The near-universal prediction from search-engine marketers is the largest player in search, both by audience and ad spending, is set to get bigger, thanks to a 10-year deal that will have it serving search ads on the No. 2 player's queries.
Already Google's numbers are impressive: eMarketer pegs its 2008 share of net search-ad dollars at 76.4% to Yahoo's 7.3%. And the research firm said Google's gross search-ad revenue -- the total Google brings in before it pays out revenue to its affiliate partners, such as Ask and AOL -- is 90%. From a search traffic-share standpoint, ComScore reports Google hit 61.6% in April while Yahoo and Microsoft nabbed 20.4% and 9.1%, respectively.
The theory behind suggested share gains goes something like this: If Google ads consistently show up on Yahoo search queries, marketers -- especially smaller ones that don't use a system to manage campaigns across multiple search engines -- may be less inclined to bother using the Yahoo system, instead choosing to put their optimization efforts toward a single system. In other words: less to learn, less to manage. And there's also the possibility Google's added volume of search-ad inventory will entice larger search-marketers to spend more money with it.
A more concentrated search-advertising market will turn what is essentially an oligopoly into a monopoly. That's worrisome because Google's system is an "effective but not transparent auction," said Bryan Wiener, CEO of 360i. "If there's a single provider of search, then if it becomes less effective for you as an advertising solution, you don't have the option of moving to another search provider."
While Google asserts the deal wouldn't raise prices for advertisers because search pricing is sold through an auction-based system in which the market sets the price, advertisers aren't buying that.
Generally bid prices are lower on Yahoo than on Google; once this program is implemented, ads on certain Yahoo queries will be affixed with Google-like prices. Yahoo and Google were careful to explain the search deal isn't exclusive, but most search marketing experts say it might as well be for the Yahoo search queries pages on which Google ads could appear, since Google makes more money per query than Yahoo.
"We'd have to take a look at money that was allocated for Yahoo and factor in higher [cost per click] under this," said Scott Linzer, director-search marketing for AKQA, adding that marketers will have to get creative and work harder to maintain efficiency. For Yahoo, the deal should translate into an extra $800 million in revenue in the first year, Yahoo predicts, and $250 million to $450 million in additional free cash flow.
Oliver Bishop, CEO of Steak Media, a U.K.-based search-engine marketing firm that recently emigrated to the U.S., worries it will be easy for Yahoo -- or its shareholders -- to become addicted to the incremental cash. "Then I can see Google ads taking over more Yahoo real estate and Yahoo becoming more reliant on Google," he said.
Yahoo President Sue Decker suggested Yahoo wouldn't allow Google to monetize the most common commercial search terms but rather use Google, with its greater advertiser backfill, to help monetize the less popular search terms for which Yahoo has less advertiser demand.
Focus on display
"They won't know which inventory they'll get in advance, which we think will keep the marketplace alive and vibrant," she said.
Despite marketer worries, a few see a silver lining because the deal allows Yahoo to focus on its strength: display advertising, a smaller but faster growing part of the online advertising business.
"It still allows for three competitors in the greater [online advertising] marketplace," said Jeff Pruitt, exec VP-corporate partnership at iCrossing and president of search-industry association Sempo. Ms. Decker suggested that it is an continuing relationship and Yahoo could be looking to help Google monetize display ads, a market into which the search giant is trying to break now that its acquisition of DoubleClick is completed.
The two companies said the deal isn't required to pass regulatory muster and have agreed to delay implementation for three months while the Justice Department takes a look at it. (Said a Justice spokeswoman: "The department is aware of the collaboration.")
In Washington, it's likely to step up interest in looking at web advertising, adding some antitrust questions about Google's power in delivering search-term ads to doubts about several companies' tracking of consumer behavior to deliver ads. "We will closely examine the joint venture between Google and Yahoo," said Sen. Herb Kohl, D-Wis., chairman of the Senate Judiciary Committee's antitrust panel. The Senate Commerce Committee was already slated to hold an online hearing June 18.