We live in an exciting time, dear readers. The world of connecting information seekers with the facts they crave is shaping up to be more of a nail-biting thrill ride than the best daytime drama. Hundreds of new entrants into the search game threaten to chip away at the big search site's share of audience.
But the center ring battle is still Yahoo versus Google.
What's driving the big change? Many searchers still wonder why eBay and Amazon are always the top listings for everything. They scratch their heads as the same IMDB page is perpetually listed at the top of the search results page. They wonder, where have all the search cowboys gone?
Enter the latest press battle between Google and Yahoo.
Yahoo's long-anticipated upgrade to its paid search listings model has everyone wondering exactly how Yahoo might overtake Google. Should Yahoo even be trying to overtake Google? What's the real end game in the search battle? What are the implications for advertisers?
Power to the people
The real secret sauce in Yahoo's newly released ad platform, dubbed Panama by the search portal, is a means of generating big revenue. Yahoo is betting big that Panama will bring big momentum to search-based earnings.
"We generated very solid growth and profitability in the fourth quarter and full year 2006, putting the company in a strong financial position, and, looking forward, we are very optimistic about the potential of our search monetization initiative to improve the value of search for Yahoo and our partners," said Susan Decker, Yahoo's chief financial officer.
Yahoo should be excited about the revenue potential that exists in stronger monetization techniques. Making money with search while balancing advertiser and consumer value is the name of the game in search as we know it today, and it seems to be working quite well for Google.
Yahoo generated $6.4 billion in revenues in 2006 compared to Google's $10.6 billion. Another look at the numbers that compares fourth quarter 2006 and 2005 revenue, Yahoo showed an increase of about 15 percent, while Google jumped up to the tune of 20 percent. Both companies exceeded analyst expectations.
Next generation search advertising
At the close of 2006, Google was sitting on $11 billion. Please join me in a moment of silence to ponder what it must be like to be living inside a company with that much dough under the seat cushion.
At the heart of greater monetization for Yahoo is the much-hyped search algorithm that rewards advertisers for appearing more relevant to users. In a nutshell, higher positions can be realized by generating more click traffic than your competitors at a lower cost.
The idea is a simple one, and a similar approach has achieved great results for Google earnings, I mean Google advertisers… er, Google users. Rewarding the user base has proven to be critical to the success of a search advertising program, and rewarding greater relevance seems to be a sharp approach to gaining greater access to advertiser funds.
But there has to be more to the equation.
Finding the right combinations
Sneaky search techs are a bit skeptical, yet optimistic, about Yahoo's new ad platform.
Yahoo stepped up efforts to assist advertisers and search agencies in making the transition. Some were offered early adopter status late in 2006 to help form best practices for mass adoption. As of today, most advertisers have either completed or are in the final stages of ramping up.
Some advertisers have chosen simply to migrate Google campaigns into the Yahoo interface. Marketers are keeping a close eye on (among other things) low volume keywords to make sure sudden cost spikes do not occur.
The arena of managing low volume/ high return keywords is often where advertiser and publisher interests conflict. Low volume keywords (compare traffic and cost of bidding on the word Hotel and the aggregate of hundreds of local geography + Hotel combinations) represent the precious long tail for advertisers.
These terms are targeted-- desired action behavior is high and bid competition is low. Low costs and high volume in aggregate is great news for an advertiser, but not so much for publishers seeking to cash in on bid wars for high volume terms.
What will the future bring?
Last month I wrote a piece on the , and part of that discussion was the simple fact that millions of people are discovering that search can be more efficient with niche search destinations. Theories behind search expansion lie in the assumption that there is simply too much information for one search site to provide a one-stop destination.
Both Google and Yahoo are attempting to find beyond-the-search-box ways of generating revenue. Modifying an algorithm for search advertising is a short term solution to increasing profits while focusing efforts on creating new revenue streams.
Herein lays the golden goose for Yahoo: while Google's $11 billion is a very large bag of money to be holding that can be invested in future growth, Yahoo already has a leg up on diverse product offerings and possible revenue channels.
If you have any doubts, please scroll down to the bottom of Google's earnings report. 99 percent of Google revenues still come from search listings, while Yahoo already has a diverse product offering. Yahoo simply has to monetize it better and faster, which is easier said than done.
From where I am sitting, Yahoo's position isn't quite so bad.