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What Yahoos Problems Mean for Search Marketing

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Last week, Yahoo’s announcement that online ad sales growth was slowing sent Wall Street, and the wider business world, into quite a tizzy.

The news sent Yahoo’s stock price down by 11 percent, and also hurt Google, which saw a 2.6 percent share price drop. A lot of ink was spilled speculating on whether Yahoo’s ad revenue growth slowdown was unique to Yahoo, or indicative of a larger slowdown in online ad spending that might impact more major players. So far, most analysts seem to be lining up on the “it’s Yahoo’s problem” side of the ledger, which prompts the question: what exactly is Yahoo’s problem?

Well, obviously, Yahoo has more inventory than it can sell right now. You can see this yourself if you spend a few minutes surfing through Yahoo’s sprawling portal, which consists of hundreds of thousands of pages. Many banner placements have been sold, but plenty of spots haven’t been booked, and you’ll see your fair share of “house ads” for Yahoo’s other properties occupying the unsold space. However the real problem is expectation management. Wall Street has high expectations of all the search portals and any slowdown in growth (not even a true slowdown but simply a slowdown in growth) is seen as a failure.

The fact that Yahoo CEO Terry Semel singled out ad spending reductions by the automotive and financial sectors as the primary cause of Yahoo’s ad revenue woes does indicate that Yahoo is more exposed to such slowdowns than search engines with more diversified clientele. Blog commentator Robert Scoble has pointed out that such slowdowns take a much heavier toll on budgets for branded banner campaigns than they do on Paid Search, which Scoble deems a “non-discretionary” form of marketing.

If Scoble’s analysis is correct, what we’re seeing now with Yahoo has definite implications for the future of search marketing, because it suggests that Paid Search is beginning to be perceived as a required, non-discretionary line item. While not every marketer will like this idea, we may well be approaching the day when Paid Search becomes as indispensable a budget item as paying the electric bill. Of course, we still have a long way to go before Paid Search is viewed as a mandatory business expense by the business community at large. Every few months or so, we go through the drama of a major business entity throwing up its hands and withdrawing from the market. Last year, FTD and Blue Nile did this, and Travelocity is making noises that it too has had it with PPC, and intends to focus its marketing spending on traditional media. Unfortunately, this stance has major risks, as FTD discovered when it added up its sales tally at the end of Q4 2005, and fired its CMO for his decision to retreat from the marketplace.

These instances illustrate widely-felt sentiments among many businesses that the ascendancy of search marketing as a primary business driver is something being foisted upon them: a burden, not an opportunity. There is certainly a grain of truth in this conclusion, given how difficult it is to run ROI-positive and market share-building search campaigns today. But it is important to counter the mood of frustration and despair, and the best way to combat this is with a hype-free, realistic appraisal of the PPC marketplace. By this I mean an acknowledgement that search is difficult, more difficult than it has ever been, and likely to grow more difficult as the engines add more sophisticated targeting tools which make search campaigns more potentially rewarding, but more difficult to program, monitor, and reconfigure.

Search spending will likely continue to rise but there is a fixed cap on the pure search inventory available. People either search for something or they don’t. Contextual and behavioral inventory will increasingly be a staple of Yahoo’s revenues, as it will be for Google and MSN. One can’t continue to grow spending indefinitely when the number of searches every day is fairly stable.

Marketers need to be aware of the risks of this marketplace along with its rewards, and avail themselves of the most powerful resources to win at search. In practice, this means having access to the best technology, the wiliest tacticians, and the most strategic analysts, and this holds true whether you manage your search campaigns in-house, or through a SEM agency.

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Mr. Frog is a leading Search industry visionary. Mr. Frog is a member of the Did-it Search Marketing team which accompanies him to most major
marketing conferences.

What Yahoos Problems Mean for Search Marketing
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