Well, I promised I wouldn’t tell Yahoo what to do when I posted several weeks ago, but as Panama moves closer to becoming a reality, I felt it would be an appropriate time to revisit some thoughts I previously shared about Yahoo’s minimum cost-per-click.
I, like many others, believe that the release of Panama (specifically the pending algorithm change) will help Yahoo more effectively monetize its searches. Though Panama’s impact may not overwhelmingly improve Yahoo’s market status relative to Google, there is one immediate change that Yahoo can make if it wants to capture some of Google’s ad dollars – one that requires no technology enhancements or new syndication partners.
Yahoo should simply drop its minimum bid to $.05/click. Here’s why:
When looking at the different ways a search engine can make money, the following variables need to be considered:
- Average cost-per-click
- Average click-through rate
- Percentage of queries monetized
Panama will help Yahoo address the first two factors, but the last one is being completely overlooked. In November, SEO Roundtable reported that Panama would not honor “grandfathered” bids (less than $0.10) left over from Overture. The elimination of those “grandfathered” bids means that Yahoo will ultimately monetize a lower percentage of its overall searches, which in my opinion, is a huge mistake.
When most people talk about search marketing, they’re referring to its use by direct marketers or e-tailers. A growing percentage of website publishers, however, use search to drive traffic to pages that feature ad units sold on a CPM basis. They’d like to spend ‘X’ and make ‘Y’ from the advertising displayed every time a user clicks through to their site. By sticking with a minimum bid of $.10/click under Panama, many of them will be priced out of the market.
Let’s say, for example, that a popular online news publisher is selling ads at an average CPM of $40 (which is aggressive) and that users visit an average of one page per session. That publisher could afford to pay only $.04/click to breakeven on each user ($40/1000 x 1). I don’t think there are many marketers that would be willing to run a search campaign that would effectively guarantee a loss of $.06/click ($.10 minus $.04), so they would give no consideration to Yahoo.
But what if that same publisher found a way to increase the average number of PV’s it generated to two. All of a sudden, it would be in a position to spend up to $.08/click for search traffic ($40/1000 x 2). A minimum CPC of $.10/click would still guarantee a loss of $.02 on each visit, so as it stands, Yahoo still wouldn’t get any consideration from this publisher.
If Yahoo dropped its minimum CPC to $.05, however, the publisher could potentially make a profit of $.03/click ($.08 minus $.05). Given that scenario, I think the publisher would find a way to increase its search budget and spend as much money it possibly could knowing that it was making a profit with every click. Furthermore, because Google’s Quality Score forces advertisers to pay substantially more than the alleged $.01 minimum CPC when an ad initially launches (while it tries to establish its quality), a publisher trying to minimize the X/Y (CPC/CPM) ratio will be hard pressed to find a way to make this profitable. How many marketers want to pay up to $5/click while they establish the quality score necessary to reach that figure? And even if/when they do get there, how many clicks will they need to generate at $.01 to get back to breakeven?
As it stands, there are a number of publishers – with significant marketing budgets – sitting on the sidelines because they can’t find a way to make search profitable. If Yahoo continues to alienate publishers that depend on CPM ad revenue, Yahoo (like Google) will fail to fully take advantage of a growing opportunity.
One final point on this topic. I’ve made my case on Yahoo’s minimum bid to a bunch of people in recent weeks. Many of them have suggested that it would be a terrible idea because publishers bidding at low cost CPCs to meet high-cost CPMs are essentially “arbitraging” traffic. I agree that sending users to a site that simply provides another set of ads, like a page littered with AdSense, should not be allowed – but that is a completely different scenario than the one I’m describing. There are numerous instances where paid ads are actually more relevant than organic search results – Online news publishers, for instance, have a hard time getting their stories in the general search index while they’re still relevant. Given that paid search ads can be launched in less time than it takes a search engine to organically index pages, news publishers may rely on paid search to send traffic to their CPM-supported sites.
The ability to directly monetize queries aside, Yahoo could probably benefit from a little more relevance too.
Why a min of 5 cents if you want to increase coverage (i.e. % of queries monetized)?
I agree that a 10cent minimum is death in a system that sells by impression cost (i.e. like AdWords effectively does : cpc * ctr = cpm)
Free Float It! Eliminate the minimum.
That would:
- Attract the people that want to try for 1cent clicks.
- Increase query coverage
- Minimize click fraud issues since there are no min bids, you just bid lower.
- Be a differentiator for Yahoo. Even though Google says they have no min bid, they won’t show ads too cheaply.
- Make it worthwhile to futz with Panama while it goes through a year+ of slow, painful growing.
However, Yahoo’s got bigger problems, I think. People are thinking Panama will increase monetization, and it will some, but if query traffic doesn’t grow, it won’t help much.
Yahoo needs to dominate the display business, and innovate over there. Search is lost for them.
Disguised as a method to monitor and reward relevancy, Quality Score is really an ingenious advertiser retention tactic that has serious monetary rewards. At first, a campaign’s under-performance on Google can partially be attributed to cost-prohibitive CPCs that are often times dictated by Quality Score. But as the campaign progresses and better QS is established, advertisers will experience lower keyword CPCs which results in improved CPA/ROI. Based on this trend as well as the expectation of continued success, advertisers are likely to continue with their paid search campaigns even if they are not hitting their goals/metrics. Now, if you take this same scenario and remove QS from the equation, an advertiser will be less likely to see a dramatic trending week over week and might inactivate keywords and pause campaigns sooner.
Google Quality Score is a love hate relationship among advertisers since it’s a serious obstacle during the initial phases of a new campaign but ultimately rewards long-term advertiser with lower CPCs once the campaign “settles” and QS has been established. The savvy online advertiser should recognize this competitive advantage and be able to capitalize on these lower CPCs. So, what does this mean? It means that it takes longer than usual (that is before QS was introduced) to establish a campaign in any given marketplace within Google, but those that stick around year after year are those that are rewarded most; thus persuading advertisers to run lengthier campaigns. Google Quality Score has many objectives but not necessarily in the order of relevancy, profits, and retention. In my opinion, QS’s true objective is to improve retention and lengthen campaign flight dates, to increase overall profits and then to monitor relevancy in that order.