January 19, 2004

Google Inc., which dominates the market for Web search, is developing a service that could dramatically extend the reach of its lucrative keyword-based advertising by linking such ads to e-mail, people familiar with the matter said Friday.

Privately held Google, which is expected to go public later this year, faces rising competition in its core search business from e-mail providers including Yahoo Inc. and MSN, Microsoft Corp.'s Internet unit.

Adding an e-mail service would provide a potential boost to Google as its technology lead in the search market seems destined to narrow and it prepares to answer to growth-hungry shareholders, analysts said.

The Mountain View, California, company, which has recently made several e-mail related acquisitions, is working on a way to serve advertising to an e-mail at the moment it is opened, people close to the company said.

"I'm sure Google is getting more and more concerned about locking in users. It wouldn't surprise me if they did something very sophisticated with e-mail," said Danny Sullivan, editor of SearchEngineWatch.com, who tracks the industry.

By moving into e-mail -- the Web's most-used program -- Google would open up a huge new market for its lucrative "sponsored links" advertising business that delivers ads tied to keywords in Web searches or on content pages, analysts said.

Offering its own branded e-mail -- whether for free or with enhanced services like spam filtering -- would also enable Google to tie users more closely to its search site and to steal customers from rivals, they said.

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