Why Google's ad sales are skyrocketing

(Fortune Magazine) -- The Search giant keeps blowing past estimates. One key to CEO Eric Schmidt's success is Google's AdSense business.

1 What makes AdSense better than other Internet ad networks? Google's (Charts) initial triumph was linking ads based on keywords to queries on its search engine. AdSense feeds similar keyword-driven ads to a vast network of content sites with which it shares revenues. Viewers see relevant ads, not random ones. At a site devoted to Sasquatch sightings, AdSense puts up an ad for Oregon rafting trips.

2 Surely Microsoft (Charts) and Yahoo (Charts) offer similar services? Microsoft has only just launched its adCenter network, and Yahoo's Publisher Network is still in beta. Google, on the other hand, claims that AdSense reaches 76% of all U.S. Internet users. "We're re-creating mass media," says Google executive Kim Malone.

3 Wasn't the Internet supposed to be breaking media into millions of tiny pieces - the "long tail" and all that? It is. But AdSense's ability to aggregate so many sites into one large audience creates a new mass-advertising platform. AdSense revenues were $1 billion in the third quarter, up 54% over last year. That's 39% of Google's total sales.

4 How can AdSense keep growing? Google is starting to use AdSense to distribute content. In a successful recent experiment, MTV used AdSense to distribute videos across a network of related sites. Ads from Johnson & Johnson, among others, ran inside the videos. Google shared the revenues with the sites and MTV.