keeping an eye on. He also said that Linkstorm, which generates a menu of links that a reader can see when mousing over a word, also has interesting technology.

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The reporter of this story owns shares of Time Warner through his company's 401(k) plan.