Why the GoogleYahoo ad deal is nothing to fear CNET News

Google controls about percent of the search advertising market. Doesn t that give it a monopolist s ability to set prices as high as it wishes It does not. Google does not set the prices. Its advertisers do bidding against one another for the amount they will pay when a user clicks on one of their ads. They do the same for ads on Yahoo and Microsoft search sites too. Auction pricing is so deeply embedded in this business that you can see why Google and Yahoo innocently thought that their advertising pact which was announced in July and is to be put into effect next month would sail through a regulatory review to which they voluntarily submitted. The review continues. The deal would mean that some ads that visitors see on Yahoo s search results page would be supplied by Google. Yahoo expects it will bring in million annually in additional revenue because some search phrases get better results on Google and some search phrases draw a plentiful number of advertisers on Google b! ut none at all on Yahoo. Everyone who wants to see Yahoo the No. search engine regain some of its lost luster has abundant reason to cheer the deal on. But Google s critics led by Microsoft the major search engine rival that was left out seem to sense that this pact is a chance to depict Google as a price controlling monster. In July Brad Smith Microsoft s general counsel thundered on Capitol Hill Never before in the history of advertising has one company been in the position to control prices on up to percent of advertising in a single medium. According to Smith the million revenue gain for Yahoo is going to come out of the pockets of American businesses big and small who will pay higher prices. Others have a different take. David Kenny managing partner of VivaKi a unit of the advertising giant the Publicis Groupe says the deal offers Yahoo access to advertisers that it simply does not have. He also notes that Google has been supplying some search ads to Ask.com helping an! other rival remain viable. Google could do the same for Yahoo he said. It seems to be working splendidly for Ask. Its Google partnership began in then was renewed in and again in . Google does better supplying search ads partly because it has a larger inventory of ads. But it is also the result of the algorithms Google uses to select which ads are displayed. The auction systems at all the search engine sites incorporate some complexity. They don t simply award places to the advertisers with the highest bids. They also factor in quality scores based on the advertiser s prior history and the relevance of the advertiser s own destination page to the search term. The higher the quality score the lower the price that the advertiser must pay to be chosen to appear on a page. It s widely acknowledged in the advertising industry that Google s software comes up with matches more likely to bring customers to advertisers who will complete a purchase than do systems used by other search engines. Advertisers pay more to bring in those customers. Seeing the! opportunity to push Google toward the tar pit of antitrust litigation the World Association of Newspapers last week issued a communique that denounced the Google Yahoo deal as an agreement to fix prices. Its United States member the Newspaper Association of America said separately that it had not taken a position. The World Association which said many newspaper Web sites buy ads on search sites to bring in traffic cited a recent study saying prices on Yahoo will increase by an average of percent under the deal. Such an increase would indeed be worrisome. But the study cited which was prepared in July by SearchIgnite a search marketing firm in Atlanta was an exercise in speculation. SearchIgnite looked at differences in the cost per click bids paid by advertisers for identical ads that ran at the same time on Google and Yahoo for keywords over a six month period in . The variation in winning bids for the same ads on the two sites is striking sometimes advertisers ended up w! ith bids that gave Google a premium price. Less often it was Yahoo. Yahoo on average collected a percent premium over Google in one niche the top ad position on a page for keyword searches involving a brand name. Unless we were to assume that advertisers were dolts and overpaying at one site or the other for identical results they were willing to pay more to a particular search company for a certain category of keyword because they tended to receive higher sales for the higher spending. SearchIgnite did not address differences in the results that advertisers obtained when running identical ads at the two sites. I asked Roger Barnette SearchIgnite s president whether we should assume that all clicks are equal and that it does not matter where they originate or who does the clicking. If we are to be alarmed about Yahoo s advertisers paying more when ads are supplied by Google don t we have to assume that those ads produce results no better than those from Yahoo Barnette agreed that there were other variables important to advertisers which his st! udy did not track such as differences in demographics and in the returns on investment taking into account completed purchases linked to the ads. Even though this is a business based on auction pricing the specter of price fixing has been raised by demagogues. Shout monopoly loud enough and point to percent share of something it doesn t really matter what and federal and state regulators will decide this is a matter meriting their close attention. One company has done more than any other to publicly disparage the Yahoo Google deal Microsoft the same company that did not succeed in acquiring Yahoo earlier this year. Hell hath no fury like a suitor scorned. Randall Stross is an author based in Silicon Valley and a professor of business at San Jose State University. E mail strossnytimes.com. Entire contents Copyright c The New York Times. All rights reserved. Add a comment Comment SUBMIT Why the Google Yahoo ad deal is nothing to fear Click here to add another comment. The pos! ting of advertisements profanity or personal attacks is prohibited. Click here to review our Terms of Use . Need help Feedback Powered by Jive Software Comment reply Submit Cancel The posting of advertisements profanity or personal attacks is prohibited. 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