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How Yahoo could re-boot search September 24, 2012

Posted by David Card in Uncategorized.
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Yahoo is scheduled to describe its latest turnaround strategy on Tuesday, and reportedly search is high on its priorities list. Search is the engine that drives online advertising, accounting for half of U.S. spending by most estimates, and twice as big ($15 billion) as the next category, banner ads ($7.6 billion). Big players in display ads like Yahoo and Facebook, both of which use Microsoft for core search technologies, tinker with their offerings to try to steal share from Google. So far they’ve had little success.

New CEO Marissa Mayer ran Google’s search business at one point, so she knows what works. How could Yahoo – whose Overture acquisition actually invented paid search before Google – return its search business to past glories? It could start by working on the following:

  • Microsoft. Yahoo’s decision to outsource search technology to Microsoft has never really paid off. The combination has not gained share versus Google. Microsoft is still paying Yahoo a guaranteed bonus because it can’t match Google’s revenue per search figures. The contract for that bonus ends next year. Yahoo will likely renegotiate the deal. Although Microsoft has seen tiny increases in its own search share, that’s mostly been at the expense of Yahoo. But it would miss Yahoo as a distribution partner; there simply aren’t that many places where big audiences do general-purpose searching. Yahoo could threaten to switch over to Google, though that might raise antitrust concerns.
  • Attribution. One reason for Yahoo to stick with Microsoft is the potential to use search to increase the value of the display ad businesses of both companies. Big agencies don’t need Yahoo to integrate their display and search campaigns, but they could use help in what the industry calls “attribution,” i.e., understanding the influence of and attributing the proper value to different ad units instead of just giving search all the credit as the “last click” before purchase. With the threat of privacy regulation looming over ad networks and third-party data collectors, the value of consumer behavioral data collected on one’s own site could increase dramatically. As portals with large audiences consuming a broad variety of content and communications, both Yahoo and Microsoft could gain some competitive advantage in attribution analysis and behavioral targeting over Google, that depends on an ad network of third-party sites.
  • Social search. Regular readers know I’m pretty skeptical of the impact of social media on the kind of directed shopping search that pays Google’s bills. Still, social signals are valuable inputs into search results, and Microsoft has done a better job presenting them to users than Google has. Yahoo has minimal social data, so sticking with Microsoft – that has data sharing arrangements with Facebook and Twitter – is its best chance of tapping into social search.

Yahoo is not in a great position to go after mobile search, though neither is it particularly disadvantaged. Google has caused some Wall Street concern that lower mobile search costs-per-click could drag down its overall average. But Yahoo and Microsoft don’t have much to lose. Unfortunately, Yahoo’s Axis search-browser hybrid gives a better demo on a tablet than on a phone. While it’s an interesting example of how a search user interface doesn’t have to be blue links, it’s not likely to have any significant impact on mobile search. Phone-based search may ultimately depend on voice input, and will certainly benefit from presenting coupons and offers among results.

No, Yahoo’s best chance at search is on bigger screens. Its prowess in selling glitzy display ads to brand advertisers remain one of its remaining assets. So connecting the dots for advertisers and agencies via attribution and behavioral and social inputs is Yahoo’s most promising search strategy option.

Question of the week

What else should Yahoo do to gain share in search?
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What the ad numbers mean for online and social media October 3, 2011

Posted by David Card in Uncategorized.
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While there’s renewed interest in paid content, advertising pays the bills for most social and online media companies. Last week the Internet Advertising Bureau published U.S. online ad sales figures for the first half of the year. Revenues grew 23 percent to $14.9 billion, showing online to be one of the healthier sectors in all of advertising, even in a lousy economy. What’s less encouraging is that display ad pricing is actually down, and companies can’t escape the grip of cheap ad inventory aimed at direct marketing. Let’s take a closer look at the numbers and evaluate some possible solutions to maintain growth and increase profitability.

Here’s what the numbers mean for those selling online ads:

  • Growth by category. According to the IAB and its data partner, PricewaterhouseCoopers, both display ads ($5.5 billion) and paid search ($7.3 billion) grew at 27 percent rates. Online video ads ($891 million) are  growing even faster, while classifieds and email are down. The bottom line? Good growth but no big structural changes.
  • Pricing. That lack of change is reflected by a slight decline in display ad pricing — CPM is down 5 percent. Display growth came from volume, not price increases. Pricing pressures, along with the continuing dominance of cost-per-click (64 percent of sales) show that online isn’t really poaching dollars from brand-related TV advertising budgets.
  • Market share. The IAB doesn’t do market share breakdowns, but eMarketer projects that Facebook will surpass Yahoo in display ad sales this year, while Google remains dominant in search. Google’s ad network is gaining a little share in display ads, too. Both it and Facebook are contributors to the price decline since they’re delivering massive volumes of CPC or low-priced CPM inventory.

So what’s the outlook for the rest of the year for ad sellers? Given the new IAB figures, I expect existing full-year growth forecasts will be raised by 1 to 2 percentage points. Even with no signs of an economic recovery, fourth-quarter sales are usually the strongest of the year, and election spending will start early. EMarketer projected 20 percent growth for the full year, with display growing a bit faster than search. MagnaGlobal forecast 16 percent growth overall.

As for pricing, using inventory optimization tools raises the yield, or price per unit, by enabling better forecasting, targeting and reduced discounting. One such optimizer, Yieldex, just raised $10 million. Likewise, sites with higher-quality content or specialized audiences can raise CPM rates by participating in private exchanges or ad networks like Glam Media’s. Even the big guys like Yahoo and AOL are building premium exchanges, though, so it’s likely to get crowded.

It’s not getting any easier to steal dollars from big TV brand advertising budgets – even online video just doesn’t have the audience scale. Instead, online ad sellers should look to complement traditional media buys. That means working on multiscreen campaigns and using social media to “amplify” messages across media. Another complementary use of social media is to pretest the creative content of advertising messages to ensure the efficiency of print or TV buys. Social media analysis will help sell those complementary ads. Through such analysis, Networked Insights, which recently raised $20 million, says it helped a client buy cheaper TV ad inventory to reach the same audience as it switched channels.

Companies selling online ads need to adopt these yield management and analysis technologies and combine them with the selective use of networks and exchanges. They may also have to offer additional services — e.g., audience and ad performance analysis aimed at media buying agencies, which can be a drain on resources. But by doing so, they’ll get more than their fair share of spending and will hold off price erosion.

Question of the week

How can online media companies improve ad revenues and profitability?