It's been a tough couple of years for Yahoo!. The meteoric rise of Google has hit it where it hurts - in search advertising. Yahoo! pioneered search marketing back in 1998 with the creation of the pay-per-click model, but it was Google that took this model and made its phenomenally successful search platform Google AdWords.
Since then, Yahoo! has felt the brunt of Google's dominance in the search market, and last year had to face a new rival as Microsoft launched adCenter.
Yahoo!'s stocks struggled through 2006, and its first quarter results this year revealed an 11 per cent drop in profits to $142 million (£71 million) with revenues of $1.67 million, a 7 per cent increase on the $1.57 million for the same quarter in 2006. These results fell below analyst expectations, and impacted on Yahoo!'s share price, which dropped to ten cents per share.
Meanwhile, Google saw record results and profits in 2006, its results for the first quarter of 2007 showed revenues of $3.66 billion - a 63 per cent increase on the first quarter of 2006 and a 69 per cent increase in profits.
It's no surprise, then, that Yahoo! is banking a lot on the roll-out of its new search platform, Panama, which launched last week in the UK. After two years of development, involving 400 full-time engineers and consultations with 1,000 advertisers worldwide, Panama is being viewed as Yahoo!'s last great hope for securing a share of ad revenues from Google.
1. Search marketing continues to amass the lion's share of spend in digital. It accounted for £1.2 billion of total UK online adspend, or a 57.8 per cent share, in 2006. These figures represented a rapidly growing market, which remained strong with 52 per cent growth year on year. The growth is being driven by Google, which has a 78 per cent share of the market. Yahoo!'s share is 20 per cent while MSN has around 2 per cent.
2. Panama is "the single biggest project in Yahoo!'s 12-year history", according to Richard Firminger, the regional sales director of Northern Europe for Yahoo! Search Marketing. It updates Yahoo!'s search platform by upgrading from a pure auction bidding system to a combination of price and quality index. The quality index brings Yahoo! in line with Google and MSN, which use similar bidding systems, and scores ads based on quality, bid and other variables. The new system means that the top-ranked ad in Panama is not necessarily the one with the highest keyword bid by the advertiser, but the ad with the highest quality index.
3. The new features on Panama include forecasting data tools, enhanced geographical targeting, new keyword groupings and instant ad approvals - the previous approval process could take a few days. The industry agrees that the upgrades are a huge improvement on the previous platform. Paul Mead, the managing director at VCCP Search: "It's a quality search engine." Martin Kelly, the media director at Agency Republic, adds: "Panama will definitely increase the quality of Yahoo! traffic and make it more competitive with Google in terms of the quality of the product."
4. Yahoo! believes Panama is taking the search market into the future. The platform has been "future built" with the potential to introduce additional distribution options, targeting capabilities, pricing models and graphic and rich-media ad formats. Firminger says: "We believe that we are taking the market another step forward with the launch of Panama and in doing so have created a Search 3.0 platform."
However, the industry has been quick to draw comparisons between Panama and Google's AdWords, which operates "a pretty similar" interface and system. Mead says: "Right now, I can't see that much difference to Google." The similarities have raised questions over why it took Yahoo! so long to create the platform, which lacks a USP or any new search marketing innovations, unlike MSN's adCenter, which launched with new demographic profiling.
5. Overall, the platform has been well received by the industry and will play a huge role in closing the monetisation gap between Yahoo! and Google. However, the challenge for Yahoo! is to grow its share of the market's search traffic. "It's quite a smart piece of kit, but the biggest challenge for Yahoo! is getting the traffic. It simply doesn't have as much traffic as Google," Kelly says.
WHAT IT MEANS FOR ...
- The similarities between Panama and AdWords are a bonus for advertisers who are already familiar with creating search campaigns for Google's interface. Panama's resemblance to AdWords will make it easier and faster for advertisers to migrate and learn to use Yahoo!'s new robust interface and will also help advertisers manage campaigns across the two search platforms.
- The quality index system will allow advertisers to achieve lower cost per click and a higher ranking for their ads.
- The new system will benefit larger, well-known advertisers, as the more click-throughs an ad receives, the less the advertiser will pay, giving brands more money to invest in larger search campaigns.
- Yet the model can also benefit smaller companies, who can use the improved search marketing tools to ensure they create effective ad copy and closely align the copy with corresponding key words.
- The digital industry has welcomed Panama as a genuine challenger to Google. Media agencies and advertisers are keen for Yahoo! to create greater competition in the search market, which has been dominated by Google and reinvigorate the Yahoo! search brand.
- Greater competition will lead to increased spend in the search market. Yahoo! is cautious about when it expects a return on Panama; many predict it will be early 2008 before the company feels the benefits. However, the quality of the Panama product and the standardisation it brings to the search market is expected to help boost the search market's revenues and growth in 2007.