Percent Spend on Search Engine Advertising
Google, Yahoo Microsoft
Google, Yahoo Microsoft
Source: SearchIgnite WhitepaperBut now Google CEO Eric Schmidt says the companies cannot wait any longer and will move forward with their partnership. Search marketing company SearchIgnite has published a whitepaper, Potential Impact of Google-Yahoo! Partnership & Cost to Marketers, which purports to show that Google's keyword prices are as much as 22% higher on average than Yahoo's. This could result, SearchIgnite says, in advertisers paying more for keywords on Yahoo than they otherwise would, if Yahoo chooses a revenue maximization strategy for its Google partnership. Google claims that its search keyword prices are set by auction, as are Yahoo's, and that no collusion between the companies on setting prices can result. Google also claims that there are methodological errors in the SearchIgnite research that make its results questionable.
While no one outside the companies has seen the agreement, Yahoo has described it as providing supplemental results to its own search advertising. As Cnet describes Hilary Schneider, Executive Vice President of Yahoo, saying:
In this case "A" is Yahoo and "B" is Google. It would seem that this arrangement benefits all parties concerned. Users of Yahoo's search engine will get more and better ads. Advertisers on Google will get broader reach to another audience of highly qualified searchers (Yahoo's search engine users). Google will derive additional revenue from displaying its ads to a broader audience (Yahoo's search engine users), and Google advertisers will have broader reach to another audience without the trouble of running multiple search advertising campaigns on multiple search engines.
Yahoo has said that it expects $800 million in revenue and $250 million to $450 million in incremental cash flow from the first year of the deal. Google offered the deal to Yahoo to keep the company and its search engine out of the hands of Microsoft, who had made a bid to buy Yahoo for as much as $47.5 billion, or $33 per share. Yahoo shares fell 44 cents to $18.82 on Wednesday, September 17, 2008.
The fear by advertisers, who have been the most vocal opponents of the deal, is that this arrangement will somehow boost their advertising costs. But Google and Yahoo will not be commingling their keyword auctions in this arrangement, nor will either company be able to see the price of the other's keywords, although Yahoo will know it after thte fact, that is after a user clicks on one of Google's keyword ads. Yahoo could use this after-the-fact knowledge to cherry pick higher-paying Google ads that perform better than their own lower-paying ads.
With respect to SearchIgnite's claim that keyword prices could rise as much as 22% as a result of this deal, this seems unlikely. Assume that it is true that Google's keywords are, on average, 22% more expensive than Yahoo's. Even if Yahoo could see the Google price on each keyword (which it can after the fact), and even if it decided to pursue a profit maximization strategy by replacing each of its cheaper keywords with a more expensive keyword (which it says isn't the nature of the agreement), Yahoo would still have to pay the affiliate fee for each Google PPC ad so used. This could range from a Yahoo/Google revenue split of 70%/30% to 90%/10%. While Yahoo has alot of clout due to the size and quality of its search traffic, 70/30 seems on the low end while 90/10 seems on the high end.
Based on the agreements I have been privy to I would speculate that the revenue split between Yahoo and Google is on the order of 80%/20%. With just a hypothetical 22% premium on Google search ads, Yahoo essentially breaks even on this profit maximization strategy. The only way Yahoo makes money from this deal is if it uses Google PPC ads to supplement its own, not replace its own.
There is one other area of concern that none of the above addresses, and that is the fear of the concentration of power in the hands of just two players of over 80% of the search advertising on the Internet. This advertising is extremely desirable and likely to continue growing strongly in the future. The idea of just two players controlling so much of this market has to be unsettling, despite any demurrals by the principals and admonishments to "do no evil" from Google. This is an issue that cannot be addressed by the facts of the deal. Internet advertising technology is likely to continue to change rapidly and the partnership between Google and Yahoo may grow tighter. If it is any consolation, historically such deals have usually ended with the partners at odds with each other, rather than closer to each other. The interests of the two parties eventually diverge so that they cannot sustain the relationship. The Internet is the most dynamic environment, technologically and business-wise, we have ever created. What seems like a good idea and a threat today can just as quickly go sour tomorrow.
Google now provides its advertisers control of which of its affiliate networks, even down to the particular web site, they want their ads to appear on. I would hope that Google extends this control to its advertisers for this Yahoo partnership. If an advertiser is afraid that it will be charged too much when its ads appear as backfill on Yahoo, or if they don't like the resulting ROI in such an arrangement, they should be able to opt out of having their ads appear on Yahoo. It is something that advertisers now can do on Google anyway, and it should ease concerns over rising advertising prices for those who are worried, even theoretically, about such things.
Link: Google Public Policy Blog: The SearchIgnite study on ad prices and the Yahoo-Google deal
Link: ANA Recommends Against Google-Yahoo Search Advertising Partnership in Letter to Department of Justice
Link: Facts about the Yahoo-Google Deal
While no one outside the companies has seen the agreement, Yahoo has described it as providing supplemental results to its own search advertising. As Cnet describes Hilary Schneider, Executive Vice President of Yahoo, saying:
She [Schneider] showed a specific example to bolster her case. A search for "red roses in Birmingham Alabama" yields no advertisements on Yahoo's search engine and 11 on Google's. Under the deal, Yahoo can show Google's ads when it chooses, sharing the resulting revenue.This is a long-time and established relationship in the search and online advertising industry referred to as "backfill". It is quite common for a search site A to have an arrangement with a partner B to display B's results, either search results or search ads or both, as a supplement to A's. This provides A with more paying inventory and better results to display, B with greater distribution of its results, B's advertisers with broader reach, and visitors to the site with better results. It is generally held to be an all-around win for all parties.
In this case "A" is Yahoo and "B" is Google. It would seem that this arrangement benefits all parties concerned. Users of Yahoo's search engine will get more and better ads. Advertisers on Google will get broader reach to another audience of highly qualified searchers (Yahoo's search engine users). Google will derive additional revenue from displaying its ads to a broader audience (Yahoo's search engine users), and Google advertisers will have broader reach to another audience without the trouble of running multiple search advertising campaigns on multiple search engines.
Yahoo has said that it expects $800 million in revenue and $250 million to $450 million in incremental cash flow from the first year of the deal. Google offered the deal to Yahoo to keep the company and its search engine out of the hands of Microsoft, who had made a bid to buy Yahoo for as much as $47.5 billion, or $33 per share. Yahoo shares fell 44 cents to $18.82 on Wednesday, September 17, 2008.
The fear by advertisers, who have been the most vocal opponents of the deal, is that this arrangement will somehow boost their advertising costs. But Google and Yahoo will not be commingling their keyword auctions in this arrangement, nor will either company be able to see the price of the other's keywords, although Yahoo will know it after thte fact, that is after a user clicks on one of Google's keyword ads. Yahoo could use this after-the-fact knowledge to cherry pick higher-paying Google ads that perform better than their own lower-paying ads.
With respect to SearchIgnite's claim that keyword prices could rise as much as 22% as a result of this deal, this seems unlikely. Assume that it is true that Google's keywords are, on average, 22% more expensive than Yahoo's. Even if Yahoo could see the Google price on each keyword (which it can after the fact), and even if it decided to pursue a profit maximization strategy by replacing each of its cheaper keywords with a more expensive keyword (which it says isn't the nature of the agreement), Yahoo would still have to pay the affiliate fee for each Google PPC ad so used. This could range from a Yahoo/Google revenue split of 70%/30% to 90%/10%. While Yahoo has alot of clout due to the size and quality of its search traffic, 70/30 seems on the low end while 90/10 seems on the high end.
Based on the agreements I have been privy to I would speculate that the revenue split between Yahoo and Google is on the order of 80%/20%. With just a hypothetical 22% premium on Google search ads, Yahoo essentially breaks even on this profit maximization strategy. The only way Yahoo makes money from this deal is if it uses Google PPC ads to supplement its own, not replace its own.
There is one other area of concern that none of the above addresses, and that is the fear of the concentration of power in the hands of just two players of over 80% of the search advertising on the Internet. This advertising is extremely desirable and likely to continue growing strongly in the future. The idea of just two players controlling so much of this market has to be unsettling, despite any demurrals by the principals and admonishments to "do no evil" from Google. This is an issue that cannot be addressed by the facts of the deal. Internet advertising technology is likely to continue to change rapidly and the partnership between Google and Yahoo may grow tighter. If it is any consolation, historically such deals have usually ended with the partners at odds with each other, rather than closer to each other. The interests of the two parties eventually diverge so that they cannot sustain the relationship. The Internet is the most dynamic environment, technologically and business-wise, we have ever created. What seems like a good idea and a threat today can just as quickly go sour tomorrow.
Google now provides its advertisers control of which of its affiliate networks, even down to the particular web site, they want their ads to appear on. I would hope that Google extends this control to its advertisers for this Yahoo partnership. If an advertiser is afraid that it will be charged too much when its ads appear as backfill on Yahoo, or if they don't like the resulting ROI in such an arrangement, they should be able to opt out of having their ads appear on Yahoo. It is something that advertisers now can do on Google anyway, and it should ease concerns over rising advertising prices for those who are worried, even theoretically, about such things.
Link: Google Public Policy Blog: The SearchIgnite study on ad prices and the Yahoo-Google deal
Link: ANA Recommends Against Google-Yahoo Search Advertising Partnership in Letter to Department of Justice
Link: Facts about the Yahoo-Google Deal
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