I don’t live in the valley enough times to take the new Yahoo - Google deal as personally as a lot of the bloggers around here. Most reactions were somewhere between anger and contempt to true sadness.
Many people gave their explanation to why this deal is actually bad for Yahoo on the long run, detailing how it will put to death their search and search advertising businesses.
But what people are missing is that by signing the deal, Yahoo kills not just their search efforts, they also kill their long term vision.
In the press announcement that Yahoo published there are two very important quotes we need to give our attention to:
“This agreement provides a source of funds to both deliver financial value to stockholders from search monetization and to invest in our broader strategy to transform display advertising”
Basically Yahoo admits that they can’t beat Google in search advertising and that they need to focus on where they are still leaders, the display advertising market. They put their future on trying to lead this still big market.
But here lies the problem. We all know Google, very soon, will go with full power also after this market, and with the relationship they have with so many advertisers and the DoubleClick acquisition, they have everything they need to also win it.
Now let’s go forward. At the same press release Jerry Young also write:
“We believe that the convergence of search and display is the next major development in the evolution of the rapidly changing online advertising industry.”
This is absolutely true. We all know that web advertising is all about targeting. The better you will target your ads, the better ROI you will give to your advertisers and more money to your publishers. And Targeting is all about data.
What Jerry basically say is that by mining search data to build a better profile of users, you can enhance display advertising performance.
The problem of course lies with the fact that by giving Google access to all those Yahoo search results, they are giving them not just inventory but also this valuable data. They are giving their biggest future competitor their most precious asset they have, securing their failure to win also this battlefield.
Today big news were of course the expected deal between Yahoo and Google.
Yahoo will outsource some (we can guess most) of their search advertising and in site contextual advertising to Google.
This makes Google basically almost unbeatable in search. It’s no longer a technology question of coming up with better algorithm to do contextual advertising. It’s all about the ROI they can give publishers and advertisers. And this is first of all a size question. When you have such a huge amount of advertisers and inventory, you can play the numbers in a way that will maximize the results better than anyone else. Microsoft and the other players simply don’t have a chance.
So there are two big questions that come up to mind:
Is this deal good for advertisers? Still hard to know. In the short run, it definitely makes their lives better. Bid for words on Google and reach also the rich Yahoo traffic. On the long run? When Google own interests is to make prices go up as they take a cut of the sale, it’s always bed to have simply just one player. So for the long run, we have to sit and wait and see how this will play out.
The second important questions is of course - So how can someone beat Google?
It seems that there are now just two ways to beat Google:
1. Create such a better search engine, that you will be able to basically convert Google users. This scenario is very unlikely to happen. The main reason is that it is not a technology question but a psychology one. The Google name is “burned” into people mind so hard that even if you’ll proof to them that your engine can bring better search results, most people will still use Google just out of the fear that they are losing something.
2. Hit Google where it really hurts - the revenue share with their publishers. Google takes approx 30% of advertising money and give the other 70% to the publisher. A year ago there was some discussion in the blogosphere about an open source search platform. A platform that takes on the power of open source to beat Google page rank algorithm and at the same time gives publishers 100% of the advertising deal.
Such a platform can be 29% worse than Google, and still convince a publisher to give it his inventory.
Of course this is all theory. In reality there are many problems in creating sucha platform. From who going to fund the massive datawherhouse needed for this, to how you make sure SEO black hats doesn’t game the sysetm when it is an open source one.