Yahoo announced today that they had effectively outsourced search ads to Google outside of their most highly demanded keywords, they did not sell out to Google but instead came to an arrangement which they believe will generate more revenue from these keywords than they could make themselves
Do we care?
Yes we do. This deal produces no new queries only higher prices for those queries, therefore costs to advertisers will go up for those Yahoo keywords. In addition this increases Google’s total share of search revenue among large advertisers to more than 90% of the market.. Our clients need scale, competition and innovation in every media market. This deal fails to increase competition and takes one innovator out of play.
Is this the beginning of something else?
Maybe. If one player has an effective monopoly it has, in theory at least, the opportunity to manipulate pricing. The Google auction is NOT transparent, the highest bidder does not always win. Instead the advertiser that bids a high price AND that generates most clicks i.e. most revenue to Google wins.
What do we do now?
We carry on working with all search vendors; it’s business as usual. Crucially we must put as much pressure on all parties to understand that only total query volume controls pricing and live in hope that Microsoft, Ask and others eventually build a platform that re-balances the market.
Many Yahoo shareholders will believe that management made this deal to protect their independence rather than get the best value for shareholders. There may be a shareholder revolt on or before Yahoo’s annual meeting. Also we can expect strict scrutiny of the deal by the Department of Justice in the USA and by the EU Competition Commission. This may not be over yet.