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Summary:

Yahoo, should have been the king of online advertising, it is not. It should have owned the market now dominated by Google’s Ad Sense. It does not, but has now launched a comprehensive plans to compete with Google in the market place. Search Engine Blog has […]

Yahoo, should have been the king of online advertising, it is not. It should have owned the market now dominated by Google’s Ad Sense. It does not, but has now launched a comprehensive plans to compete with Google in the market place. Search Engine Blog has an indepth look at the new Panama Platform, which points out that the new platform will start going live in the third quarter and fourth quarter.

There’s no timeline on when rankings themselves will shift to being more Google-like, where ads will show ranked based on a combination of clickthrough rate, the amount being bid and other factors.

Last week, Microsoft decided to jump into the fray and launched its Ad Center offerings. Since Microsoft and Yahoo have search engines, it makes sense for them to monetize them more effectively.

Ultimately, as long as there is more demand than search inventory to go around (as is largely the case today), anyone with a major unique ad network is going to be successful. It only becomes a more zero sum game when there is more inventory than demand.

But lets look at world beyond search. Google’s got a big cash machine going with its adsense program. It is only a matter of time before Yahoo and Microsoft try and muscle in on this business.

On paper, this should be welcome news for publishers, after all we have been told competition is a good thing. Publishers should theoretically get bigger cut of the advertising revenues, and advertisers should be able to get better keyword pricing. But…. okay now this is a big but….. The problem is that if three companies are chasing the same advertising dollars, the keyword prices would go down, which theoretically means, the publisher cut of the revenues are going to go down. Ergo…. problems down the line. Will this mean end of the eyeball boom 2.0?

What are your thoughts?

  1. I don’t think publishers have to worry about lower keyword prices. Keyword prices are set at auction, basically out of the broker’s (YHOO, MSFT, GOOG) control. If a click is worth $.95 to the advertiser, the price of an ad will go to $.95, or thereabouts. They couldn’t lower prices even if they wanted to. That being said, MSFT and YHOO may choose to give publishers a bigger cut in order to lure them away from Adsense, so I think the competition is a win-win for customers and advertisers.

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  2. True, competition generally drives down prices, but as Joe pointed out, in a market driven pricing model, by definition, the market (a.k.a. advertiser) determines the pricing, not the SE. That said however, increased competition can have an adverse effect on bid prices as a greater share of the advertiser’s budget will have to go towards optimizing their campaigns in the most efficient manner across 3 distinct platforms. All in all however the publishers should expect to get higher commissions with increased competition. I’d say the win goes to the publishers only.

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  3. With the space becoming crowded everyone has to get smarter. Yahoo will increase their revenue by using the CTR model as well as a few other tricks to provide better ads to searchers. Advertisers will have to concentrate on fine tuning their campaigns to maximize their conversion because costs and competition is growing. Publishers will make less money per click and have already seen that compared to the payout when Google AdSense first launched. The winner at the end of the day will be the search engines.

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  4. Business strategy is like economic theory on this – supply and demand, although the growth in publishers on the listing makes it a bit more confusing. On the supply side is Google, Yahoo, etc. (which in turn, provide a service downstream to publishers) and on the demand side is the advertiser. Because the supply side is getting more crowded, not only the big search/PPC players, but also in bloggers and content providers, prices should continue to go down to the benefit of the advertisers. On the contrary, throw in the fact that the dollars spent on internet advertising is well below its fair share as compared with traditional media when looking at eye-balls and where consumers are spending their time. As a result, I could be convinced that the publisher/searchers could see stable to up-ticks in prices over time.

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  5. I’d really have to side with Joe on this issue. The whole basis of bidding on keywords won’t change at all and will continue across all the networks with varying success. In the end of the whole game, those who control the content will be the financial winners. The real question is what happens from an optimization perspective for companies currently using AdWords and looking to expand the reach of their (various) campaign(s). If anything, I would see this — especially given the fact that Yahoo! is the only ad network to launch with this extensive of an API — as the rise to firms offering consulting for a consolidated, integrated, keyword-based advertising campaign. Hell, if Google and MS follow suit on the API front, there’s no reason to rule them out completely…if I, as the consolidation firm, have the (possibly exclusive?) relationship with the publishers the big boys need, then they have no choice but to deal with me.

    Imho, as always ;-)

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  6. Thats not true,

    Dating sites for instantance will pay any amount of money to aquire customers at under $3.00 a lead. As long as there is inventory they will buy. This holds true for most online advertising as it is direct marketing and advertisers will buy as long as there is traffic and they make money.

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  7. i disagree the advertisers won’t benefit, even in an auction-driven model. more SEs competing for advertiser $ will lower prices.

    whether or not the pricing is set via auction, it would be easy for any major SE to offer a big credit to new advertisers (or 10% off if they spend over some $ hurdle). it might be that advertisers still spend a lot of money, but you can’t tell me that Microsoft won’t offer a lot of “free credit” to entice advertisers and grow market share.

    however, you also don’t have to assume the publisher’s share goes down, or even that they would always get a % cut of the deal. the SE could afford to overpay publishers to build their distribution / syndication network, or they could also move to a flat rate model (tho there’s perhaps less incentive for publishers there).

    in any case, i think the key factors for the future will be:
    1) direct eyeballs thru portal properties & apps
    2) indirect eyeballs thru publisher affiliates & partners
    3) product superiority, esp. re: PPA effectiveness

    probably a lot more #1 & #2 than #3, altho i still believe if any big portal built a decent PPA product they could beat the crap out of Google’s current PPC model.

    however, even if Microsoft and Yahoo have crappy adproducts, as long as they are also large portals / ad networks themselves (in addition to being SEs & SE ad platforms), there will always be interest from advertisers in utilizing those platforms… at almost any price that’s cash-flow positive for the advertiser (or merchant, shall we say).

    to some extent advertisers compare pricing across networks, however assuming they don’t have limited product inventory themselves, they should be willing to buy traffic across ALL networks at any cash-flow positive amount (ie, where they make a profit).

    thus the REAL competition is not so much in building a decent ad platform or product — while Google has the lead there, it shouldn’t be that hard for Yahoo or Microsoft (or others) to catchup to minimally-sufficient feature set.

    on the contrary, the viability of any of the big 3 (or others) will be on a) how well they acquire & keep eyeballs — which is a factor of their own aggregate portal property audience demand, as well as on b) how big a syndication / distribution network they are able to build / buy / partner. in this area then, there is a $$$ game to play where the big 3 should be competing to pay for affiliate publishers that provide traffic.

    in light of this last part, what’s really interesting is not that Google has been building dominant market share with search or advertising, but rather that they’ve been left largely alone to build out an AdSense affiliate network. THIS is where Yahoo and Microsoft need to be competing… and thus the future for [relevant] publisher affiliate & associated revenue seems pretty bright.

    in summary, the future potential for all 3 players will be determined by how well they are able to attract & keep eyeballs, and how well they are able to build & retain affiliate publisher / distribution networks.

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  8. [[[
    The indignity is all the greater when you consider Yahoo!’s numbers: 165 million registered users, 345 million unique visitors a month, $49 billion market cap, and a 62 per­cent increase in revenue last quarter, bringing 2004 total revenue to $3.6 billion. Yahoo! makes more money and has more patents, services, and users than Google; it even has its own yodel.
    ]]] – http://www.wired.com/wired/archive/13.03/yahoo.html

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  9. You might want to check your facts Karl. Google posted revenues ex-TAC of $6.1B for 2005, while Yahoo’s revenues ex-TAC were $3.7B…and Google’s market cap is $117B vs. Yahoo’s $46B. Google controls this market and continues to take share from Yahoo! and MSN. They’ve (Y! and MSN) got to stop the bleeding or it will be bad for advertisers and publishers.

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  10. I don’t think this is how the economics of online advertising works. More companies chasing ad dollars should do nothing to prices, since those companies don’t create supply or set prices.

    It’s like the stock market. In the stock market, you have companies selling shares and investors buying them. The brokers just facilitate transactions – they don’t create supply, and they don’t set prices.

    In the online advertising market, you have people looking for things, and advertisers wanting their attention. Google, Yahoo and Microsoft are brokers bringing the two groups together, but GYM don’t create supply, and they don’t set prices.

    Just because Yahoo, Microsoft, MySpace or some startup decides to “chase the same advertising dollars” doesn’t mean that any of them has created a larger supply of people searching for information, watching online video, or writing snarky blog posts. Just as the entry of a new broker into the stock market doesn’t change the prices of securities, the entry of Microsoft or anyone else into the advertising market won’t alter the supply-demand curve of that market.

    Now if new products are created that make each click more (or less) relevant to the advertiser, then prices will rise (or fall). And if one broker is more (or less) effective at delivering interested customers to hungry advertisers, then the market share among the players will change — but the overall pricing should not.

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