Yahoo Reports Problems with Microsoft Partnership Search Revenue

Yahoo revenue in Q1 2011 fell 24 percent to $1.2 billion compared to first quarter 2010, but the firm stressed its focus on expanding on recent display ad revenue growth. The company said it would delay transition of additional paid search markets related to its Microsoft deal because revenue per search (RPS) has not met expectations.

Yahoo reported overall display revenue rose 6 percent to $523 million, compared to $491 million in Q1 2010. Subtracting traffic acquisition costs, display revenue rose 10 percent in Q1. New display platform features for ad yield management and inventory prediction “translated directly into higher ROI for our advertising,” said Yahoo CEO Carol Bartz.

In Q2, the company expects display revenue growth to accelerate compared to this past quarter. “We’re better able to predict and therefore monetize our content,” said Bartz during a conference call with investors this afternoon. The company said advertisers in the financial, auto, and retail categories are spending more with Yahoo.

Search revenue dropped 46 percent from Q1 2010, falling to $455 million. Bartz referred to RPS-related problems associated with its Microsoft search partnership. “We’re holding off on transitioning more paid search markets this year,” she said.

“RPS is below what either Microsoft or Yahoo had expected,” said Bartz. She chalked it up to problems related to ad prediction, budget, and relevance issues. Microsoft has presented Yahoo with a plan for “how to use hard science and new technology in [Microsoft] AdCenter to get this thing back to where it needs to be,” said Bartz, later noting that means “back to where Panama was as a baseline.”

The firm touted tech-driven events-related content associated with the Super Bowl and the Oscars, and pointed to a new royal wedding site at RoyalWedding.Yahoo.com. Yahoo also launched its Search Direct feature in Q1; the system provides users with instant answers and search results as they submit queries.

Bartz said the company served 1.6 billion ad impressions on behalf of Chrysler in conjunction with its three-pronged “Road to the Award Shows” sponsorship of Yahoo’s coverage of the Golden Globes, Grammys, and Academy Awards.