Yahoo Innovation May Start With Shaking Up CPC

Yahoo may have signed a deal to have Microsoft power its back-end search infrastructure, but the company refuses to stop innovating. In the works are a variety of tools for advertisers aimed at lowering costs for paid search campaigns, expanding across the BOSS search program network, and porting Google search campaigns into Yahoo. Some of the features are being made available this week, while others will roll out during the next six months.

David Pann, Yahoo vice president and general manager of search marketing, believes the innovation begins with shaking up its pricing structure to lower costs for clicks. Advertisers don't want to pay the same price today for search campaigns that they did last year, he says. Consumer behavior has changed, too.

So, Yahoo analyzed the metrics it relies on to measure clicks to determine how it could lower costs through market reserve prices. "We looked across our network of traffic to get to the proper cost-per-acquisition equivalents for all sources of traffic across all advertisers," Pann says. "For certain sources of traffic that might be valuable, but not priced correctly, we made changes to our marketplace -- so we now price them accordingly with the value they deliver to advertisers."

It turns out the team could look at conversion data for all advertising classes, pair them up with traffic sources, and using algorithms, adjust the prices automatically. Some sources of traffic may be more valuable than others, so the new metrics helps to free up funds from one campaign and places them in another. "The dollars don't walk out of the marketplace," he says. "They are reinvested elsewhere."

During the last six months, Yahoo has seen the cost per acquisitions (CPA) in aggregate decline between 20% and 22%, he says. PPC clicks have been discounted between 10% and 15%, depending on the category, he explains. Individual advertisers have different experiences -- both declines and gains in efficiencies.

Shar VanBoskirk, principal analyst at Forrester Research, points to the pricing changes as an innovation that might increase competition or liquidity for keyword bids. Another, she says, is the ability to segment the messages and bids per campaign. "The ability to change prices plays a bit on free market forces and suggests Yahoo can direct advertisers to more profitable traffic through regulations," she says. "The move beyond the basic bid for a keyword, to bid for a keyword with controls, allows advertisers to gain the most profit. The advertiser decides where to spend the smartest."

Yahoo on Friday expects to announce that it will allow advertisers to participate in its BOSS (Build your Own Search Engine) search program through a deal with Domain Development Corp., a third-party ad syndication partner. The deal is intended to widen the ad network and solve the problem to reach more sites.

Advertisers will bid within the same search marketplace -- Panama -- but the ads will appear on third-party Web sites participating in BOSS. Domain Development Corp. will work with the advertisers to serve up the ads on the sites and earn a share of the revenue from it.

Getting the ads on a wide network of sites helps to expand the reach, but advertisers also need a way to track performance. So, Yahoo will make available the Ad Delivery Report to allow advertisers to learn how ads perform across the network.

Based on the delivery report, they can block specific ads from appearing on certain sites. Advertisers will gain a feature called Network Distribution that allows them to create an individual campaign with a separate bid for different sources of traffic across the Yahoo network. Advertisers will also have an option to create a campaign that only runs on the Yahoo network, the Partner network, or both. This will also allow advertisers to adjust bids and customize campaigns.

While Network Distribution launched two weeks ago in Australia, it will not roll out in the U.S. until the first quarter of 2010. Testing will begin will begin in mid-October for API partners, so when it launches next year it will be made available to all advertisers -- whether they use Yahoo's front end or third-party bidding tool from companies like Marin Software, Efficient Frontier and DoubleClick, or others such as eBay and Amazon.

Yahoo is also working on a tool to let advertisers take a campaign started in Google and port it into Yahoo through a desktop application. The first set of features for the tool will enable advertisers to restructure campaigns, but eventually the tool will reformat the data and move it into and through the Yahoo Panama platform. Pann says to expect the feature between April and June of 2010.

VanBoskirk says that has been the promise of Panama since its inception. Yahoo developed Panama as an ad management platform that would integrate data from any campaign. "You see that in financial markets where you have a trusted relationship with one advisor," she says. "They may work for Charles Schwab, but if they provide you with advice about places beyond Schwab where your money can make more return, you end up having a longer, trusted relationship."

Yahoo also has stepped up advancements in SearchMonkey, as well as search retargeting and Rich Ads in Search. The enhanced search ads in Rich Ads in Search can improve the click-through rate by as much as 25%.

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