• by Tameka Kee , June 18, 2008

A pair of industry pundits weighed in on the Yahoo-Google paid search placement deal on Tuesday during conference calls designed to give financial executives some color on how and whether the new deal will shape the future of online advertising.

Former Ask.com CEO Jim Lanzone and Didit CEO Kevin Lee chatted with JP Morgan Internet and entertainment analyst Imran Khan, offering sometimes converging perspectives on the deal from a search provider and a search agency POV.

"I think I'm one of the few people who views this as a positive for Yahoo," Lanzone said. "I don't know the exact terms, of course, but it seems like all upside." He acknowledged that his positive bias stemmed largely from having seen the benefits of a similar paid search partnership during his 7-year tenure with Ask.

"We started in the summer of '02 with a 3-year, $100-million-dollar deal--and we actually made all that in the first year," Lanzone said. IAC's Ask (which was then Ask Jeeves) renewed the deal early with Google in 2004 for another three years--although the company had begun developing its own supplementary paid search platform by then. By the time Ask renewed again in 2007, Lanzone said that the engine had been successfully selling ads directly to the "real head of advertisers and backfilling (and adding volume) with Google."

He said the newly announced Yahoo-Google search partnership stood to add significantly to Yahoo's bottom line because it increased the Web giant's overall ad volume--making the Panama platform more attractive to advertisers while still allowing Yahoo to monetize some queries on its own terms.

"They get to continue to sell ads through (Yahoo's) Panama (ad platform), and backfill with Google when it will make more or additional money," Lanzone said. "In some senses, it's a 'why not?' deal."

When asked whether finance types and Yahoo shareholders should be concerned about a mass exodus of advertisers from Yahoo to Google, Lanzone said that most of those fears likely stemmed from fear-mongering.

"I'd say that less than 40% of all advertisers drive about 70-80% of search spending," Lanzone said. "And Yahoo does well with those advertisers. For them, it's worth it to maintain campaigns on both search platforms--so they can work directly with a Yahoo rep, and see and interpret the data. Yahoo has no trouble monetizing terms for them, so there should be no fear of losing them. Ask is much smaller than Yahoo--we dealt with an even smaller part of the head, and we never saw people leaving our system."

Still, advertisers have voiced some concerns about running concurrent Yahoo and Google search campaigns--particularly when it comes to pricing, according to Lee.

"The advertisers we deal with are slightly concerned that if for whatever reason, the ad that monetizes best (for Yahoo) is more often than not the Google ad," Lee said. "In that case, they'd often see their most expensive ads shown, even in a democratic auction-based system."

He also said that statements made on the Official Google Blog regarding (a lack of) impact on pricing were premature. "There was a post on the Google blog that said advertising costs won't rise," Lee said. "It's too early to tell how the ecosystem will react, but we think that overall pricing will increase."

Lanzone and Lee did agree that the revenue-per-search (RPS) gap between Google and Yahoo wasn't as large as some in the industry thought. Khan, for example, said that JP Morgan analysis suggested that Google monetized queries at about a 79% higher rate than Yahoo--and both executives disagreed.

"We don't get to see the monetization side of things," Lee said. "But bid prices between the two are not off by 79%. They may be higher at Google, but not that much higher."

Lanzone also explained why Google and Yahoo monetized queries differently. "Google's RPS is higher than Yahoo's for two reasons," he said. "One, because of the volume of advertisers in Google's network, and two, because of the company's technology. So there are still some strides to make on relevance, for example, on Yahoo's end. But volume is the main gap driver between the two at this point--which is what Yahoo seems to be trying to address with this deal."

And as for Microsoft, the two executives also agreed that the software giant has a tough road ahead--regardless of the Yahoo-Google deal.

"Microsoft's issues all stem from query volume--not the monetization side," Lanzone said. "They don't have a lot of ammo in this fight, beyond IE (Internet Explorer) and however they can leverage that. But I don't see how this deal really changes that."

Lee said the cards are stacked against Microsoft. But he added that the software giant's current paid search challenges were not insurmountable. "They're still sufficiently large enough to belong in the mix--at least with the advertisers that were managing that spend $100,000 and up per month," Lee said. "In some cases, we even go to smaller engines than them."