Oct. 12 (Bloomberg) -- Time Inc.'s Vivek Shah spent six months assessing whether Google Inc., Yahoo! Inc. or Microsoft Corp. could most effectively attract advertisers to the magazine publisher's Web sites. His decision: none of them.

In June, Shah awarded the three-year, $100 million contract to Quigo Technologies Inc., a closely held New York company that will handle ad space on more than 15 sites, including CNNMoney.com and People.com.

After beating down rivals, Google's dominant position in the $40.6 billion online advertising market is showing cracks. Google has mined keyword auctions, where the highest-bidding advertiser may end up on a heavily trafficked news site like the New York Times and the lowest bidder might end up on an obscure blog -- neither knowing in advance where their ads will land.

Quigo (pronounced KWEE-go) targets better-known publishers such as Time, ESPN and Slate, arranging deals that let online advertisers specify which pages they want to appear on rather than taking what they get. While Google now offers a similar bid- by-page option, Quigo may have an edge as the model's pioneer.

``They accommodated what we wanted to do,'' said Shah, who is president of Time's Fortune/Money Group and formerly ran digital publishing.

With Quigo, publishers can sell ads directly, using their own sales forces. Other Google rivals, such as EyeWonder Inc. and PointRoll, specialize in video and animated spots, which are growing in popularity.

Sales growth at Mountain View, California-based Google slowed to 58 percent in the second quarter from 77 percent a year earlier. While the company now sells ads embedded in YouTube videos and on Web sites customized for viewing by mobile phone users, those initiatives have yet to prove they can generate the same growth rates as its main business.

`Scary' Dependence

``It's heavily dependent on a particular segment of the business to make money,'' said Kevin Landis, who manages $700 million as chief investment officer of Firsthand Capital Management in San Jose, California. He said he hasn't added to his Google holdings since early last year in part because of the company's reliance on search-related ads. ``It's scary if that ever started to go wrong.''

Google is best known for auctioning off sponsored links next to results on its search engine for keywords like ``Hawaiian vacation.'' The company uses the same system to sell ads on its clients' Web sites. Advertisers bid for particular words related to their products.

Targeted Pages

Founded in 2001, Quigo has arranged deals that let a retailer, for example, put ads for soccer gear just on ESPN's soccer Web pages.

Quigo's sales will double next year, said Chief Executive Officer Michael Yavonditte, without giving figures. All of its customers defect from Yahoo and Google, he said. The Washington Post Co.'s online magazine Slate said Oct. 9 it's using Quigo's AdSonar program. The company had been using Google, said Slate spokeswoman Jennifer Lee.

``We found a niche in the market and a way to exploit the opportunity at the expense of others,'' said Yavonditte.

Quigo's backers include Walt Disney Co.'s Steamboat Ventures investment arm and Institutional Venture Partners, an investor in TiVo Inc.

The growth of search ads in the U.S. will slow to 13 percent in 2011 from 32 percent last year, according to New York-based research firm EMarketer Inc. Spending on the slice of the market that includes video will increase faster than search ads every year from 2007 through 2011, EMarketer said.

DoubleClick Acquisition

Google rose $15.39 to $637.39 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have gained 38 percent this year and surged more than sevenfold since being sold to the public three years ago.

Google agreed in April to buy DoubleClick Inc. for $3.1 billion. The deal would add display technology and advertisers, strengthening Google's ability to deliver banner and animated ads. That will pit Google against AQuantive, now a unit of Microsoft, EyeWonder and Gannett Co.'s PointRoll.

PointRoll agreed this year to work with Time Warner's AOL to put video in online ads. Sales at EyeWonder, a closely held Atlanta-based company founded in 1999, jumped almost 600 percent in the past two years, fueled by video ads for customers such as Apple Inc. and Time Warner's HBO, CEO John Vincent said.

Google, which doesn't break out display-ad revenue, is adding interactive, or ``gadget,'' ads to give advertisers more options. When a banner ad is clicked, a film trailer is played, for example. Google says it has an advantage over smaller competitors because of its track record and customer base, which include News Corp.'s MySpace and the Chicago Tribune.

EyeWonder, PointRoll

``This is a game where scale really matters,'' said Kim Scott, director of online sales and operations for Google's AdSense, the program it uses to auction spots. ``It's really important to have a huge number of advertisers and huge number of publishers.''

Some advertisers are looking for alternatives as Google's power grows, said Greg Sterling, an analyst at Sterling Market Intelligence in Oakland, California.

``They have vulnerabilities and weaknesses,'' said Sterling, who has tracked Internet firms for almost a decade. ``Ironically, one of those is their success, scale, power.''

To contact the reporters on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Gillian Wee in New York at gwee3@bloomberg.net

Last Updated: October 12, 2007 16:14 EDT