-By Mike Shields

There's a reason that Google has had some trouble turning its search deal with News Corp.'s MySpace into a major revenue generator: Google's not serving the right ads, according to a report issued by Pali Research.

Pali Analyst Richard Greenfield said that Google needs to develop a new search algorithm for MySpace, one that is better suited to the types of searches that social networking users regularly conduct, if it wants the performance of its MySpace ad deal to yield dividends.

According to Greenfield, while many investors have focused on MySpace falling short of its revenue goals for display advertising, the company has taken several positive steps on that front, including a recent brand friendly redesign. Instead, wrote Greenfield, "the real problem is Google itself and its search algorithms for social networking (Yes, Google does not do everything right)."

What Google is not doing right, said Greenfield, is serving relevant ads when users search for other people on MySpace - a common social networking behavior. His report cited several examples of searches for common names that yielded ads which do not appear to interpret proper names any differently than any other words. For example, a search for "Dan" resulted in an ad for DNA testing kits.

Greenfield doesn't exactly provide any insight into what sort of ads would be appropriate to serve alongside proper name searches, but he does predict that Google will evenutally build a better algorithm to make the deal more viable, and won't walk away when it's MySpace contract ends, as some have expected.

"While we are not exactly sure what type of paid search results should come up when a user searches for a person on MySpace, we know the current Google algorithm is unlikely to generate any user clicks," Greenfield wrote. "Most likely, paid search ads should leverage off a user’s own interests and the interests of the people they are searching for or maybe common interests."

Added the report: "We’ll leave it for Google to figure out social networking search...they are simply going to develop a better method for monetizing a massive number of eyeballs and searches on MySpace over the next two years."