International : Yahoo Still Can't Close Search Gap With Google

International : Yahoo Still Can't Close Search Gap With Google

Author | Source: Advertising Age | Monday, Jul 23,2007 9:30 AM

International : Yahoo Still Can't Close Search Gap With Google

Brands matter in search, now more than ever. Recent adjustments to both Google's and Yahoo's search algorithms were made to push rich brand-marketing sites up the page of paid search results. But unfortunately for Yahoo, the initial boost Panama provided brands appears to be fading, while Google continues to grow its share of search dollars by continually tweaking its algorithm.

The findings come via a new RBC Capital Markets and SearchIgnite report, based on a data set that included 500-plus search advertisers.

"When Yahoo launched Panama, they saw some initial positive results in ways that were good for both their pockets and those of their advertisers," said Roger Barnette, president of SearchIgnite, a search marketing technology firm. "What's surprising is they haven't continued to make strides. I don't know that they've gone downhill, but they haven't kept up the momentum in monetization."

Quality factor
To rank search advertisers and better monetize advertising, Google and Yahoo factor in not just an ad's price but also its quality -- the likelihood it will be clicked. If an advertiser is willing to pay $5 per click but is never clicked on, that advertiser makes the engine less money per search than a 50¢ cost-per-click advertiser with a high click-through rate. Yahoo only recently introduced this system, coining it Panama, while Google has offered it for years.

The news underscores two pressing issues for Yahoo: First, Panama puts it on an equal playing field with Google but doesn't guarantee it any wins. Second, Yahoo still can't shrug off comparisons with Google, something Yahoo CEO Jerry Yang lamented in his second-quarter earnings call: "Yahoo is too often defined by the competitive landscape. ... I am determined for us to find our own path."

Google's most recent algorithm tweak emphasizes the quality of an advertiser's landing page, awarding extra weight to the higher-quality pages, usually those of brand marketers, while pushing the lower quality ones farther down in the paid-search results. For example, a search for "Lancome lipstick" pulls up an ad for the Lancome corporate site as well as ads for Sephora, Macy's and Nordstrom, which have graphical landing pages rich with information on the search term. It also shows paid search ads for discount cosmetics retailers StrawberryNet and Beauty Boutique, which have relatively simple landing pages with less-relevant information. The new algorithm helps the search engine monetize searches better and also is regarded as more user-friendly.

Falling back again
Google has been tweaking these factors for years and has gotten very good at milking as many dollars as possible out of each search. Panama was meant to help close the monetization gap between Yahoo and Google, and while it appeared to stabilize Yahoo's slide, the portal hasn't kept pace.

In June 2007, Google received 76% of search spending with only a 60% share of consumer searches, according to the joint study; Yahoo, meanwhile, accounted for 34% of searches but only 18.3% of search spend.

"[Google] is just better at moving the levers, tweaking and massaging algorithms to maximize revenue," Mr. Barnette said. Yahoo now has the ability to move those levers too, he said. However, "we just didn't see them do that in last quarter." Yahoo should use Panama to tweak and improve its product, he said, but the question is: "Do they have an experimentation culture at their company as it relates to paid search?"

Overall, costs per click for brand marketers have declined since fourth quarter on all the major search engines. While affiliate, or nonbranded, advertisers saw their click-through rates on Google drop by more than half in second quarter, from 8.7% to 4.1%, brand marketers saw theirs rise to 2.9% from 2.4%, the report said.

Its bearish assessment of Panama conflicts with the bullish statements of Yahoo's management, who trumpeted Panama's success on the second-quarter earnings call last week.

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