At the recent "Search Factory Tour" event (slides, YouTube video), Google announced that its image search engine has received a lot of attention from users lately and it intends to dramatically improve it. People no longer use Google Image Search only to find celebrity pictures or pretty images, they started to use it to compare products, to choose vacations or visualize unfamiliar situations.
To cope with the increasing number of images from the web and to provide better answers for the new use cases, Google promised that will start to add features that use complex image analysis.
One of the new features will allow you to find similar images, given a selected image. Since it's difficult to describe pictures using words, you will be able find a a group of images that illustrate the same situation.
After adding face detection as a restriction for image search, Google prepares to expand it and actually recognize faces. This will improve the quality of results for searches that include person names. Google doesn't intend to limit image recognition to people faces: finding objects in pictures is a difficult task, but it's a reliable way to filter irrelevant pictures.
Image search engines don't use the information from EXIF tags, that could offer a lot of interesting contextual details about location, date, image quality. Google will start to add information about geolocation from digital images.
The most controversial new feature tested by Google is the addition of display ads next to image results for commercial queries. Google's previous experiments with text ads weren't very successful, so adapting the ad format to the content could be a better idea. It depends on their usefulness and their prominence: the second mock-up displayed above puts too much emphasis on the image ads. For now, Ask.com Image Search is the only important search engine for images that displays ads, but they're text-only.
If we take into account that, in addition to all these enhancements, Google developed an improved algorithm for ranking images (VisualRank), we can expect an entirely new image search engine from Google in the near future.
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