• by Tameka Kee , July 16, 2008

Advertisers could end up paying 22% more for search terms on Yahoo if the Web giant's proposed paid search partnership with Google comes to fruition, according to new data from SearchIgnite.

The search management tech and services firm released the "Potential Impact of a Google-Yahoo Partnership & Cost to Marketers" report just hours before the two companies' top legal brass met with the Senate Antitrust Subcommittee to make the case for their deal.

Yahoo has maintained that it would only tap Google's paid search platform to better monetize long-tail terms, or keywords and phrases that are very specific and not highly trafficked. But the SearchIgnite report found that Yahoo stands to gain significantly if it turns over the sale of some head terms (commonly searched-for words or phrases) to Google as well, particularly for ads that show up in the fourth position or lower.

The research stems from SearchIgnite's analysis of six month's worth of clicks on 15,000 keywords and phrases, and the average cost-per-click (CPC) that advertisers paid for said terms on Google versus Yahoo. For each comparison, the keywords had to have occupied the same position (or rank) on both search engines at the same time.

Not surprisingly, SearchIgnite's clients paid a premium for long-tail terms on Google as opposed to Yahoo. But for head terms, CPCs on Yahoo tended to be 5-16% higher, particularly for an ad in one of the first three positions. And with branded terms--keywords featuring a company or brand's name--advertisers tended to pay almost 38% more for the number one spot on Yahoo as opposed to Google.

While the stats bolster Yahoo's arguments that its Panama search platform actually performs better for head and branded terms than many in the industry seem to think, SearchIgnite's data does highlight additional areas where the Web giant could stand to profit from outsourcing to Google. And that's why some advertisers are concerned.

"The fear is that by increments over time, Google's algorithms and ranking will dominate Yahoo's results and competition will be reduced," said Rob Norman, CEO of GroupM Interaction Worldwide. "If the partnership results in increased monetization for both Yahoo and Google, we'd be surprised if Yahoo's shareholders and management didn't seriously consider allocating more of their inventory than is being suggested in this initial phase. And the only party that's going to pay is the advertiser."

Roger Barnette, president and founder of Atlanta-based SearchIgnite, agreed. "This deal doesn't do anything to enhance the competitive landscape," Barnette said. "It doesn't give advertisers more options, and to the extent that it gives them less, I think we'll need to wait and see. But broadly, advertisers are concerned about whether it will cause price inflation on Yahoo. Any inflationary pressure on one of their primary vendors causes concern."

As for Yahoo's shareholders, some analysts argue that if the deal does not generate substantial incremental income as it is currently structured, then shareholders would likely push for more inventory outsourcing, not less.

"At this point, shareholders don't believe that Yahoo can do anything well," said Ross Sandler, senior analyst, global Internet and media at RBC Capital Markets. "Look at what happened with Panama. There was tremendous hype around the launch, but they didn't see a major change in financials as a result. They waited from February to the end of 2007, and it failed to deliver a meaningful upside. So investor expectations around anything search-related for Yahoo went away a long time ago."