Google Maps' New Direction

Since its launch in March, Google's (Nasdaq: GOOG) mapping feature has unleashed a torrent of creativity. For example, NYsee combines NY traffic cameras, Yahoo! (Nasdaq: YHOO) traffic news, and street photos from Amazon.com's (Nasdaq: AMZN) A9.com with Google Maps to make your traveling experience a little less hectic. In a more Foolish vein, GeoIndex melds Google Maps with Yahoo! Finance and the S&P 500 to show returns based on where companies are headquartered.

This stuff is undeniably cool. But investors might well wonder how Google plans to make money off its maps. Not surprisingly, the answer revolves around advertising.

For example, Google announced last week that Google Maps will mark its emergence from beta testing into full-fledged usefulness by changing its name to Google Local. To see how the new version worked, I went to the site, entered my home address, clicked "Find Business," and typed "pizza." I got 10 results, with the closest one listed first, and saw tiny flags corresponding to each result on an accompanying map. Moving my mouse over each flag gave me the business's address, phone number, and a brief description of the menu.

This new product has the makings of a killer application. "Local information is huge," said Jared Cosulich, who operates his own Google-mapping service at CommunityWalk. "The decision to combine the two services recognizes the fact that the user's experience is significantly increased when he or she can see information in the context that ties it all together."

The first step to capitalizing on all this local information will likely involve Google's AdWords program, which provides ads based on the keywords used in a given search. But Google Local's real promise lies in "in-map" advertising. For example, as you zoom into areas of a map, Google may serve up ads based on businesses in the surrounding streets or neighborhoods -- and perhaps display them within the map itself. "Whatever advertising medium is chosen," said Mike Pegg, who operates Google Maps Mania, "I'm confident it will be relevant and non-intrusive to the map you are viewing."

In less than a year, Google Local has become online mapping's No. 2 player, with 14.3 million unique visitors. (Time Warner's (NYSE: TWX) America Online is still the leader, with 39 million unique visitors.) What's more, according to The Kelsey Group, the local online advertising market should reach roughly $3.4 billion by 2009. Google's rapid growth in mapping -- and its sophisticated searching -- should help position it to grab a healthy portion of this market.

Time Warner and Amazon.com are Motley Fool Stock Advisor picks.

Fool contributor Tom Taulli holds no financial position in any company mentioned in this article.