Yahoo Finally Updates Search Ad Platform

Yahoo’s search ad platform update, codenamed Panama, was finally released in mid-October, several months behind schedule. The makeover is supposed to help the company regain the lead (and ad revenue) it lost to Google years ago. Even if it works well, is it too little, too late?

Yahoo has been talking to SEO bloggers and others in the search advertising industry and press about Panama, and even held a conference at its headquarters designed to show off all the new features. Unfortunately, at the time of this writing, I couldn’t find any information on Yahoo’s website about the update. A nice multi-page walk-through of the new interface, complete with screen shots, would have been helpful.

Yahoo itself can use all the help it can get right now. The company just announced its Q3 results, and they aren’t as good as some analysts on Wall Street were hoping. The search engine reported net sales of $1.12 billion, not counting the money it pays to search advertising partners. That’s about $20 million short of its target. While it made a profit of $159 million, or 11 cents per share, that’s not as good as it did in the year-ago quarter: $254 million in net income, or 17 cents a share.

Next quarter doesn’t look like it will be pretty either. Yahoo expects fourth quarter revenue on the order of $1.15 billion to $1.27 billion; even at the high end, it falls short of Wall Street expectations of $1.31 billion. Remember those problems Yahoo reported it was having recently with a slowdown in advertising in the auto and finance industries? That’s expected to continue into the fourth quarter, affecting ad sales and Yahoo’s bottom line.

Rather than focus on Yahoo’s current problems and analyze what’s going wrong (and why it should be doing better), let’s start by looking at the ad system itself, and what went into it. What is Yahoo bringing to the table now? And will it keep more advertisers from absconding to Google?

Yahoo Panama took 18 months to build. It took that long in part because of what the search engine had to start with. The company purchased Overture back in 2003. Overture, remember, was the pioneer in sponsored search ads, and that’s both good and bad. The downside was that, before Yahoo could innovate, it needed to take a long hard look at what Overture had set up: a large system that was now growing in a topsy-turvy manner. Once it saw that Overture wasn’t quite the answer it was looking for, Yahoo realized it had to start from scratch.

That’s a tough decision; the company basically had to leave the team at Overture in place, because it needed to have something working while it was creating something new. Yahoo put together a new team to work on Panama. The new system is modular and expandable, more flexible to meet the growing needs of both Yahoo and its advertisers. It has been undergoing testing at Yahoo for months. Importantly, the new search ad system doesn’t tap into Overture’s information at all; it uses the information from Yahoo for ranking.

That takes us to what will be the most significant change brought about by Panama. While it won’t kick in until the first quarter of 2007, those advertisers lucky enough to be using the system now can already see it. I’m talking about Yahoo’s new Quality Index. It gets to the heart of the largest difference between Yahoo’s sponsored listings and Google’s sponsored listings, and closes that gap.

Google’s AdWords program ranks ads not just on how much you pay per click, but also how relevant your ad is. Until now, Yahoo’s program looked only at how much you’re willing to bid. Now, ads in Yahoo’s program receive a quality number between one and five. Factors that affect the rating the ad receives include click-through rate, how closely the keywords you want are related to the ad’s copy, the display URL, the landing page, and other factors.

Does this mean the pricing model will change? You’d better believe it. Let me take an example given by Search Engine Roundtable. Say you have three bidders on a particular keyword; one bids $1, the second bids $0.75, and the third bids $0.60. If the quality index is equal, you only pay a penny more than the bidder below you. But if it isn’t, that changes. If the advertiser bidding $1 has a higher quality index, but the other two are equal, then that advertiser will actually pay only $0.61, while the other two will pay $0.51 and $0.26 respectively.

If that was the only change that Yahoo was rolling out, it would be very welcome, but hardly something you’d expect to take 18 months to create. Fortunately, the search engine is offering a lot more than just that. Barry Schwartz describes the new interface as “snappier, more flexible and very sleek and user friendly.” But what does it let you do?

For openers, you can add start and end dates to your campaigns now. Also, Yahoo has promised faster ad activation, so you can see your ads go live in minutes. Advertisers can take advantage of the new hierarchical structure of Account –> Campaign –> Ad Group –> Ad, and you can bid by ad group. You can also rotate multiple ads, a useful feature for those who want to experiment with how well different ads do (and who doesn’t?).

Those of you who have wanted to aim you ads at web surfers from particular parts of the world will be pleased to hear that the geotargeting feature is quite advanced. You can target by city and surrounding area (using zip codes to help you find the right one), by market, and by region. One part of the interface gives you a helpful drop-down menu with check boxes, so that, for instance, if you want to advertise in only certain cities in a particular state (say California), you can check off specific cities. There’s also a continent block feature.

The general dashboard screen is a thing of beauty. One box shows you your alerts; another one shows you the performance of your campaign. That box lists impressions, clicks, conversions, revenue, and the cost of your campaign; you can also click on a drop-down that gives you graphs for each of these items. A third section of the dashboard gives you a spreadsheet with even more information about various campaigns, including budget, average cost per click, and much more.

When you’re bidding by ad group, you get information such as how much it will cost to get the estimated maximum number of clicks for the keyword you’ve selected. After you place your bid, you receive estimates of the number of click-throughs you can expect every month, your ad’s average position, and your share of available clicks. If you’re more comfortable with a chart, Yahoo gives you one of those as well, pointing to your position with a slider. You can move the slider to get a sense of your options as to where you’d fall and how much you’d have to pay to be there. This particular tool has received extensive testing, and it’s likely to be one of the most useful additions to Yahoo’s search ad platform.

While Yahoo! Search Marketing (the actual name now that it’s live) is already available to some users, for a while new users will go into the old system before being migrated over. Voluntary migration of users will happen over the next few months. Since it’s so close to the holidays, mandatory migration won’t begin until after the start of next year. Once you do make the switch, you’re stuck with it, but as one observer noted, this is “a fact which is unlikely to generate any tears.”

It’s also worth noting that it’s mainly the front end of the product that went live immediately. Yahoo CEO Terry Semel fielded a question on that point during Yahoo’s conference call covering its financial results and the YSM release. To quote Semel, “We have achieved exactly what we set out to achieve and that is…the front-end going as of today and basically, marketplace design in the first quarter [of 2007]. That is how it has been said all along and that is how we are going to continue to say it.”

This begs the question of how soon the change will affect Yahoo’s financial situation (and perhaps the company’s standing in the search market). Susan Decker, Yahoo’s chief financial officer, pointed out during the conference call that a financial impact is unlikely until a quarter after the marketplace design portion goes live. So Yahoo’s quarterly reports will probably continue to be depressing until Q2 2007 at least.

But what about the issue of advertisers migrating to Google? That might not be as much in Yahoo’s hands as it would like. Google has a lot of momentum behind its AdWords advertising platform; ironically, it copied Yahoo when it originally released AdWords, to the point that Google had to pay a large patent settlement. Yahoo is now mimicking Google. While YSM is better than what it had before, it needs to do more than just mimic. Remember what happened with eBay, when it tried to offer its own BillPoint online auction payment service to compete with  PayPal? PayPal had built up too much momentum to catch, and the only way eBay could win that battle was by buying PayPal. Yahoo doesn’t have that option. I would rather not see it happen, but Yahoo could easily see its YSM out-competed before it really has a chance to show what it can do. 

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