Yahoo's Panama Pays Off, but It's No Panacea

Advertisers Applaud Rising Response Rates on the New Platform

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"I'm totally all smiles," Yahoo CEO Terry Semel told a crowd at Advertising Age's recent 360 Media Conference when asked about the new Panama search platform. He has reason to be happy: Advertisers have been pretty pleased with Panama themselves, noting lifts in response rates of 5% to 15% and, in some cases, as high as 30%.
Yahoo CEO Terry Semel
Yahoo CEO Terry Semel Credit: Yahoo

But as anyone who's followed fast-evolving digital media knows, there is no resting your laurels. Next, according to marketers and agencies doing business on the platform, Yahoo has to figure out how to get more consumers to use its search instead of, say, Google's.

"[Panama] works. It's not buggy; that's a big win," said Ellen Siminoff, CEO of search-marketing company Efficient Frontier and an early Yahoo employee herself. "Having said that, I think it got marketed as the panacea. Things are rarely a panacea." She said the best way for Yahoo to grow its numbers is to grow the funnel, the number of people in the door.

More nuanced approach
Panama was largely an advertiser-facing change. Yahoo's previous search platform was an inefficient marketplace that ranked paid-search results based only on the price per click an advertiser was willing to pay. Panama is a quality-based system that takes into account an advertiser's relevance as well as the per-click price it was willing to pay when it ranked paid search results, just as Google's does. It's an approach that greatly increases total revenue potential, and Wall Street expects to see that reflected in this week's first quarter earnings report, out April 17.

It could be argued that increasing relevance of ads does have a positive effect for searchers, but it hasn't proven to be a way to build consumer search share. In fact, the gulf between Google and Yahoo from a consumer-search standpoint is only widening if you judge by the latest Hitwise numbers, which show Google hitting its highest share of searches yet at 64.13%. Yahoo is slightly down, with 21.26%.

To understand the importance of growing both advertisers and searchers at the same time, consider the circuitous ecosystem of search advertising: Because it's auction-based, the more advertisers you have competing against each other, the more prices rise and the more money you'll make. But to get more advertisers, you must be able to offer more clicks on an ever-increasing group of ad topics that the Long Tail of marketers demands. And to get more clicks, you have to increase the inventory on which you offer Yahoo ads. Search execs also say Yahoo would be wise to focus on the areas in which it trumps Google -- display and, more recently, mobile. Panama will at some point include the ability to buy display ads as well as search terms; Yahoo said it has integrated its search- and display-sales teams.

'Not an endgame'
"Panama's not an endgame; it's a beginning game," Ms. Siminoff said.

Some marketers think Panama could be the seed that starts growing Yahoo's search audience through a search-syndication network. Search engines often strike syndication deals -- Google, for example, has a syndication deal in which it provides the search services to AOL. If a search engine has a more profitable search advertising system, as Panama is proving to be, it can afford to share more revenue with syndication affiliates, a factor that is sure to attract more partners.

The ink is barely dry on a syndication deal Yahoo already struck last week with Viacom. Joshua Stylman, managing partner at Reprise Media, a search-marketing firm recently acquired by Interpublic, said the Viacom win was "an important first step toward an inventory change" and Yahoo's ability to play the supply-and-demand game. For Yahoo, he said, "it now comes down to syndication."
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