The world’s largest search engine is branching out. Google has spent the last year building up its display advertising products. Considering how thoroughly Google dominates search advertising, its recent obsession with digital advertising’s less profitable arm has perplexed many.

But Google thinks the $20 billion that comprises the display ad market is just a penny in the well of what it could be. Today at Google’s Real Time Bidding journalist lunch, some of Google’s top executives gathered to explain just why the company is investing so aggressively in display.

Google made its name (and billions) by streamlining the search advertising process and increasing revenues. And that’s exactly what they want to do with display advertising now.

Neal Mohan, vice president of product management explains that the display market has reached a point where it’s ready to start delivering real revenues. As he says:

“Display advertising is at a tipping point.”

The market currently brings in $20 billion in annual revenue. According to Mohan, “Google is excited because we think it can be substantially bigger.”

How will that do that? By making the “overall display buying and selling process that much more effective.”

Display can certainly benefit from increased efficiency. According to Google, 28% of a media dollar gets eaten up by friction (administrative costs) in the display ad market. If that sounds high, consider this. Mohan points out that the old school method purchasing TV advertising only wastes 2% of a dollar.

In addition to increased efficiency, Google is excited about the swaths of content moving online. As video and mobile products become more advanced and more media creators are working on content for the digital world, the advertising opportunities are expanding.

Not to mention Google’s in-house advancements and key acquisitions. The company says its updated display system has 4,000 times
more data than the previous platform. And because more media is going online, ad creatives are finally starting to take display advertising more seriously.

Google is in a key position to take advantage of that shift. Google says that its new ad platform on average helps publishers bring in 30% more revenue when they use
individual ad networks.

According to Henrique De Castro, Google’s vice president of Global media and platforms, the search giant already has a worldwide sales that can target publishers and advertisers anywhere:

“Because of the scale of our business, we can be in every single market.”

De Castro notes that smaller media companies (like MySpace, for instance) are hobbled by the limits of their in-house sales teams when they try to break into new markets. Google is able to use resources it already funds to help get a running start in new display ad offerings.

Not to mention the scale of properties like YouTube. Google’s video site surpassed Yahoo in the summer of 2008 as the world’s second most popular search engine. Over the last year, the number of display advertisers running ads on YouTube has increased 10 times. In North America alone, 50 million impressions are served on YouTube’s homepage each day. Which means inventory on the homepage is often sold out.

Today at Google’s New York headquarters, the company wanted to reiterate that selling display advertising is not an experiment for the company. According to Barry Salzman, managing director of media and platforms in the Americas, display advertising is “a major part of Google’s business.”

“We’re bringing search together with display,” he says. The company is able to combine their media power with an impressive technology offering. “That’s the power of Google display.”

According to DeCastro, Google and other display advertising sellers can grow the market from $20 billion to $40 billion over the next four years. As he says:

“Google tends to do long term bets, and this is one.”