Yahoo recent quarterly results disappointed investors when their net income only rose 32% over a year ago. The market punished their stock, taking billions off their market cap.
Will the same thing happen to Google? I'm no Jim Cramer, but I do know a few things about the two ad platforms that generate the bulk of each company's profits. Here are a few key differences I've noticed that influence revenue. All are related to their Pay Per Click platforms (Google Adwords and Yahoo Search Marketing):
- Search Term Wildcarding: AdWords offers more - and easier to use - options for controlling when your search terms will be displayed. This allows me to easily bid on a large number of relevant search terms without displaying my ads on terms that are not relevant enough to warrant advertising. For example, if I was setting up a campaign for a golf store, I may bid on the term "golf clubs" in quotes, causing the ad to show every time a person searches for a term including those two words in that exact order. That covers a LOT of terms, but maybe too many if the shop doesn't carry used clubs, or the Nike brand. Qualifiers like this are easily excluded using negative keywords (adding [-Nike and -used to the campaign) on Google. The same process on Yahoo is more tedious and limiting, so I tend to bid more cautiously.
- Reporting: The biggest difference between Google and Yahoo's reporting is Google's actually works. The reporting is faster, easier to navigate, easier to export, and easier to save/schedule. I'll spend more money when I can spend it with confidence.
- Site Targeted Advertising: I recently ran a site targeted ad campaign on Google during the CES show advertising our HD video coverage where rather than paying by the click, we were charged by the the impression to run ads on sites of my choosing, including Digg and Technorati. This was very easy to set up, went live quickly, and provided very fast feedback on the traffic generated through each site. I was able to quickly improve the quality of the campaign by dropping underperforming sites. I'll explain why some sites underperformed in a future post. The key here is Google has found a way to get more money out of me through the same platform. And it works.
- Ad Scoring Systems: Over the past few years, if I found a search term with no ads posted I saw an opportunity for some cheap traffic. Cheap, as in 10 cents per click on Yahoo and 5 cents on Google. This changed when Google switched to a quality scoring system that changes the minimum bids based on a term's, "click through rate (CTR), relevance of your ad text, historical keyword performance, the quality of your ad's landing page, and other relevancy factors." In some cases, I've experienced minimum bids as high as $1.00/click on terms with no ads displayed. That's on heck of a jump from a nickel. A #1 position on Yahoo for the same term costs only $0.14. Traffick's Andrew Goodman knows what Google did last fall to bump up their minimums and has a theory on why they did it worth checking out.
- More advertisers = More Relevant Ads: If you're an RSS user like me, you've probably seen thousands of ads from Vonage over the past few months. The Vonage reps at the CES Show mentioned that they were making a significant investment in online advertising, and that is certainly supported by the large volume of ads I've seen. However, if Yahoo is showing Vonage ads on blog posts that have nothing to do with VoIP, Yahoo has a problem. Why? Because they're not going to receive many clicks, and they're going to train people to ignore their ads.
- Make Publishers Money: Darren Rowse of Problogger.com has been testing Google AdSense and Yahoo Publisher Network ads on his site and has found that Google receives more clicks and makes him more money. The average cost per click was actually higher on Yahoo. The higher click through rate was probably due to Google's better ad relevancy - an advantage of having a larger advertiser network. The higher cost per click on Yahoo tells me that Google is providing a better value to their advertisers. If Darren's results are consistent with other publisher's results, why would any publisher switch to YPN ads from AdSense on their sites? Where will advertisers put their money first?
That's what I'm seeing. How about you?
It appears to me that Google is growing faster than Yahoo because they have a superior platform and a larger number of advertisers and publishers. Is it enough to support the stock price? Share your thoughts in the comments below.
Disclosure: I do not have a financial interest in YHOO or GOOG.
