Even public companies feel the wrath of the Google (Nasdaq: GOOG) Police.

Shares of IncrediMail (Nasdaq: MAIL), an Israeli company that provides interactive e-mail products to 10 million active users, opened 40% lower today after the company told investors it was booted from Google's AdSense program.

AdSense is a popular program in which third-party publishers display Google's targeted text ads on their websites. In return, the websites receive the majority of the generated ad revenue.

Other search engine providers such as Yahoo! (Nasdaq: YHOO) and Baidu.com (Nasdaq: BIDU) offer similar programs, but Google is by far the top dog here. Of the $4.23 billion in revenue generated by Google during the third quarter, $1.45 billion came from AdSense.

You know many AdSense participants. If you have ever seen the "Ads by Google" blocks of relevant text ads on CNN.com, AOL, or MySpace, you've seen AdSense in action. But most participants are smaller sites and bloggers drawn to the program as an effective and convenient way to monetize their cyberspace content.

Naturally this can create a hotbed of activity. To maintain the integrity of its product, Google boots out nefarious sites of webmasters who click their own ads or encourage others to do so. IncrediMail is, as far as I can tell, the first public company to get booted.

Banned for now or forever?
Fraudulent clicks might or might not be why Google disabled IncrediMail's account. This morning's press release indicates only that Google has chosen to do so, with IncrediMail trying to clarify the situation as it seeks similar service alternatives if the Google ban sticks.

IncrediMail is a small yet fast-growing company. Through the first nine months of 2007, revenues soared 94% to $13.3 million. The company is taking advantage of its popular email applications to launch Instant Messaging and social networking.

Is the stock taking a hit because investors fear IncrediMail won't be able to replace the revenue lost from Google if it is not reinstated, or is it because of a greater concern -- the alleged misdeeds that led to disabling the account?

Several small public companies -- including Answers.com (Nasdaq: ANSW) and MIVA (Nasdaq: MIVA) -- rely extensively on AdSense to generate interactive marketing revenue. There is no reason to think they will run afoul of Google's terms, but did anyone see the IncrediMail ban coming?

You see it all the time. Companies crash and burn when their largest customers bolt. Pharmaceutical makers tumble when their marquee drugs are nixed. So should dot-com investors be worried now if their Internet stocks use a third-party provider as a primary source of monetization?

Step right up, heroes
I wouldn't go that far. The real problem is that no company has stepped up to provide an economically feasible competitor for AdSense. Yahoo!'s program has rolled out very slowly and is limiting itself to a select number of stateside publishers. Baidu's program is only for Chinese websites. Microsoft (Nasdaq: MSFT) has targeted only leading sites, such as Facebook.

Someone needs to step up to challenge AdSense. It won't be easy; Google is the runaway leader in generating Internet ad revenue:

Q3 Online Revenue


$4.2 billion


$1.5 billion


$0.7 billion

I've said it before, so I might as well say it again. Google pays a generous 77% of its AdSense revenue to its third-party publishers. Simply matching Google's cut isn't enough because Google's chunkier ad inventory translates into a far wider inventory of relevant ads from higher-bidding sponsors.

If Microsoft or Yahoo! want a shot at Google AdSense -- a market that is nearly as big as all of Yahoo! and twice the size of MSN's top-line output -- they will need to put the dagger between their teeth and treat an ad network as a loss leader. Even if it means offering 100% -- or even more -- for a limited time, AdSense will only get bigger without opposition.

We don't know the sordid details that led to IncrediMail's account being disabled. I'm all for sugarcoating the company as innocent until proven otherwise. However, I do know the shares wouldn't have been sheared to the tune of a 40% haircut this morning if Google wasn't so powerful.

Where is the champion?
If there were a comparable product out there, third-party publishers might actually have a little leverage here.

What are you waiting for, Yahoo!? Wake up, Microsoft! Fight back, or just spare us the grief by inserting white flags in your next annual reports.