Myth-busting and the Yahoo!-Google agreement

Posted September 26th, 2008 at 12:23 pm by Sue Decker, President

 26 Comments / Filed in: Trends & News

There’s been a lot of speculation swirling around about the Yahoo!-Google agreement. We hear everything from the claim that Yahoo! and Google will be fixing prices to the prediction that the agreement is a death sentence for Yahoo!’s sponsored search business. Since the critics clearly don’t understand the deal and what it means for Yahoo!, Google, advertisers, and users, it’s time for some myth-busting.

Here’s the bottom line:

• Yahoo! will use this agreement to help us become a stronger competitor in all aspects of online advertising; and
• Yahoo! is not exiting the sponsored search business. We plan to remain a strong player in sponsored search.

What is the agreement?

You may have heard that the agreement gives Google control over 90% of search advertising. That’s just plain wrong. It’s simply a contract that gives Yahoo! the right, but no obligation, to show Google AdSense ads on Yahoo!’s own network. It’s important to note that the agreement is non-exclusive and gives us the option to “backfill” with Google ads if and when we see fit. The reason we structured the deal this way – rather than a more typical exclusive deal with revenue commitments to us and traffic commitments to Google – was precisely to avoid the issues the critics are raising.

Since Yahoo! bought Overture five years ago, we’ve run that business as a closed system. For example, if you want to put a sponsored search ad on a Yahoo! search results page (“SRP”), you have to buy the ad from us. Right now, that’s the only way to access the millions of online customers who visit the Yahoo! network at the key moment when they express their interests by making a search query. Given the size of our user base and the extraordinary diversity of searches they generate, we cannot, by ourselves, provide relevant paid search ads for every search – we can’t “fill up” all of our SRPs.

In fact, no one company can fill them up – not even Google. Yes, you read that right. There are millions of unique queries, like “elevation of Mount Elbert” and many of them are never matched to a relevant sponsored search ad. These “uncovered” queries are missed opportunities for advertisers to directly engage with consumers and for consumers to benefit from relevant offers. Fortunately, Yahoo! has strong “coverage” and “depth” for many queries – meaning we have a good number of ads to display for many searches. However, coverage and depth are not equal for all categories in our marketplaces. One of our key goals is to unlock the huge value of the hundreds of thousands of less popular queries that don’t show ads Yahoo! today.

The “monetization gap” between Google and Yahoo! is in reality a value gap. Where Google is getting higher bids than Yahoo! today, this is because advertisers perceive that Google is delivering more value – more targeted leads, more clicks, and more conversions. That’s why an advertiser might be willing to bid more for a click on Google than for a click on Yahoo! – the belief that the advertiser will get more value from Google. Google is not setting prices. Advertisers determine how to value keywords. Yahoo! is committed to providing advertisers with greater value and consumers with more relevant offers and this agreement helps us meet this challenge more quickly.

Increasing advertiser value is a complicated endeavor. Part of it is technological –- for example, building better matching algorithms. Part of it is giving advertisers more control over their advertising campaigns. But we also want to increase revenue by building query share, which takes time.

In the past year, we have thought about these challenges very carefully and we created a strategy that we’re convinced is a “win win” for Yahoo! and advertisers. The core idea is limited use of Google ads to deliver more value from our SRPs and other inventory in circumstances where we aren’t delivering the best advertiser value today, and then to use resources gained by that strategy to accelerate our investments in the technologies and marketplaces of the future. That’s where the agreement comes in — it allows us to provide better, more valuable connections immediately.

Current thoughts on implementation

We will implement the agreement in a way that respects an important principle you may know as the Hippocratic Oath: “first, do no harm.” That is, we will not use Google ads in a manner that would create a significant risk to the health of our own sponsored search business.

It’s important for us to recognize when using Google ads is beneficial for users and advertisers. Queries for which we have no coverage, low depth, and/or low relative monetization are all circumstances in which backfilling probably makes sense -– they indicate that Yahoo! is not currently delivering enough value for that inventory. If Google can deliver that value where we currently don’t, then everyone wins -– including the advertiser and the consumer.

It’s equally important for us to protect the long-term health of our marketplaces. As we studied this issue, we became acutely aware that our value proposition depends on having an active, “liquid” marketplace of search terms. The good news? Yahoo! has that for the more popular and commercial queries –- the ones that produce over two-thirds of Yahoo!’s search revenues. This is often not the case, however, for less popular “tail” queries.

As we proceed, we’ll hold true to our goal of making Yahoo! a “must buy” for online advertisers. We have no intention of abandoning our key advertiser relationships. To the contrary, we are exploring ways to further strengthen those relationships, and one of the ways we will do that is through our recently announced Digital Advisory Council. We are asking industry executives from our agency and advertiser partners to join us as we explore the continued evolution of digital media and online advertising. We’re going to start by addressing the confusion and misinformation that currently exists in the market regarding Yahoo!’s agreement with Google, which is a hotly debated topic that needs some much-needed clarification.

I’ve said in the past that we’ll backfill where the monetization gap between Yahoo! and Google is the greatest. This gap is the greatest in areas in which we don’t have matches of offers with very specific queries or where our matches are narrow or not relevant. This should only enhance our relevance to consumers and bring new advertisers to our inventory that didn’t do business with us or that made only limited commitments. Our overriding principle to backfill will be those win-win opportunities to backfill our inventory with advertising that clients find valuable but to which they have had scarce access and in other ways that both optimize for user experience and the maintenance of a robust marketplace.

Finally, let me be absolutely clear that we are not in any way going to be coordinating or setting search term pricing with Google. The fact is that advertisers set prices by bidding in our real time auctions. This agreement gives advertisers a new opportunity to bid for placement on an additional network that includes Yahoo! inventory. They will bid for what they think this opportunity is worth at prices that produce positive ROI. That’s how pricing works today in this industry and this agreement won’t change that.

I hope readers of this post, as well as advertisers and regulators, can move past the false rhetoric being peddled by some of our competitors and see the marvelous potential that the agreement offers the marketplace. It’s a great opportunity for Yahoo!, and we’re committed to implementing it in a way that produces the most value for advertisers and users. Ultimately, that’s the only way we can provide value for Yahoo!’s stockholders.

Sue Decker
President

Tagged: google, online advertising

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26 Comments Add your own

paisley | September 26th, 2008 at 1:23 pm

thanks for clearing the air =)

Esh | September 27th, 2008 at 10:00 am

Can we see a live demonstration of the inventory back filling by google for some of the tail or low volume phrases?

Biggin | September 27th, 2008 at 10:21 am

Thanks for “breaking wind” of this.

steve ballmer | September 27th, 2008 at 5:07 pm

Bull-Shiet !!

Matt | September 27th, 2008 at 6:36 pm

As Sue Decker mentioned above, “Yahoo! is not exiting the sponsored search business. We plan to remain a strong player in sponsored search.”

Here’s another reason why it would not make sense for Yahoo to exit the sponsored search business.

Yahoo recently ran a study with ComScore entitled “Close the Loop: Understanding Search and Display Synergy,”. The study found “that when combined, search and display advertising deliver profoundly better results than when used independently. The study showed a significant lift in onsite engagement and an increase in online and offline purchasing by consumers who are exposed to integrated campaigns that employ both types of online advertising.”

Atlas (a Microsoft company) also ran a study and found that “When marketers supplement search with display impressions, they get a significant lift in conversions. Unfortunately, most advertisers that run both search and display are unaware of this…” The study demonstrated that “users exposed to both search and display ads convert at a higher rate: an average of 22 percent better than search alone and 400 percent better than display only.”

It would not make sense for Yahoo! to abandon search when it’s understood that a combination of search and display is far more effective at driving conversions, increased visitor traffic, and brand awareness than when running search or display alone.

For more information and links to the studies mentioned above please visit: http://mattlillig.blogspot.com/2008/08/hi-im-search-hi-im-display.html

Jeff Chester | September 29th, 2008 at 8:16 am

Both Google and Yahoo! have failed to address the civil society issues in their defense of the proposed deal. The melding together of even a part of the business with the two leading search advertising competitors reflects a disturbing online ad industry consolidation trend–with important implications for the future “monetization” of online publishing. While helping save Yahoo! as an independent company is important, the remedy it seeks–a deal with its key competitor–diminishes competition. Despite Ms. Decker’s assurances, how we can really know that the deal will result merely in a “backfill” from truly under-served inventory? More likely, and excuse the cynicism, Yahoo! will need to squeeze out as many dollars as possible as it undergoes a tumultuous transition. Yes, search and display are connected–which is why a deal which ultimately rewards the leading provider of search advertising will likely further harm Yahoo’s future as a full-service interactive ad entity.
Finally, there are consumer privacy issues here, which Ms. Decker should comment on. Exactly what data is being handed over to Google and/or shared with Yahoo? IP addresses, tracking tags, data-mining analytics? So far, the companies have not been forthcoming about these issues.

a yhoo shareholder | September 29th, 2008 at 2:30 pm

why on earth do you think that anyone will listen to you? you have shown the greatest contempt for your shareholders ever. the stock is now $16 – you could have sold it for $34 a share!!! sue, you’ve received tens of millions in compensation for helping to drive this company into the dirt – your credibility on the google sell-out or anything else is gone. you have no plan to grow shareholder value. if you had any sense of decency you would resign.

Bill | October 1st, 2008 at 9:39 am

This is the biggest bunch of BS I have ever heard. The fact is, you’ll show Google Ads where the average max bid is greater than yours. The net result to the advertiser is increased cost. If you want to show more ads for the “tail” queries, why don’t you relax your relevancy requirements, which in many cases, make no sense? Just as your current minimum bid process is an attempt to get higher bids from your Advertisers (explain to me how minimum bids can decline after they have been raised) this agreement is an attempt to get higher bids from advertisers. We bid higher on Google because the ads convert better. What’s worse, the conversion rate on Yahoo has gone down from before Panama and yet the CPC has gone up.

If you want more revenue, I suggest you fix your sponsored search product:

- Modify your relevancy requirements (requiring the keyword that you are bidding on to appear in the ad is ridiculous).

- Don’t change keywords that have been uploaded to your system and allow plurals /misspellings to be uploaded (have your system determine which keyword will display for an ad – don’t restrict it on the front end).

- Develop a more sophisticated quality score / minimum bid. If you’re going to require a higher minimum bid because of poor CTR compared to other advertisers for a particular position, you better provide a way for the minimum bid to decline when other advertisers also have a poor CTR.

- Allow advertisers to set position preference for a keyword.

- Allow advertisers to determine what the ad title / copy will be – don’t require keyword insertion.

- Provide a tool, such as AdWords Editor, to make bulk changes to the account.

There are additional options you can take to improve sponsored search, but if you want to increase the number of advertisers and the number of keywords that are being bid on and by default increase revenue, consider the above. This agreement with Google can in no way be beneficial to advertisers.

Jason | October 1st, 2008 at 3:47 pm

Of course they’re eventually going to order the ads based on highest yield rank, regardless of if it’s a direct relationship or Google ad. But, who really cares? The only people that this affects is the small group of people that have actually gotten their listings loaded into the Yahoo platform and have kept them live. Bill (above post) just scratched the surface with the Yahoo problems. I currently manage a 7 digit SEM budget (leaning toward 8), none of which is spent at Yahoo, not a penny unless its unknowingly via sub-syndication. They make it impossible to work with them and they’ve failed throughout the years to improve the customer experience. The Google relationship actually gives them a fighting chance to gain ad coverage. So again, who cares? The only people screaming are the lucky folks with a competent account manager at Y! that are currently underpaying for the Y! traffic because folks like me have given up (ok, Microsoft is also screaming). At the end of the day, it’s an auction – bid what the traffic is worth to your business and shut up. No one is locking you out of the search game or price fixing, Y! is simply compensating for their inability to monetize their traffic efficiently.

Udi Manber, Google’s VP of Engineering said back in 2007, “20 to 25% of the queries we see today, we have never seen before”. This goes to the point in the post that “we (YAHOO) cannot, by ourselves, provide relevant paid search ads for every search”. They only have in their system what keywords advertisers are running on, this is just a small percentage of the total queries being put in the Yahoo or Google box on a daily basis – the list of potential keywords for your business is ever expanding – even when factoring in various keyword match type options for ads in the YHOO and GOOG UIs. With the janky (yes, I said it) Yahoo platform and ad approval and landing page requirements that no one internally can explain, combined with the ever evolving potential keyword list, it’s no wonder that they need Google to monetize their traffic.

For the people screaming about antitrust issues, give me a break – if the CPCs were fixed you’d have a case. It’s an auction environment.

Alex | October 1st, 2008 at 8:07 pm

Complete BS. The only point is true – Yahoo’s ad serving components are not capable to handle amount of users that are searching by keyword.Yahoo can not process and aggregate data coming from search requests and therefore, the ROI for marketing campaigns channeled by Yahoo is very low. Therefore, yahoo is trying to use Google, i.e. to monopolize search market on internet performing as a publisher for google’s inventories and using Google’s data processing and technologies to ‘fix’ the not working yahoo’s analytics, ad serving, targetting and other data platforms… There is no doubt – it is monopoly.

Bill | October 3rd, 2008 at 8:36 am

Jason (post above) needs to get a better understanding of antitrust. Because it’s an auction doesn’t mean there is no antitrust. I don’t believe Google is going to allow us to set different bid prices for Yahoo displayed ads versus Google displayed ads. I agree my previous post barely scratches the surface of the problems with Yahoo, but why should I pay more because others are too lazy or incompetent to manage their own Yahoo campaigns?

I manage 7 digits in annual spend for my clients across the big three search engines and have for a number of years now. I struggle through Yahoo’s inane rules and poor customer service for the benefit of my clients. The bids I make in Yahoo are in competition with other Yahoo advertisers and are based upon the conversion rate of the individual keywords on the Yahoo network – not Google!

Yahoo is falling behind in the SEM space because advertisers and users have determined that Google’s product is better. If Yahoo wants to change that – build a better product. If you want some of the Yahoo traffic, despite Yahoo’s poor interface and customer service, create a Sponsored Search campaign. That’s the nature of competition.

John | October 3rd, 2008 at 10:54 am

How can you lie about all this…You (Yahoo) recently sent me your new pricing policies to be on Yahoo Shopping that will knock me out of the picture.Yahoo powers hundreds if not thousands of shopping sites and your price increase and policies are now geared towards larger established companies thus knocking us new starts ups on a tight budget out of the market….If Google lets you take over some of there services I might as well go back to working for someone else…..If you like I will post your new policies for all to see here so your lies can be exposed.
I have also file a complaint with the FTC and written my US Rep.

John | October 3rd, 2008 at 10:59 am

Also would like to add that had the types of policies you want to impose on others existed in the 90’s there would be no Yahoo and Mr Yahoo and Mr Yahoo would be a couple of guys working a 9 to 5.

mirc | October 29th, 2008 at 4:21 am

thanks

Inchirieri masini | February 9th, 2009 at 11:59 am

The only people that this affects is the small group of people that have actually gotten their listings loaded into the Yahoo platform and have kept them live…

Inchirieri masini | March 18th, 2009 at 4:15 am

I think this market sharing between the two giants will benefit the clients, who will have acees to a more uniform client range, as in priece and geografical.

Jacques Snyman | Website Design | April 22nd, 2009 at 11:52 pm

Heheheheheh! This has indeed been the subject of much debate and we yet have to see which way the story goes. I do feel that some compelling arguments were made, but this subject is still very much open to debate.

masini de inchiriat | July 6th, 2009 at 10:19 am

I think that we will another competitors for yahoo and google… i hope that bing will be one of them

jucarii | July 28th, 2009 at 2:09 pm

This deal is bad for every one, but google. I hope some company with great ideas comes and disrupts the whole search world technology.

Shekhar Sahu | August 15th, 2009 at 8:39 pm

This will be helpful for adsense users too.

Jucarii | September 8th, 2009 at 5:46 am

very helpful i think

Proiecte Case | October 18th, 2009 at 9:15 am

Google has no competitors, that’s my pont of view

Cazare Valea Prahovei | October 29th, 2009 at 6:43 am

Yahoo has a much more complicated interface to use, I think they really should work on that. Google is a lot more user-friendly

jucarii pentru copii | November 1st, 2009 at 12:11 am

No one is locking you out of the search game or price fixing, Y! is simply compensating for their inability to monetize their traffic efficiently.

Alexandra Bucuresti | November 20th, 2009 at 5:07 am

Yahoo is falling behind in the SEM space because advertisers and users have determined that Google’s product is better.

gestiune | December 8th, 2009 at 8:01 am

The Google relationship actually gives them a fighting chance to gain ad coverage. Also Google released Mobile Ads.