The Biggest Problem of the Google-Yahoo Deal

In my last column, I looked at some of the pros and cons of the Google-Yahoo search-advertising agreement — and what the deal means for search engine marketers. (Google and Yahoo last week agreed to a brief delay in the agreement to give the Justice Department time to continue its antitrust probe.)

This week, let’s examine what I see as the biggest problem of the deal: bidding against myself. How and why might I find my own Yahoo Panama ad preempted by my own Google ad at a higher bid? I might have a higher bid on Google (plus its current search partners) than I do on the identical keyword (and similar match type) in Yahoo because:

• The traffic converts better in Google.
• The average shopping cart size is higher for visitors from Google, AOL, Ask, and the like.
• There are fewer advertisers in Yahoo, so I don’t need to bid as high even if I were willing to.

So the only way to stop my more expensive ad from being served into Yahoo from Google is to:

• Lower my Google bid (losing position and scale).
• Raise my Yahoo bid (regardless of whether I had a maximum reserve price on that bid that is higher than my current bid).

There is no requirement that Yahoo use Google only when the ad is more relevant while running on Google. It could simply be due to increased competition, desire for scale, or better conversion rate, the CPM (define)/eCPM (define) is higher for the Google ad (even taking into account the traffic acquisition cost (TAC)) than it is on Yahoo’s Panama.

Search engines also have different audiences. Sometimes I may want to pay less for a Yahoo click than a Google, AOL, Ask, or Infospace click. Under the current plan, I can’t control the material inclusion of Yahoo clickers into my overall clickstream in Google without shutting off AOL and the other search syndication partners. One might propose that Google give me the ability to bid boost or depress in Yahoo (and/or even AOL) based on a multiplier factor. This seems at first to be a solution, but if I prefer to pay less for Yahoo traffic and I’m the only marketer who depresses my Yahoo network bid through Google, then my competition gets the Yahoo click because it’s likely not differentiating. I might have gotten the Yahoo click in Panama if some of those competitors weren’t active on Panama.

Some economists have argued that because there are plenty of other on- and offline advertising opportunities, the additional share of the overall paid search click market that Google will get is immaterial and won’t cause it to exert too much market power.

However, consumer behavior with respect to search has put the search engines in the position of toll-takers. When consumers become curious about a product, they search. They even use search engines to navigate. You might argue this is the marketer’s problem, so tough luck. However, all marketing costs are one way or another factored into the cost of products or services sold to consumers. Marketers who have already spent millions to generate interest and stimulate demand find their customers using Google, Yahoo, and Microsoft as their preferred mode of navigation.

There’s no easy answer to Yahoo’s problems of having an underperforming platform with respect to revenue per thousand SERP (define) page views. We shall see if and when the deal goes through exactly how this new ecosystem will behave. The truth is that no one really knows.

I’d love to continue this and other online marketing conversations and discussions on Twitter: @varoiusventures. See you there.

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