Yahoo Heats Up in Search Ad Race As Google Levels Off

  |  October 16, 2007   |  Comments

A report by SearchIgnite and RBC Capital Markets reveals summertime doldrums for Google are a sign the search giant's growth is leveling off.

Yahoo found “a secure footing” for search ad impressions and media spend during the third quarter of this year, according to a study by SearchIgnite and RBC Capital Markets. The firms also indicated spending on Google search ads dwindled, as did its portion of search ad impressions. Yahoo will release its Q3 earnings numbers later today.

“In the third quarter, marketers had more dollars to spend and they put more into Yahoo,” said SearchIgnite President Roger Barnette.

The researchers found third quarter spending on Yahoo’s percentage of media spend increased 7.8 percent over the prior quarter. SearchIgnite and RBC noted spending on Google for the same period increased only 0.8 percent. MSN’s share increased from 5.1 percent in Q2 to 5.8 percent in Q3, but suffered a total spending drop of 3.4 percent.

The study results were published in a white paper entitled, “Summer Heats up Yahoo.”

One area that heated up for Yahoo was total search media spend. The report says Yahoo’s piece of that pie increased to 20.4 percent in the third quarter, a healthy jump from the 8.5 percent share it held in prior quarter. “Yahoo had seen a precipitous drop in its percentage of media spend...up until it launched Panama [its new advertising platform],” said Barnette. “At that time, it saw an uptick in that percentage, but it proved short-lived.”

Those numbers started to reverse a bit in the second quarter, “so it was heartening, from Yahoo’s perspective, to see an increase that seemed to be sustainable,” said Barnette.

The report also noted Yahoo’s quarter-over-quarter percentage of ad impressions went from 31.9 percent to 37.2 percent.

The study showed declines in Google’s percentage of ad impressions between April and May, when college classes end for the semester, and again from May-June, when elementary and high schools close. Google hit a low point in July and August, but impressions began to rebound in September as schools re-opened, according to the researchers.

While Google’s share of impressions dipped during the summer, SearchIgnite and RBC found an increase taking place as September arrived and schools re-opened. “Google gained steam when students returned to school,” says the report, noting Google’s share of impressions “soared from 54.7 percent to 62.3 percent.” At the same time, Yahoo lost ground, going from 39.7 percent to 32.6 percent.

Barnette said this seasonal shift surrounding the school year was never noticed before because Google was so rapidly growing. “We look at this and have a hard time attributing it to anything except for back-to-school seasonality,” he said. “It makes a lot of sense. Google’s share of searchers skews much younger than its competitions’ and younger searchers tend to use search more often, so the quantity is higher.”

The researchers suggested the summertime doldrums for Google are a sign that the search giant’s growth trajectory is leveling off because of market saturation and because the adoption of broadband Internet connections is reaching a maturation point.

The report also pointed out Google’s increase in impressions “was accompanied by a decrease in performance." Google’s CPM dropped from $23.54 in August to $20.63 in September, says the report “due entirely to a drop in click-through rates from 4.4 percent to 3.8 percent over that span. Meanwhile, Yahoo’s CPM for the period increased from $9.32 to $10.07 because its CPC rose from 55 cents to 58 cents, according to the report.

In late August, Google began using a new algorithm that “attempted to improve the way they monetize advertisers in the first position by effectively allowing marketers to bid higher for Position One regardless of their quality score ranking,” said Barnette. While he said he expected the change would have made Google’s Cost Per Click increase, it remained flat and then declined.

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