Google Bashes Microsoft’s Yahoo Bid

Who’s the monopolist and who’s the underdog? It’s not a simple question when considering Microsoft’s bid for Yahoo at $31 per share, a 62 percent premium to Yahoo’s February 3 closing price.

Google’s chief legal officer wrote in a blog: “Microsoft’s hostile bid for Yahoo raises troubling questions. This is about more than simply a financial transaction, one company taking over another.” Google’s statement clearly warns those willing to listen that Microsoft is trying to exert monopolistic power on the industry and quash innovation. It went so far as to reference Microsoft’s former behavior in the PC environment as “inappropriate and illegal influence.”

Microsoft’s general counsel Brad Smith fired back: “The alternative scenarios only lead to less competition on the Internet.” Clearly this battle is being fought in the court of public opinion and regulatory approval will be critical.

Yet many within the SEM (define) industry see Google as the entity with power approaching a monopolistic level. Furthermore, if you ask someone who buys a large amount of premium display inventory, he sees the Yahoo takeover a bit differently, even when factoring in Google’s pending acquisition of DoubleClick.

Regardless of whether the Microsoft-Yahoo deal goes through, paid search marketers will face an increasingly challenging marketplace. When I wrote about Microsoft acquiring Yahoo last May, I discussed the pros and the cons. Most of those pros and cons still hold.

Today, I’ll cover the challenges Microsoft will face in making Yahoo better and address the issues that had Wall Street and many advertisers complaining. I’ll also discuss how the acquisition (assuming it goes through) will likely impact PPC (define) search marketers as well as digital marketing teams.

Yahoo and Microsoft control a huge amount of display inventory, both premium and remnant, but particularly the premium high CPM (define) placements. ComScore tallied up the display advertising impressions of the publishers and its rankings, based on number of impressions:

Publisher Share (%)
Yahoo 18.8
Fox Interactive Media 16.3
Microsoft sites 6.7
Time Warner network 5.8
Facebook 1.5
eBay 1.2
Google sites 1.0
Source: comScore, 2008

It’s all a matter of perspective, but this fight isn’t just about search query share, nor is it limited to online advertising. This is a battle for all advertising, particularly advertising that can be digitally trafficked, targeted, delivered, and reconciled. That represents billions of dollars now and even more as technology advances. Even the chart doesn’t give us an accurate idea of the ecosystem the way the strategists at Microsoft and Google see it.

It will be interesting to see if the press and regulators will let Google take the role of underdog or if they’re savvy enough to understand the nuances in this rapidly evolving marketplace.

For example, we tend to look at the PPC search marketplaces as auctions where the price we pay is set entirely by our competition. That used to be true but is less so all the time. Google not only sets its Quality Score based on a secret formula (which directly impacts how much you must pay to achieve a particular position or be included in a contextual ad rotation) but also has two price minimums.

When you start a campaign, Google will provide you with a minimum CPC (define) to be included in the campaign. In addition, last year Google introduced the ability to set a minimum CPC for any advertiser to achieve an above-the-fold placement. This second minimum isn’t published and is subject to change. Other engines have CPC minimums and black-box ranking algorithms as well. Your competition clearly isn’t the only entity setting your pricing in auctions anymore. This becomes relevant because regulatory agencies may look at market power as a way of being able to set pricing.

Ad exchanges are all the rage these days, and Yahoo has RightMedia, Microsoft has AdECN, and Google is expected to have DoubleClick’s Advertising Exchange. In an exchange, like paid-placement search, the expectation is we fight our competition for inventory regardless of the pricing metric we choose to be billed by, CPM, CPC, or CPA (define), all subject to a black box that contains targeting and decision-making rules within the exchange. In this case, fewer or more exchanges don’t impact price, hypothetically, just as an individual stock is only traded on one exchange at a time.

When buying premium ad inventory, both online and off-, the market is also governed by supply and demand. Super Bowl spots may not have been auctioned off, but Fox clearly pitted advertisers against each other. The question regulators must ask themselves is whether concentration within digital media is a good thing or not. There are clearly benefits to larger publishers and networks, because media buyers have not only one-stop-shopping but, more important, improved frequency control and targeting as well, particularly since both Microsoft and Yahoo are big believers in opt-in behavioral and profile targeting.

If the deal goes through, I hope Microsoft continues its tradition of providing advertisers with control over where, when, and to whom ads are displayed and the ability to bid-boost against targets. Yahoo has a different conversion rate than Microsoft for nearly every keyword. I’d want the continued ability to control bids separately for the portions of the network by boosting or depressing bids on Yahoo and perhaps even its network of sites.

Join us for SES London February 19-21 and for training classes on February 22.

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