• by Jonathan Aspell , June 1, 2007

There is change in the air in the SEM industry. The search engines continue to expand into new markets and services and roll out new tools and even platforms. Wall Street analysts and SEM insiders alike are abuzz with talk of the latest acquisitions and mergers. Given this atmosphere of growth and activity, it is important to remember that there are potential downsides to all this action. Could the continued pace of change within the industry negatively impact one of the search engines and, by extension, its SEM partners?

Yahoo is perhaps the best example of a company that is struggling to find its way among all this activity. It's under pressure from its stakeholders as rival Google continues to expand into new businesses and markets - and Yahoo is suffering customer service and morale challenges as it attempts to respond to Google's success. As recent articles in publications like Business Week and The Economist have noted, Yahoo's stock has suffered in recent weeks amid reports of disappointing earnings results and of the lack of substantive contribution to the bottom line from the much-lauded launch of Project Panama. These same reports also note the departure of many of the company's seasoned middle managers.

This last observation is perhaps the most critical. Without the experienced professionals who have helped to shape and sustain Yahoo through its growth -- veterans of numerous campaigns and clients -- who will help to counsel and guide the company on its future path?

In our own experience, our Yahoo account services manager, who had worked on our business for several years and was a valued resource, recently left Yahoo. We are now working with new staff members who do not yet have the same depth of understanding of our accounts or the nuances of how we manage our SEM activity. Based on our own experience and the chatter in the business press about Yahoo's loss of talent, it is fair to suggest that Yahoo needs to be aware of this issue if the company is to continue to grow and build upon its past successes, to which these experienced employees have been key contributors.

Yahoo needs to retain these experienced managers if they are to truly capitalize on the new Panama platform. Panama is a definite improvement in comparison to the old Overture platform, but the propensity of advertisers to utilize the platform will partly depend on the ability of Yahoo to provide appropriate customer support. Given the momentum that Google has gained from its continued growth, Yahoo cannot simply rely on the technological improvements it has made to its PPC platform to challenge the market leader. Yahoo must have a complete service offering, built upon the talent of its experienced managers, to make any inroads into Google's territory.

And as Google continues to grow, Yahoo may well continue to struggle. As Google expands into additional markets and acquires new businesses, from YouTube to DoubleClick, it becomes harder and harder for Yahoo to pull out from under its competitor's shadow. Yahoo may look for a solution in another merger -- this time of Yahoo itself with a willing partner.

Last month, it was revealed that Yahoo and Microsoft had seriously considered an alliance against Google, but that the talks had not resulted in any substantive agreement. While such a merger would indeed mount a serious challenge to Google -- Yahoo and Microsoft are ahead of Google in e-mail and instant messaging services and could potentially offer advertisers some very efficient deals across their portals -- it could also eventually hurt advertisers. The pace of management departures at Yahoo could very well accelerate, leaving the merged entity with a bias toward the less experienced customer service culture of the younger MSN Live.

Beyond the impact on staffing, such a merger could also result in higher costs for advertisers as companies vie for space on the two remaining platforms -- i.e., Google and the merged Yahoo/MSN, -- and it could also result in a spate of additional acquisitions that could ultimately lead to the disappearance of some of the smaller niche search engines as they are absorbed into the larger players. All of these scenarios could eventually lead to fewer outlets for advertisers to place their ads and higher costs to utilize those outlets that do remain.