Analysis – Yahoo!

Yahoo!’s new ad platform faces tough competition

YahooMarketing directors can be forgiven for thinking their digital experts are discussing oil drilling in Central America when they begin talking about the Panama platform.

But Panama is actually Yahoo! Search Marketing’s new pay-per-click (PPC) search advertising platform that is currently being rolled out in the US, and will be launched in Europe in the second quarter of this year.

Yahoo! claims to have started the PPC search industry in the late 1990s, but it has begun to look increasingly unsophisticated, compared with Google and MSN Search.

The Panama platform was the result of a two-year development programme involving 300 engineers. Richard Firminger, regional sales director for Northern Europe for Yahoo! Search Marketing, says: "The desire was to create a more valuable market – to increase value for users, deliver better return on investment for advertisers and increase monetisation for publishers."

Search experts believe the new platform will also increase its revenue. At present, analysts estimate that Yahoo! gets between 2.5 cents (1.27p) and 3 cents (1.53p) for each click. Google, by comparison, is thought to be earning between 4.5 cents (2.3p) and 5 cents (2.55p) per click.

Firminger argues that there are a number of advantages for advertisers using Panama. For one thing, ads can be submitted and appear online almost immediately – the current Yahoo! Search platform involves a 72-hour delay. Panama will allow ads to be targeted by continent, country and region, while budgeting and forecasting tools are built in, so that marketers can play around with factors such as bid limits, positioning and ranking, as well as assess likely return on investment.

Challenges ahead
Firminger admits the roll-out will be a challenge: "It’s like changing the engine of a plane at 30,000 feet – but it should all be finished by the end of the third quarter."

Once the Panama system is in place, Yahoo! will launch the second phase of its upgrade – a new search algorithm which will mean that advertisers are ranked in the results display according to a combination of bid amount and a quality index, rather than on the basis of how much they bid for the key word. The quality index will be based on a number of criteria, revolving around whether the ad delivered the quality of experience that users expected.

Some search experts say that Panama will not actually give Yahoo! any real edge over Google or MSN because all three will now be using a search algorithm that incorporates the quality of user experience. Yahoo! and MSN may be slightly more sophisticated than Google in terms of products, such as geodemographic targeting, but Google offers a whole host of other products, such as Google Maps.

Others believe Panama will be the next big thing in search, and point out that as Google now has two serious rivals, prices for PPC ads may begin to come down.

Online investment
Arjo Ghosh, chief executive of search and digital marketing agency Spannerworks, says the move by the three big search engines to incorporate quality of user experience will have a profound impact on PPC search marketing and on natural search because advertisers will invest in improving their websites. "It rewards marketers who are better at turning clicks into cash. The quality and relevance of PPC advertising will increase, and the quality of websites and related issues will also increase. Usability will get a major boost."

But Jim Brigden, managing director of agency The Search Works, is not convinced. "It’s like Sainsbury’s a couple of years ago. Its strategy was ‘What’s Tesco doing? Let’s follow suit’. Yahoo!’s problem is that search is driven by users. How is it going to get people using Yahoo! Search rather than Google or MSN?"

However, Brigden points out that the idea that Google completely dominates the search market is very Eurocentric. In Europe, Google takes 70-80% of all searches, but in the US it is around 50%, with Yahoo! on about 30%. He describes the Far East as "a fair fight", with none of the big three search engines enjoying dominance.

Yahoo! will be hoping that Panama makes it similarly competitive in the US and Europe in the future.

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