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February 2, 2007

Will Panama Deliver for Yahoo?

Posted in Category: Work — amr @ 7:31 pm | link | | comments (21)
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(DISCLAIMER: I work for Yahoo!, in fact I love Yahoo!, so naturally I will be biased towards Yahoo!, however I will try to justify my statements below, furthermore, these are my personal opinions and not Yahoo!’s).

Will Panama Deliver for Yahoo!? Absofrakenlutely, there is no doubt in my mind that Panama will deliver for Yahoo!, the proof is Google, yes Google, and specifically Adwords. The question is not if Panama will deliver for Yahoo!, but rather how fast it will deliver. I will try to address that question below.

Some background, Panama brings two core changes:

  • One launched a few months ago and that is the new advertiser facing UI (user interface), it is much faster and easier to use than the original Overture UI (which was not upgraded in years) and brings many new features like ad templates, creative testing, immediate ad activation, and geo-targeting.
  • The other core change is what Yahoo! will launch late evening on Monday Feb 5th, and that is the spanken new Quality-Ordering marketplace. In a nut-shell, Yahoo!’s current marketplace orders the sponsored results by how much the advertisers are bidding regardless of how relevant the ad is to the query the user issues, the new marketplace will focus more on the relevance of the ad and how it relates to the query.

Quality-Ordering (aka Quality Reordering) is a win-win-win, i.e. it is a win for the users since they get more relevant sponsored results, it is a win for advertisers since they get leads that are more likely to convert (so higher ROI), and it is a win for Yahoo! since higher quality equals more clicks :)

Sue Decker indicated on the earnings conference call last week that the new marketplace will have a small positive revenue increase when it launches. The reason for that is even though the users are clicking much more, the quality-ordering moves the relevant advertisers higher up even though they might be paying less, i.e. the CPC (cost-per-click) drops a bit and that cancels out some of the additional clicks (Revenue = Clicks * CPC).

It is actually very hard to predict how fast Panama will start to deliver for Yahoo! revenue wise, could take a couple of weeks, but might also take months. The reason is that Panama depends on two crucial positive feedback cycles:

  • The first feedback cycle is about the Yahoo! users gaining trust back in the quality of the sponsored result ads and their relevance to the queries they issue. Yahoo! has been showing low quality (high-bid) ads for so long, that now some users just ignore the sponsored result section entirely. As we all know, losing trust is easy, but gaining trust back can take some time. However, once these users start clicking again, there is no telling how much, and how fast, the clicks will start flooding in ;). Furthermore, I hope that many of the users Yahoo! lost entirely to Google will now start coming back, many users are actually oblivious to the difference between a sponsored search result and an algorithmic search result, so they see a bad sponsored result at the top of Yahoo!’s SERP and just think Yahoo!’s search engine is crap, and go to Google instead. I hope that will now start to change, and these users will start coming back in droves :)
  • The second feedback cycle is about the Yahoo! advertisers realizing that they now are getting better qualified leads with Yahoo! generating higher conversion rates (the probability of a click leading to a transaction). Hence the advertisers should start increasing their budget allocation towards YSM (Yahoo Search Marketing) vs Adwords, either by buying additional keywords, or by increasing their bid prices on existing keywords, or hopefully both. The advertisers are actually getting a dual benefit, their ROI will improve from above (i.e. more sales) since the leads they get will convert much better, but their ROI will also improve from below (i.e. less ad spend per click) since the new marketplace will reward higher quality advertisers by giving them a higher rank even if they are bidding less (or maintain their current position while paying less).

The important fact to notice is that both of these feedback cycles are positive feedback cycles, that is they reinforce them selves, and reinforce each other as well. For example, the more the users trust Yahoo!’s ads, the more they will click on them, the better info Yahoo! will have about those ads, which will improve Yahoo!’s ability to show the users even more relevant ads. Furthermore, the more users click on Yahoo!’s ads, the more sales the advertisers see, the more they spend. Also as the advertisers get more qualified leads, they will be incentivized to make their ads of higher quality, which will allow Yahoo! to show even more higher quality ads, which will lead to the users clicking more and enjoying an even better experience. It is truly a mishmash of positive feedback cycles, and Google is the proof that this works ;)

Positive feedback cycles tend to converge very quickly, and since they feed into them selves, infinity is the limit!

In conclusion, this is only the beginning, Yahoo! is just laying the foundation to provide better user experience, more ROI for advertisers, and eventually crush you know who ;)

Cheers,

– amr

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