Google, Yahoo Deal Could Raise Ad Costs

    July 15, 2008

Yahoo’s search advertising deal with Google is likely to raise average keyword prices on Yahoo for most marketers according to a new study from search management firm SearchIgnite.

Keyword prices on Yahoo have the potential to increase by an average of 22 percent. The actual increase for a specific marketer depends on the amount of spending across different types of keywords and the ad ranking on the results page.

Tail terms, words that are very specific and do not have a high search frequency, are priced at premium per click on Google for all positions. Such terms do not see the search frequency of more common keywords, taken together they can account for significant amount of a marketer’s clicks and revenue driven from search.

Head terms, commonly searched keywords, are priced at a premium per click on Yahoo on average for the first three positions. After position #3, head term advertising on Google is more expensive on average. Bidding on these keywords is typically more expensive because of the large volume of searches and tight competition among advertisers.

Brand terms, keywords that include a marketer’s own brand or product name, are consistently priced higher per click on average for the first position on Yahoo and Google, with positions #2 and #3 combined priced about the same between the engines.

"The deal is clearly financially beneficial for both Yahoo! and Google; however, advertisers need to be aware of the potentially significant impact to their search marketing efforts," said Roger Barnette, President of SearchIgnite. "Most marketers will see their overall costs for search advertising across the Yahoo! network increase, and will need to adjust their search strategies accordingly."