Yahoo! Results Reveal Trends Behind Recovery

Yahoos stellar results illuminate trends in online marketing as a whole as the Internet becomes an integral part of the media mix.

The company said its marketing services business, which includes both display advertising and paid search, saw a 235 percent revenue increase year-over-year and growth to $635 million. The gain came both from organic growth and from acquisitions like Overture.

“We are gaining share in an industry that is also gaining traction,” said Yahoo CEO Terry Semel.

Yahoo execs attributed the dramatic rise to advertisers’ growing understanding that the Internet is the best place to reach coveted demographics, like 18 to 34 year-old men who are famously abandoning network TV. Eighteen to 34 year-olds are the most connected age group, spending more time online and accounting for more page views, according to a report released late last month by the Online Publishers Association (OPA) and comScore Networks.

“These folks are spending more and more time online, and on Yahoo, of course,” said Semel. “We’ve become more and more an integral part of the overall marketing campaign as opposed to something that perhaps two years ago people would just buy a little something and throw it online.”

Yahoo COO Daniel Rosensweig added advertisers are becoming concerned about how to spend online efficiently, rather than question whether to buy online inventory at all.

“Our renewal rates are getting higher, the contract lengths are getting longer, and the amounts people are spending are increasing significantly,” said Rosensweig, “so there isn’t any more a question of whether or not it’s a good medium for the core marketers, but how to use it more effectively.”

Particularly in paid search, it’s difficult to generalize Yahoo’s experience. The company has seen most of its growth in the number of searches; specifically, double-digit growth in the volume of search queries worldwide. That’s because it’s focused on rolling out its own search technology, as well as Overture paid listings, across the Yahoo network.

One trend Yahoo’s seen that may have implications for the industry is growth in “coverage,” or an increase in the number of keywords for which it could serve ads.

“Overture has come up with interesting ways for affiliates, including us, to increase coverage levels, meaning we could bring in new verticals, or keywords, which could have a different price-per-click than the overall average,” said Sue Decker, Yahoo’s CFO. “So, the process of doing that has kept the overall price-per-click relatively stable for the last couple of quarters, although year-over-year it’s still growing nicely at double digits.”

International growth is becoming more important than ever to Yahoo The company recently acquired keyword search business 3721 in China, and just this week closed a deal to buy Kelkoo, a European shopping comparison engine. Revenue from the company’s international business grew 257 percent year-over-year, with profitability nearly tripling over the same period, company executives said.

For Yahoo, the next year is likely to bring a new homepage, re-designs for vertical channels, and changes that take advantage of broadband, Semel said. He added the next 12 months will also bring advances in personalization. Tim Cadogan, meanwhile, Yahoo’s vice president for search, reportedly hinted at plans for a social networking search service.

“There’s much more ahead and on the drawing boards right now in the testing phases right now than we actually had a year ago,” Semel said.

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