Graphic: how Google works

Competition between advertisers has always been intense but a change being implemented by Google will give companies the chance to hijack each other’s brands online.

From Monday, it will become possible for J Sainsbury to place an advertisement that appears anytime someone in Britain types Tesco as a search term, as Google ends its policy of trademark protection in the UK.

The move is already unsettling some big-name advertisers, with Tesco pledging to take the “moral high ground” and not bid against rival brands on Google, in the hope that it will not face aggressive competition.

Other brand owners are more unhappy still, with Ian McCaig, the chief executive of lastminute.com telling Channel 4 News that he was considering legal action. “We believe that Google’s policy change is a big problem and we object to it. We are investigating with vigour the legal position and if that investigation concludes positively then we will pursue a legal case, no question.”

Google is the most-visited site on the internet, accounting for more than a third of UK traffic. Consumers increasingly use the search engine to find even the most familiar brands – making any change to its policy critical.

David Kyffin, managing director of direct/digital at WPP’s Group M, said many clients were concerned about the change. “They would like to see more competition to Google in the UK but Google is so dominant that it is not possible to buy enough adverts on Yahoo! or MSN to reach as big an audience.” Google’s only concession to brand owners is to ban attack advertising and to ensure that nobody misuses a competitor’s trademark.

Search advertising has rapidly grown into big business and the change is expected to trigger a burst of further spending. Tesco spends an estimated £2.2 million a year but other budgets are larger. A well-known car insurer spends £8 million buying adverts that appear alongside ordinary search results.

Google charges anywhere from a few pence to several pounds per click, using an auction mechanism. However, it also ranks advertisers according to their relevance and click-through rates, although it does not spell out how it does this. Some of the highest spend per click can be found in financial or legal services.

Advertisers say a popular term is “cheap car insurance”, which can cost £5 to £10 a click. In the United States, the term mesothelioma, the cancer caused by exposure to asbestos, can cost lawyers hoping to pick up personal injury claims $20 a click.

Advertising agencies think the most likely beneficiaries are small brands that will try to take advantage of big names, particularly in financial services.

Mr Kyffin said: “You could get a little known, say Icelandic, bank offering high interest rates buying up a brand of bank like ING, which is known for its savings accounts.”

Matt Brittin, a country director with Google UK, defended the change, which follows a similar move in the US four years ago. “What we want to do is give the best possible experience for searchers, and we try to make sure that sponsored links and natural searches give relevant results,” he said.

Fredrick Marckini, the chief global search officer with Aegis’s Isobar, said: “When this was introduced [in America], there were similar amounts of foreboding and dread. But shortly after it passed and advertisers got used to it. The fear is overblown and the opportunity understated.”

History of a global phenomen

— Advertising revenue for ITV was £1.489 billion in 2007, down slightly from £1.494 billion in 2006. Google was not far behind, taking about £1.26 billion in the UK last year and could overtake the broadcaster by the end of this year.

The search engine does not receive all the money it generates, passing on about 29 per cent to partners

— Google-owned sites last year became the most visited on the internet, with 587 million people logging in during the month of December

— The company was founded in a garage by Larry Page and Sergey Brin while they were studying for doctorates at Stanford University, California

— It was initially known as “BackRub” because its algorithms check backlinks to gauge the importance of a website

— Google raised $1.67 billion (£845 million) in its initial public offering in August 2004, which valued the company at $23 billion. Its shares began trading at $85 and were trading in New York at $581 yesterday. They peaked at $740 last November

— Most of its shares are still held by employees and investors who were involved before the IPO

— Google engineers are encouraged to spend one day per week on projects that interest them. Gmail and Google News are both said to have resulted from this policy

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