Internet advertising is a big deal in todays world. This pending deal will effect all of us. I came across this and thought I would share it will everyone...
Posted September 26th, 2008 at 12:23 pm by Sue Decker, President
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 three 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
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.
To link back to the original blog entry....
Susan Decker Yahoo President Speaks Out on Google Deal
Posted by Michael Corey