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.
I have to agree with Michael Arrington. The new move by Microsoft, Cach Back, seems like a desperate move, but it could also turn out to be a game changing one.
Until we will see more brand advertising money goes into digital, search will still be the king. And Microsoft is in big trouble in this field. Google is the de facto ruler of web search and because of that also of the search advertising money.
In recent years Microsoft worked hard on developing better search algorithms and products, but even when they were successful (I’m saying for a long time that some of the Live properties are much better than the Google competitors) it wasn’t enough to push users to do the switch.
It’s a psychological issue. Too many people are fixed on the notion that Google is the web. That Google results are the only result.
So how cachback can change this?
By giving money to the users.
What brilliant here is that Microsoft finally realized that they actually don’t have to completely convert people to Live from Google. All they need is just the last ad click.
We have written about this in this blog a couple of times - the current way advertisers are measuring ROI is very wrong. But it is the way used these days and it can play into Microsoft hands.
Currently when advertisers are trying to attribute a purchase to a campaign, they look at what ad (or referrer) the user clicked on to get to the site in the session in which the purchase was made. They basically attribute the all purchase just to this ad or campaign. This means, that it doesn’t matter if you used Google to do all your price comparison, if you used Google to search for the product for a week. If in the end you will go to Live, do a search (when you already know exactly what you want)an buy the product, Microsoft will get the all glory.
And this situation is exactly what could happen. Users will use Google to do the hard research as they trust it more than Live, but in the end will go to Live and make the purchase in order to get the cachback discount.
Simple but brilliant.
And of course Microsoft is hoping that if you will use Live for this for enough time, you will start to use it also for other searches and maybe in the end even convert totally from Google.
Ironically, Atlas that is now part of Microsoft is one of the leaders in trying to push a new attribution and measurement model (that I think is much more accurate) that called “Go beyond the last ad click”.
So will this work? Will Microsoft will win the last search battle? Hard to say, but it is probably their best move so far.
This week I turned my back to Apple and went to buy a Microsoft Zune. The all process got me thinking about the importance of brands. iPods and iTunes importance for Apple is much more than the direct revenue stream.
People that the iPod has an important role in their life got to use iTunes. If you want to really enjoy iTunes you need to run it on Mac OS. In order to run Mac OS you need to buy a Mac. If you already have a Mac, good chances you will also buy some other Apple hardware like external hard drives, Apple TV, etc…
Same was true for Microsoft for years. If you use Windows, good chances you will use MS Office. If you use MS Office, you will probably use Office Live or Share Point Server in your office, and the loop continues.
It’s not just about the fact that it is easier to use other services or hardware from the same company, it’s also that we start to trust this company to give us a full experience around our digital life. We trust them to have the best service for us.
This is exactly why we see such a big war today in the social networks battlefield. Google, Facebook and MySpace are fighting for their brand and all of us trust.
So how does this will affect the future of advertising?
Maybe the way to monetize social networks is not to try and target ads that will take the user out to the advertiser site. Maybe the answer is to incorporate the advertiser content, interactions and brand into the already trusted and familiar environment of the social network (Anyone said widgets?).
If an advertiser can extend it’s messages and even build a “mini site” or experience into a trusted environment like iTunes, Facebook or your device, it can encourage users to interact with it much more. This could also be extended to other environments. WIll you be more likely to buy things from within iTunes, using the same one click mechanism you trust? Will you be more likely to register to a coke awards program from within your MySpace home page?
And yes, I think that this is another good example why brands should look for sites that has high engagement metric from its users. The reason is that those high engaging users are more likely to also interact with his brand and services.
I guess that all of you gave a lot of attention this week to the free fall of the Google stock, after a report showed a big decline in the number of people clicking on their text ads.
There were a lot of speculation running around about if this is a sign of recession or does the cute little text ads simply lost their magic to the public.
But today, Duncan Riely from Techcrunch came with a very interesting (and quite frankly amazing) twist on the story.
Last November Google has made a small change to their text ads. Instead of counting every click on the surface of the ad, the started to count just clicks on the text itself. The idea was of course to stop counting clicks the users have done by mistake.
Duncan bring testimonies from Adsense users that say that since that change their CTR plumbed into the toilet. Markus Friend, the guy behind the successful dating site plenty of fish claims a drop of %60 in CTR rate!
All I can say is - WOW!
Don’t get me wrong, Google done just the right thing when they made this change. The digital advertising industry should be much more transparent and affective in order to continue getting the advertisers to pour their money in.
But I do think this tells a very grim story about our little industry…
Just think about it - Just last week we all saw a new report claiming that the rate of click fraud on near search results ads is %28.3. That’s almost one of every 3 clicks that the advertiser pays on for nothing.
Now add to that the number of clicks that we were counting by mistake and there is not too much left.
Does advertisers really understand the ROI they get from their digital campaigns?
I guess this is a question that we will all need to answer in the next year. If more stories like that will come out, advertisers will start to lose trust on today ways of advertising.
Maybe it is really about time to go beyond of the click model of measuring value of a customer (anyone said engagement? :)) or maybe we simply need to find a better way to make people engage with the brands campaigns.
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