A pilot program launched by the Internet giant is helping about six advertisers match the anonymous tracking cookies on users' computers to in-store sales information collected by data providers like Acxiom Corp. and DataLogix Holdings Inc., according to people familiar with the test.
One participant in the program is the arts-and-crafts chain Michaels Stores Inc., the people said. The other participants couldn't be identified.
"We are running a number of tests to help clients use their own sales data to measure how their search campaigns impact sales," said a Google spokesman.
Online advertising has grown into a $117 billion-a-year business, and Google is the industry's leader, with ad revenue of $50.5 billion last year.
The company's new pilot program involves AdWords, its biggest advertising program, in which advertisers place links next to Internet-search results. Google gets paid when users click on an ad and visit the advertiser's website.
But while tracking clicks is an effective way to measure a Web ad's impact on online sales, the system breaks down when shoppers enter a physical store, where their behavior is harder to monitor.
"Clicks are just the beginning, and everyone knows that there's more value to tying ads to purchases," said Benny Arbel, chief executive of myThings, an advertising-technology company that works with Google but isn't involved in the pilot program. "If Google can demonstrate that people did not just click on an ad but that they actually bought something, that is the Holy Grail."
Google advertising executive Neal Mohan told a conference earlier this year that big brands spend more on television and other traditional media because they aren't sure how to measure the efficacy of their digital ads.
"The world of impressions, clicks and conversions doesn't necessarily apply to what they are looking to accomplish," said Mr. Mohan, who isn't involved in the AdWords test. "That's the $200 billion nut that is sitting out there, basically ready to come into the digital sphere."
In addition to Acxiom and DataLogix, the other data handlers participating in Google's program are LiveRamp Inc. and the Epsilon unit of Alliance Data Systems Inc., according to people familiar with the test. Those companies have access to troves of information about Americans' purchases, through loyalty cards
and other marketing programs.
Acxiom and Epsilon declined to comment on whether they are involved in the Google test, but executives at those firms confirmed that they are working with other companies on linking online ads to in-store sales. DataLogix and LiveRamp didn't respond to requests for comment.
Google rival Facebook Inc. has been tapping data on physical-store sales since late 2012
to demonstrate the effectiveness of advertising on its site. Facebook works with DataLogix, which says it has information on more than $1 trillion of consumer transactions, and recently started a similar partnership with Epsilon.
The data providers compile names, emails and addresses of millions of consumers, along with in-store purchase histories. Facebook, meanwhile, knows the identity of its users, their email addresses and what ads they have viewed online.
To avoid breaching personal privacy, Facebook and DataLogix don't share their data directly, according to executives at the data companies. Instead, the two companies use an algorithm to scramble their data into random numbers. Because both companies use the same algorithm, information about a specific consumer is assigned the same number in both sets of data, and can be matched. The process, known as "hashing," allows the companies to share their data without passing along any information that might reveal a person's identity, the executives said.
Facebook takes those matched, anonymous profiles and divides them into two groups of users—one that is shown ads, and one that isn't. The data companies can tell Facebook whether the group that viewed the ads bought more of the products being advertised.
Sheryl Sandberg, Facebook's chief operating officer, told analysts last May that Facebook ads for Bud Light increased sales by 3.3% in one study, generating a sixfold return for Anheuser-Busch InBev NV on the cost of the ad campaign. The beer company didn't respond to requests for comment.
Google's new pilot program, dubbed In-Store Attribution Transaction Reporting in AdWords, works a bit differently, according to the people familiar with it.
When a user clicks on an ad, Google sends an anonymous "click ID" to the advertiser. The advertiser likely has a cookie on the user's computer, and matches that cookie to the click ID.
Days or weeks later, the user might buy a product in the retailer's store. The data company and the retailer can take that purchase and link it back to the user's cookie. Then they match the cookie to Google's click ID. Ultimately, Google can tell advertisers which ads generated in-store sales and how much they generated, the people said.
The Google spokesman said the company designed the test so that Google never knows the identity of the user.
Currently, AdWords advertisers get reports on the performance of search ads they've bought. There are columns for things like click-through rates, cost per click and post-click information such as whether people bought something on the website they were sent to. The pilot program adds a new column that shows in-store sales spurred by the ads, the people familiar with the situation said.