Yahoo and Microsoft: The Deal for Search Advertisers

Well, the deal is finally done between Microsoft and Yahoo. And it includes some surprising elements and some that are very much in line with expectations, given the rumors and the long dance between the parties.

Essentially, the deal has Microsoft’s Bing powering Yahoo’s search. Interestingly, the announcement states that Bing, not Microsoft’s AdCenter, is powering search, because both organic and paid listings are part of the deal. Furthermore, Microsoft is licensing Yahoo’s existing search technology for integration into Bing, not buying it. The organic impact and how SEO (define) practitioners address any evolved algorithms will, of course, be covered separately by the industry experts and pundits.

Yahoo will still use its search data for behavioral search products and may also customize search or other elements of the user experience, but the ads will come out of the same AdCenter data centers. Don’t get too crazed immediately because the combined advertiser database could take up to two years to roll out, based on the timetable discussed during the joint conference call. Because Microsoft’s platform has always been more similar to Google’s platform than to Yahoo’s with respect to match types in particular, the deal will create a more closely aligned industry standard with regard to standard text link ads.

The potential downside for advertisers is bid escalation caused by the merging of Yahoo’s and Microsoft’s keyword auctions. For example, certain verticals/business sectors in AdCenter may not have experienced significant competition in the past. If a combined entity is successful in attracting new advertisers and those advertisers begin bidding on keywords that have not previously been in demand, prices for those keywords will increase. By combining advertisers from both platforms, there may be some advertisers getting a bit of high ROI (define) traffic from Bing due to a current lack of competitors. These advertisers will suddenly find themselves in a more robust, more competitive auction. However, most of the larger advertisers already have campaigns running in Yahoo and Microsoft. So those advertisers would likely have a reduced workload because they would be managing two accounts instead of three.

Self-serve advertisers will use AdCenter directly, but premium advertisers will work with Yahoo’s sales teams to implement and execute their campaigns. I’ve asked for a definition of the distinction between “premium search advertiser” and “self-serve,” but so far all we have to go on is the blurb that was part of the joint release:

Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers. Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process.

There was a lot of talk in the press and between the parties about how a combined search entity drives scale, which is good for advertisers. Interestingly, the parties also stated that the combined search entity would be a better player when doing syndication deals of paid search feeds. Of course, the way that a publisher deal gets better is if ads monetize better due to a combination of coverage (more advertisers and more keywords) and (potentially) the escalation of keyword prices. Only time will tell if there will be an escalation of keyword prices, particularly in the local advertising sector where competition has been lighter.

Unanswered questions that might influence the way we as advertisers and agencies are affected by the agreement include the following:

• Will the iteration of AdCenter built in the post-integration era allow for bid boosts or adjustments for traffic coming in from Yahoo or Yahoo’s search partners? This would be of high interest to sophisticated advertisers because there is often a difference in the conversion rate or value of a click from different sources. A more efficient platform would allow for the option of separate bidding.
• Will Yahoo pass demographic info to the AdCenter platform so that the demographic bid boosts work across the full syndication network? This would require the passing of non-personally identifiable information (non-PII) between the ad servers and other systems. Consumer privacy was mentioned in the release but left sufficient wiggle room to allow for some data sharing:

  The agreement protects consumer privacy by limiting the data shared between the companies to the minimum necessary to operate and improve the combined search platform, and restricts the use of search data shared between the companies. The agreement maintains the industry-leading privacy practices that each company follows today.

• How will premium search advertisers transition between teams?
• What happens when a self-serve advertiser becomes large enough to be a premium advertiser?
• Will paid inclusion go away? (This was Danny Sullivan’s question on the conference call.) The answer was that they would decide this issue later, but my gut feeling is that paid inclusion will be history given what Microsoft’s perspective is. However, a comment Microsoft CEO Steve Ballmer made seemed to indicate that Yahoo could continue to use some form of customization, which leaves open a paid-inclusion option.

As Ballmer said, this deal was a long time coming. It’s a long time coming even now. So stay tuned.

Join us for Search Engine Strategies San Jose, August 10-14, 2009, at the McEnery Convention Center. Spend Day 1 learning about social media and video strategies with ClickZ.