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Thereís 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!ís sponsored search business. Since the critics clearly donít understand the deal and what it means for Yahoo!, Google, advertisers, and users, itís time for some myth-busting.
Hereís 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.
will use this agreement to help us become a stronger competitor in all aspects of online advertising
Hmmm.... now that's a naive statement...
How do you succeed in becoming a stronger competitor when you sell out a good proportion of your inventory to the market leader and you have no clear strategy, nor market-leading ad platform to entice new blood?
All G need do is to ensure they retain your ad slots by giving you good payouts to start with, until lots of savvy Y advertisers realise exactly what's happening and slowly start to desert in favour of a single advertising platform (G) which allows them to appear on Y too!
Then G ... slowly decreases the revenue of the clickthrough earnings until Y realises they are in no man's land with 50% loss of advertisers and an ever decreasing income from G...
I guess this is similar to many 'factoring' deals - where a company is desperate for invoiced funds to be received on-time to keep cashflow healthy, so they get some 'help' from a factoring company (for a small fee like 10-15% of total invoice).
Only it's usual for the company to become reliant on this immediate cashflow payment on invoice due date. This means the company can't then find enough spare funds to get out the deal and support the business, even though they know you are throwing even more money away in the meantime in fees....
Good luck Y... your advertiser numbers could well be going the same your share price is...
Then there were 2.... ?
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.
A better plan for Yahoo! would be to learn from the lessons that AdWords has taught all of us. Make placing an ad easy and IMMEDIATE (no editorial review). Write programs to sort out the good from the bad ads both before and after they're placed. If they did these things then more people with 'niche' terms would head to Yahoo! to place ads in the first place.
It is troublesome to rely on your dominant competitor for even some of your income. The most fair system, it seems to me, would be one where there were multiple ad agencies that were separate from all of the search engines - but all search engines would draw from and profit on all of the ads. That way there would be competition on payments the search engines and fees to individual advertisers, as well as competition on improving things like the user interface (since the ad providers would be competing with each other). Anyone game to start it? Doesn't sound too hard ;)