Nikesh Arora, Google's No. 4 executive, says Canadian companies aren't grasping the full potential of the web to grow their businesses. ((Luke Macgregor/Reuters))

Canadian businesses are lagging behind their peers in other developed countries when it comes to advertising online, according to one of Google's top executives.

"It's not as competitive a business market, which basically suggests that there's not as many businesses online because they're not competing for more share amongst each other or there are not enough businesses competing in certain areas," said Nikesh Arora, Google's president of global sales operations and business development, during a visit to the company's Toronto office on Wednesday.

"Based on the technological savvy of the market, [Canada] should be in the top quartile."

Online advertising revenue has more than quadrupled over the past five years to $1.6 billion in 2008 or 11 per cent of all spending, according to the Interactive Advertising Bureau of Canada. The internet also became the third biggest advertising medium in 2008, next to television and newspapers, surpassing radio for the first time.

Still, businesses in countries such as the United States and the United Kingdom, where between 15 to 20 per cent of all advertising is done online, have taken to the web much faster than their Canadian counterparts and are therefore gaining an edge in international competitiveness, he said.

One example he cited is a British company called Glasses Direct, an online seller of prescription eyeglasses started by entrepreneur James Murray Wells in 2004. The company, which has no physical outlets, has used the internet to become the biggest seller of glasses in the world.

Canadian businesses are not using the web's full potential, Arora said.

"There's a side benefit to it that businesses are not grabbing. They can grab it or it becomes a risk if they don't grab it," he said. "If you're not doing it fast enough, there's somebody else who's not in your physical proximity who can come back and do it to you."

The lag in Canada is surprising, Arora said, because Canadians are otherwise technologically savvy. Canada has world-class internet and broadband penetration and is one of the biggest users of Google's YouTube video website.

Google, which makes the vast majority of its money by selling online advertising, is working to convince more Canadian businesses to use the web, but Arora — the company's No. 4 executive behind founders Larry Page and Sergey Brin and chief executive Eric Schmidt — isn't sure why they're resisting.

"We're in the business of leading the horse to the water and somebody else has to make sure the water is clean and looks tempting to drink."