Will Panama Deliver for Yahoo?
(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
in your dreams. just because this worked for google does not mean it will work for yahoo. you have about 1% of the engineering talent google has, and none of the management talent.
where is the post about your predictions? you failed again, by a wide margin.
Comment by Pete Lamerre — February 2, 2007 @ 10:08 pmmy prediction - panama will play out like yahoo search vs google search…a viable competitor that keeps the leader honest, but doesn’t threaten in a meaningful way.
yahoo should be careful it doesn’t follow google too far down the garden path, sampling bids vs perceived roi and maybe we are starting to see a ponzi scheme that could crater quickly. actually the yahoo entry (as well as the msft entry) could hasten this realignment.
i guess i am just missing something, i continue to not understand wtf is the big deal with these ads, the only thing they have going for them is that they are quick and cheap. i would presume any entity with any brand or image to convey is going to see them as useless. ????? lets not even talk about clickfraud.
Comment by whoopee — February 3, 2007 @ 7:44 pmFrom things I’ve read elsewhere, leads from Yahoo already convert better than leads from Google. Perhaps this is because Yahoo sends users that are not as web savvy as Google users.
Comment by Hashim — February 3, 2007 @ 9:22 pmI have never heard or seen any e-commerce shop or content site receiving majority of their Web site traffic from Yahoo! Search. If they exist, please make them the poster boys for Yahoo’s inexplicable 20-30% market share that Comscore advertises.
I have, on the other hand, heard and seen about the spyware bots and click clubs generating Yahoo! Search clicks in exchange for commission from the site. Search for 180 Solutions, oemji, and other shady online outfits, and their name will pop up as Yahoo! partners.
I think new algorithm will increase financial benefits for Yahoo! in the short term, as the click farms and automated bots will bring in more revenues per click. I do, however, see advertisers cutting their Overture budgets, due to even poorer conversions from search.yahoo.com and due to the links and clicks originating from Indonesian/Philippino IPs in large quantities, when the campaign is explicitly targeted towards the US.
Comment by Craig — February 4, 2007 @ 12:36 pmI agree Panama is awesome, but we should have launched “quality ordering” separately from the UI changes. There was no need for the new advertiser UI to act as a bottleneck for launching quality ordering.
Comment by gerster — February 4, 2007 @ 4:04 pmTrue for the existing marketplace (pageviews) where Yahoo! is present. In Europe Google has 80-90% marketshare in some countries. It is just so much easier for a client to work with just one player (different APIs, different reports etc). It is not enough for Panama to level the field, it needs to exceed for clients to switch. Sadly Panama doesn’t help with Yahoo!’s marketshare in Europe. That’s all down to product innovation, not advertising platforms.
It’s nice to see that Panama finally comes into full swing! Every cent will add up and Yahoo! can make billions with those cents.
marc tobias
Comment by mtm — February 4, 2007 @ 4:08 pmP.S. our company uses all (G/Y/MSN) systems, maybe even Miva in the future
Yahoo! was growing faster in December then Google
“I have already wrote about Slowing Growth, MC/FCF=95 against Yahoo!’s 28.9, falling Operational cash flow by 9% in Q4 over Q3, saturation point in traffic with Down Trend, Technical Damage, trimming of CAPEX to save Free Cash Flow which is barely flat, but everybody was exited about Earnings and how they “beat” the street. Another surprise here: 13% “Efficient Tax rate” was very handy this Q they have reported EPS 3.29. If we will read ER we will find out that Income before income tax was 1184733, we will apply stated by Google 26% Tax (which is also rather interesting rate) and so normalise tax rate within the year without One Time Benefit due to deal with IRS (they call it “APA” :”Our effective tax rate will be greater in 2007 under the APA than it would have been without it.” Surprise, Never Sacrify Party for Tomorrow’s Morning.) In plane English if this One Time benefit would not happen now Earnings will be ONLY 1184733*(1-0.26)=876.702 mln USD against 313459 mln shares with Q4 EPS=2.80! way below Street expectations. And the price for it - higher Tax rate in the future. If this deal was not striken in December 2006 (!) stock will be already below 400 today. Very good timing and clever game as usual.”
http://sufiy.blogspot.com/2007/02/google-another-blow-from-yahoo.html
Comment by sufiy — February 4, 2007 @ 4:43 pmIs MIVA Inline within MIVA MC’s Sept 06 launch for content ads and PPC worth using?
Comment by David — February 5, 2007 @ 6:02 amHaving worked with Overture as well as spending money with Yahoo on advertising, I have a different take on Panama. I think it will be much better for Yahoo. However the real key is the quality of the sponsors that advertise on Panama. I pulled all of my Yahoo ads simply because there were so many spammers it create more problems than it was worth. Google has the high quality sponsors and for me, that says it all. I need well known named sponsors with sweepstakes that pay very well. Yahoo could not deliver. So if Yahoo wants back on www.sweepstakestoday.com again, they will have to pay better, deliver a higher quality sponsor and ad.
So the real question, can Yahoo really deliver in terms of quality?
Comment by Craig McDaniel — February 5, 2007 @ 9:12 amFirst of all, good luck with Panama. I have some comments on your following wishful statement.
> and eventually crush you know who
You people never get it, do you? You will _never_ be able to crush Google by (desperately) playing catch-up. In this case, I doubt if Yahoo can even catch up with Google. Yahoo is no match to Google in terms of engineering talent. Not only that, Google has spent initial years standardizing their engineering infrastructure (GFS/Map-Reduce/BigTable). This translates to them being “extremely productive.” Their engineers, for the most part, don’t have to deal with a multitude of database technologies. Everyone writes programs on a unified platform no matter what the product is. They can probably implement and launch a product that comfortably deals with hundreds of millions of users before Yahoo engineers can come to an agreement on which DBMS to use for their new product.
Besides, let’s not even talk about Google’s massive data-centers that are efficiently managed to the last drop. People don’t even realize that this is a big deal. Google probably spends a tiny fraction of money on computing clusters than their competitors do. I know, people would say, “we don’t have to care about it given processors are becoming cheaper by day”, but mark my words, there will come a time, when Yahoo and Microsoft realize the importance of “the art of building and managing mega distributed systems.” Well, the perennial catch-up game continues..
Comment by Sheela Kapre — February 5, 2007 @ 9:54 amIt is kinda strange that you, obviously a passionate Yahoo! employee and user, are running AdSense on the left side of the page. As much as you are positive on YSM, the power of the economics would suggest to go with the competition. fwiw.
Comment by Joe B. Ruin — February 5, 2007 @ 10:59 amAmr I’m putting my money where *your* mouth is! Good luck Yahoo.
http://joeduck.wordpress.com/2007/02/05/putting-my-money-where-my-yahoo-is/
Comment by Joe Duck — February 5, 2007 @ 11:36 amSheela, please look up sarcasm in the dictionary, or at least learn what
means in a web post.
Comment by SJGMoney — February 5, 2007 @ 12:19 pmAmr keep up the good work over there!
Comment by Joe Duck — February 7, 2007 @ 10:22 amI’m up 110% in 2 days on my Yahoo 30 calls.
Google TV chief revealed: YouTube NO Good and Pipes are Clogged:
http://sufiy.blogspot.com/2007/02/google-youtube-new-revelations-of.html
Comment by sufiy — February 7, 2007 @ 2:40 pmI will reply to a bunch of the comments in one entry.
First to Joe Duck, good for you
, but I have to disclaim that my comments here are not a solicitation to invest in yahoo in anyway, you do that at your own risk. However, thanks for the vote of confidence, and yes, I will keep up the good work.
To Pete Lamerre and Sheela Kapre, that is exactly what we would like Google to think, “yahoo is slow with no talent and can never catch up”, you guys are so funny …
To Marc Tobias, nice to hear from you dude, we miss you.
To Joe B. Ruin, the YPN product (equivalent of adsense) is still in beta, once it fully launches I will switch to it. Furthermore, don’t you think I want to “test” how adsense performs, and hence why I have it here?
Comment by amr — February 8, 2007 @ 10:12 pmyou know what i’m not too fond of and think needs to be changed is the entire “editorial” process….those editors are humans and are very subjective in what they do and don’t allow. It’s ridiculous to say that one person’s opinion can decide whether your ads are relevant or not.
just my 2 cents.
Comment by johnny — February 9, 2007 @ 7:14 amAmr,
Comment by JB — February 9, 2007 @ 5:52 pmI understand why Panama should lead to an increase in click through rate. But you also assert that it should drive an increase in conversion rate as well - why is this the case? It is not obvious that a paid click obtained under Panama should necessarily be more likely to convert than one obtained under the old Overture system.
What am i missing here?
Justin
JB - I was thinking the same thing before I got to your post. I’d love to hear AMR’s thoughts on that as well. I thought his explanation on why avg CPC might decline in the short run very informative, and I like the concept of the two feedback loops. I also, though, would like a bit more on the feedback loop that leads to an increase in conversion rate. Andy
Comment by Andy — May 20, 2007 @ 5:06 amI think it will work much better in US but I’m not so sure in other countries where Yahoo is not that important, e.g. in UK. I can’t spend much time with Yahoo since the volume is quite small, therefore if panama means that I have to spend more time with my yahoo accounts, I prefer not to use it.
Comment by Andy — September 4, 2007 @ 7:16 amthanks for the GREAT post! Very useful…
Comment by Whatever-ishere — November 21, 2007 @ 7:54 am