NEWS: Google Search for Missing Yahoo Revenue Returns $1 Billion

Ed: Damage done. Whatever the outcome, Yahoo admitted that Google search returns better results.

Google Search for Missing Yahoo Revenue Returns $1 Billion

Boy, that was fast. Yahoo’s (YHOO) limited 2-week test of Google’s (GOOG) AdSense for Search service has yielded wondrous results. So wondrous, in fact, that we’re only a week into it and “people familiar with the matter” are already telling The Wall Street Journal that the trial may well lead to a broader outsourcing deal between the two companies.

$5 and a Yahoo Insta-Yodel! says the search pioneer’s having another sitdown with Microsoft this week

Anyway, by some estimates, a deal with Google would increase Yahoo’s cash flow by more than $1 billion a year. A nice little spike in revenue like that would certainly bolster Yahoo’s efforts to spur Microsoft (MSFT) into increasing its unsolicited buyout bid for the Internet search pioneer. That being the case, why didn’t Yahoo forge such partnership with Google last July when it was restructuring the company’s “ecosystem” and slaughtering sacred cows? Perhaps government approval was a concern?

Yahoo Puts All The Chips On The Table. Time For Somebody To Fold.

by Michael Arrington

The WSJ, ...

What’s the translation? It means that Yahoo is hyping its last (barely) credible alternative to Microsoft - a full outsourcing of search marketing to Google to boost revenues and shareholder value.

Citigroup analyst Mark Mahaney previously said that a Yahoo-Google search deal could boost cash flows by 25%. Experts we talked to estimated that could boost Yahoo’s market valuation by $7 billion or so, less than half the premium Microsoft offered on February 1.

That Mahaney estimate of increased cash flow from a Yahoo-Google deal is now “more than $1 billion a year,” a 50% gain in cash flow from 2007. That puts the offers roughly on par, give or take a few billion. And it gives Yahoo a potentially viable alternative to the Microsoft deal.

Except, not really. Everyone, even Yahoo, realizes that a Google search deal is a slow but certain death for the company, even in the unlikely scenario of government approval. Those cash flow boosts are based on current traffic, but its very likely that Yahoo would see a gradual decline in search volume if they were to outsource to Google (as has happened with AOL, which moved to Google search in 2002 and has dropped from 30% to less than 5% market share). Expect Yahoo to take the same hit over time.

But Yahoo has played the crazy card perfectly to date, suggesting that any alternative to Microsoft, even a slow suicide at the hands of Google, is a preferable outcome. And Microsoft must acquire Yahoo to ensure their long term viability. Further, while losing the Yahoo deal may be something Microsoft can live with,losing Yahoo to Google is not an option (Mahaney says that a full Yahoo outsourcing deal to Google would be the worst case scenario for Microsoft).

Both companies need the deal to happen. Yahoo is screaming “do you dare me!?” and so far Microsoft is saying “sure.” But Yahoo isn’t really crazy, and Microsoft needs this deal more than they let on. Both companies have everything to lose, and someone is going to fold. Yahoo announces Q1 earnings on April 22. I’m sticking with my prediction of a negotiated deal in the near term.

Meanwhile, Google is the clear winner from this whole episode. They either get a huge win (Yahoo search) or a slightly smaller win (their biggest competitor acquired and mired in merger logistics for a year or more).

Google paid click growth slowing - Advertising Shelf Space

Ed: In retail, footage of shelf space matters. Has online advertising become the same?

• Nov 2007, Google stopped using the text box as the click area. Net effect is huge drop in shelf space and more than 25% loss of clicks.
• Google continues to use the text box as the click area on affiliate search pages.
• Yahoo still uses the full box for top of page SEM ads.
• Yahoo extends the click area to the entire title area for skyscrapers.
• CPC click rates and CPM click-through-rates may be statistically un-differentiated when adjusted for square inch of clickable area.

Has advertising become a retail shelf space problem? Is the rest statistical noise? Are we measuring brownian motion?

View NEWS: Cookie Deletion Inflates User Metrics 

View NEWS: New Study Shows that Heavy Clickers Distort Display Advertising Click-Through 

View ANALYSIS: Internet Consolidation or Fragmentation?

View	ANALYSIS: Who Earns the Page View?

April 15, 2008,  12:17 am

Study: Google Lost Share of Search Ad Dollars to Yahoo

By MIGUEL HELFT

If the results of a study by SearchIgnite, a search advertising technology firm, prove representative of the broader search market, something unusual happened in search ads in the first quarter: Google lost share to Yahoo in the United States.

The report shows that spending by search advertisers on Yahoo grew a robust 57 percent while spending on Google grew only at about half that rate. That meant Google’s total share of search ad dollars declined slightly to 70.4 percent, while Yahoo’s rose to 24.2 percent. Microsoft’s declined slightly to 5.4 percent.

“It was unusual and unexpected,” said Roger Barnette, president of SearchIgnite...

Google paid click growth slowing

From Silicon Alley Insider:

Google’s (GOOG) US paid-click growth in March was as bad as in
February–up only 2.7%–rounding out a violent deceleration in Q1, says
Comscore (per Mark Mahaney at Citi). In all of Q1, Google’s US paid
clicks rose only 2% year-over-year versus 25% in Q4 and 48% in Q3.

On the face of it this looks like bad news in stark contrast to the good news on 38% UK internet ad spend growth in 2007, but for a couple of reasons it isn’t as bad as it first seems.

The ‘this isn’t so bad after all’ argument notes that the number of searches continues to increase (33% year-on-year to March) and says the decline in clicks is due to Google’s ongoing efforts to improve lead quality for advertisers and the experience for searchers, which has resulted in a much lower search to paid click conversion rate. If this is right the quality of the clicks and hence the revenue per click will have increased - and Googles revenues will still be growing much faster than 2%. Analysts’ consensus is for 25% revenue growth. Results are out on Thursday, which will be interesting.

If this is true we should all be seeing our cost per click increase on adwords, but that will be offset by improved conversion rates. I will start asking my portfolio if that is the case.

I buy the argument that the growth in paid clicks is slowing because Google is trying to increase quality, but I don’t think that development will be totally offset by an increase in the cost per click. Rather, I think that up to now there has been a lot of rather pointless adwords activity which delivered little value to either advertiser or consumer, and that what we are seeing now is that activity tailing off. Partly down to Google, but also partly down to people getting smarter about how they use Adwords, particularly in the face of a recession.

Either way I hope Google’s results match up to analysts expectations. Otherwise I fear confidence in the internet sector will be badly hit, which is the last thing any of us needs.

NEWS: Ad Networks, Confusion Grow on Web

Ad Networks, Confusion Grow on Web

By EMILY STEEL
April 16, 2008; Wall Street Journal

For the past five years, SOAPnet.com has been the Disney-ABC Television Group's hub for all-things soap opera. It has hosted clips of shows like "All My Children," featured behind-the-scenes news, and even sold souvenirs.

But starting Wednesday, it is an "ad network" as well. The Walt DisneyCo. unit plans to announce that it has struck agreements with 45 smaller, separate Web sites that allow it to distribute content on them and, more importantly, sell advertising on their behalf. By doing so, it joins roughly 300 other companies that also call themselves ad networks.

The business of brokering ads across clusters of Web sites has become one of the most popular -- and overcrowded -- niches on the Web. The result is a glut of networks competing with each other, confusing media buyers and guaranteeing that some sort of shakeout is inevitable.

For some, starting an ad network is about survival: SOAPnet.com's traffic was light and diminishing, so in order to sell ads it needed to be able to offer access to other sites as well. Others are hoping to capitalize on the rise in online ad spending, either to capture an expected explosion in display advertising, or follow the lucky footsteps of previous ad networks that have been snapped up at high prices by large companies.

The ad-network business relies on two factors for growth: Web publishers ceding more of their ad inventories to the networks to sell, and the networks being able to actually sell that ad space to marketers. For the most part, publishers have little to lose by letting an ad network try to sell some space for them.

The bigger problem is that because so many ad networks are now competing -- in some cases, multiple networks are trying to sell the same slice of ad space -- it's harder than ever to rack up sales. Already, a number of networks are ailing.

"There will be a squeeze," says Jeff Lanctot, senior vice president of global media at the digital ad agency Avenue A/Razorfish, a unit ofMicrosoft Corp.'s aQuantive. "For those networks that fall out of the top 10 and haven't carved out a real niche, it will be tough for them."

The whole idea behind ad networks when they first started cropping up a decade ago was to simplify the process of buying ads online by offering one-stop shops where marketers could buy across dozens or even hundreds of Web sites. But now the ad-network population consists of so many permutations and combinations of services and expertise that media buyers, who often control ad spending for marketers, are left scratching their heads.

"After awhile, you just start to get blind with how many options you really have," says Adam Shlachter, senior partner and group director at Mediaedge:cia, a media-buying unit of WPP Group's Group M. "It becomes really difficult to tell what the difference is and what the benefits are between the different networks."

Some ad networks specialize in a certain topic area, like home decorating or physical fitness, while others cut across multiple subject areas. Some ad networks charge advertisers only when a consumer clicks on an ad or makes a purchase, while others simply charge by the ad. Some only broker text ads, others banner ads, while still others do nothing but video ads.

The technology used by ad networks also varies. Some deliver ads to Web sites based on whether the ad topic matches the personal interests of surfers based on the sites they've visited before, while others use the content of the Web site as their guide. As an industry, the ad-network business is healthy. An estimated 80% of ads are now sold through a network, and that number has been increasing the last couple of years. The top-20 ad networks that sell display advertising earned more than $2 billion in revenue in 2007, or about 14% of the total graphical-ad market, according to a report by JP Morgan analyst Imran Khan.

And there has also been a flurry of deal-making in the ad-network arena. More than $2 billion was spent last year to acquire 10 ad networks and exchanges, and venture-capital investment in ad networks reached nearly $300 million, according to media investment bank DeSilva and Phillips. That figure doesn't include the $649 million that WPP Group spent for 24/7 Real Media, the $6 billion Microsoft paid for aQuantive, or Google's $3.1 billion purchase of DoubleClick. All of those companies earned portions of their revenues through advertising networks.

Microsoft's bid for Yahoo -- which has drawn AOL, News Corp. and Google into the mix at various points -- at its heart is largely about the business of placing advertisements on Web sites, underscoring the significance that media and technology companies are placing on the business of brokering ads.

But despite these signs of health, some ad networks are stumbling. The Washington Post Co. was one of the first traditional media companies to make the leap in November 2006 when its Washington Post Newsweek Interactive unit started stitching together some 130 blogs on which to sell ads. It all started off fine, with big marketers such as Lufthansa and Marriott paying high rates to advertise on the small sites in the network. But the advertisers stopped coming back, and the Post decided the effort wasn't worthwhile and shut down its network.

"It really was an experiment. It never got to be a business," says Jeff Burkett, director of ad innovations for Washington Post Newsweek Interactive.

Meanwhile, some of the oldest ad networks are also struggling. Take the case of Burst Media. Started by a former newspaper ad-sales executive in 1995, it was one of the industry's first ad networks. It survived the collapse of the dot-com bubble, grew to become one of the industry's most prominent networks, and went public on the London Stock Exchange in 2006. But since then, the company has several times missed its own revenue forecasts as advertisers canceled deals or scaled back spending. Burst has been trying to stage a recovery, but analysts say there is a good chance it won't survive.

"We managed to navigate our way through the first Internet correction, and now we continue to build our business," Chief Executive Jarvis Coffin says. "Along the way, we got caught up with operational difficulties. Now we are aligning ourselves with the future."

For bigger media companies like Disney-ABC Television Group, the hope is that they can link enough small sites to increase the size of the audience they deliver to advertisers and ultimately boost their online revenues. For instance, SOAPnet.com, combined with its sister site ABC Daytime, reached 1.2 million unique U.S. visitors in March, down 24% from the same period in 2007, according to Web measurement firm comScore. With addition of the 45 new sites, which include BeautifulStranger.TV and Stylehive.com, it is aiming to double its reach and its ad revenues.

In the same way that ad networks grew out of the explosion of Web sites, there is a new type of business that is emerging because of the proliferation of ad networks. These companies, with names like the Rubicon Project and PubMatic, help Web sites figure out which ad networks to work with to generate the most money.

"Without this, it's a full-time job," says Chris Jones, vice president of business development at auto-focused Web site Streetfire, which works with the Rubicon Project and sells ads through eight different networks.