• by Laurie Sullivan  @lauriesullivan, April 20, 2011

Yahoo will halt the rollout of the paid-search alliance with Bing into international markets until Microsoft can improve on the results per share in the U.S. That's the message hidden in Yahoo's first-quarter earnings call. Although unconfirmed, it appears the international rollout scheduled for 2011 is likely to occur in 2012.

It turns out that Microsoft adCenter, which supports paid search across Yahoo's network of sites, is not producing the revenue per search (RPS) the company hoped to achieve by mid-year, Yahoo CEO Carol Bartz said on the earnings call.

Estimates put the timing for better results toward the end of the year. Advertisers, however, see strong ROI, but technical limitations that continue to cause low click volumes, she said. Yahoo plans to transition the remaining paid-search markets once changes are in place to yield the correct results for advertisers.

Frank Lee, senior vice president of client services at The Search Agents, points to a poor advertising pricing model or adCenter's inability to serve the correct ad to the correct query to improve click-through rates. RPS will improve in time, he said, adding that the algorithm must learn by actions.

As for Microsoft, David Pann, general manager for the search network at Microsoft, remains confident that the alliance with Yahoo can produce positive benefits for advertisers. The two companies continue to work closely on an aggressive road map to improve RPS through better monetization, relevance and tools for advertisers, according to Pann. "We continue to see progress and are encouraged by the positive results we've seen in advertiser ROI, query share and click-through metrics," he said.

Recent reports by third parties point to this positive momentum.

Matt Lawson, vice president of marketing at Marin Software, does not see the delay in rolling out to international markets as an issue, as Microsoft and Yahoo work to correct RPS for paid-search ads. In fact, the delay gives advertisers more time to prepare for the transition.

Compared with Google, the revenue and click share for combined Bing and Yahoo paid-search revenue fell in the first quarter, compared with the year-ago quarter, but it made market conditions more favorable for advertisers, with click-through rates higher and cost-per-click lower compared to the previous year. "Advertisers are getting a fairly good deal right now with the search alliance," Lawson said. "As more advertisers shift the amount they spend to take advantage of this opportunity, we expect cost-per-click and ultimately, the revenue for the search alliance to rise."

David Szetela, Clix Marketing founder, doesn't believe Microsoft's technical issues led to Yahoo's low RPSs. He believes Yahoo based its RPS projections on pre-alliance Yahoo algorithms, and mistakenly estimated too-high RPS. "It's very unlikely that RPS will increase to the levels Yahoo projected," he said.

Szetela confirms that Yahoo's search algorithms still control paid-search advertising outside the United States. While Yahoo has committed to rolling out the alliance worldwide, Szetela believes the company knows that doing so will erode revenue even more.

It was not a particularly good quarter for Yahoo when it comes to revenue from paid-search ads. Revenue trends point to a 10% uptick -- 17% adjusted -- for display advertising, but search remains challenged, declining 8% sequentially and 19% year-on-year, according to Macquarie Securities Analyst Ben Schachter.