While most of the eyeballs in the Web world these days are being diverted to the video chats, hangouts and huddles created by Google Plus and Facebook, or the portable pixels of mobile advertising via smartphone and tablet, the traditional delivery of display advertising in graphical form, a staple of the Yahoo! ad system, appears to be playing second fiddle.
The “Searchonomics” question: Is Microsoft fiddling with relevancy while Yahoo! advertising revenue is burning to the ground? Or is fuzzy logic clouding up the picture?
According to Matt Rossoff, the author of a decade’s worth of very sober analysis about Microsoft as a Senior Microsoft Analyst for Directions on Microsoft, the numbers are nothing to say Yahoo! about.
Yahoo’s search revenue has been declining at an alarming rate, down 15% from the previous year in the second quarter. Microsoft’s Online division (which is mostly Bing) is also burning through billions, and its search revenue isn’t rising as fast as expected. For the twelve month period ending in June 30, 2011, Microsoft’s online division has lost $2.6 billion!
There are two symptoms of the Yahoo-Microsoft malaise: (1.) fewer people are clicking on the search ads provided by Microsoft’s adCenter platform than were clicking on the ads provided by Yahoo’s Panama platform or (2.) advertisers aren’t paying as much for each ad.
Fellow analyst Mark Ballard, an analyst at online marketing firm Rimm-Kaufman Group (RKG), feels the problem may be algorithmic. Could Microsoft’s technology be less efficient at matching “broad match” search queries with the inventory of search ads?
“A lot of searches that should produce ads are coming up with no ads. That’s an inventory problem,” says Ballard.
While Microsoft’s adCenter is highly sophisticated in mining user demographics from Hotmail and Passport and offering premium audience segmentation choices, the fuzzy logic of “broad match” search is another question altogether. Microsoft and Google got into rounds of finger-pointing and name-calling some months ago when accusations were hurled that Redmond may have been copying result from the Google index.
When Yahoo was running its Panama technology, 60% of the clicks that RKG measured on Yahoo were for broad matches. Now, only 40% are.
One obvious solution for Microsoft and Yahoo would be to tweak the algorithms so that adCenter displays more ads for searches that aren’t exact matches. That could reduce the effectiveness of some ads, but increase the overall number of ads displayed — and hopefully drive up revenue per search. Yet, the relevancy of search ads is central to the user experience, and perhaps more to the point, allows for ads to be sold on the basis of CPM (impressions-per-thousand to a qualified audience) compared to a performance-based ad model.
Microsoft’s David Pann, general manager of its search network, points out that the improvements the Bing engine has made in its click prediction models have translated into stronger ad relevance affording greater ROI for advertisers and stronger clickthrough rates, even if it comes at the expense of lower inventory. How long the Microhoo alliance can subsidize that kind of quality remains to be seen. [24×7]