• http://twitter.com/aaronwall aaron wall

    When mentioning Yahoo!’s relative under-performance on search, it would be helpful to point out the absurd amount of their “search” traffic that was various forms of arbitrage. Part of the reason (likely the primary reason) Yahoo! took such a sharp nose dive in terms of search revenues was that Microsoft used quality scores to price down the non-search arbitrage traffic streams & a lot of that incremental “search” volume Yahoo! had went away.

    Yahoo! went from almost an “anything goes” approach to their ad feed syndication, to the point where they made a single syndication partner pay them $4.8 million for low quality traffic.

    Given that we are talking $4.8 million for a single partner & this alleged overall revenue gap is somewhere in the $100 million or so range … these traffic quality issues & Microsoft cleaning up the whoring of the ad feed that Yahoo! partners were doing is a big deal. I am a bit surprised to see it so rarely mentioned in these discussions.

    Few appreciate how absurd the abuses were. For years Yahoo! not only required you to buy syndication (they didn’t have a Yahoo!-only targeting option until 2010) but even when you blocked a scammy source of traffic, if that scammy source was redirecting through another URL you would have no way of blocking the actual source, as mentioned by Sean Turner here: http://ppcblog.com/what-if-yahoo/

    The other thing that isn’t mentioned is the longterm impact of a Yahoo! tie up with Google. If Bing were to exit the online ad market, maybe Yahoo! could make an extra $100 million in the first year of an ad deal, but if there is little to no competition a few years down the road, then when it comes time for Yahoo! to negotiate revenue share rates with Google, you know Google would cram down a bigger rake.

    This isn’t blind speculation or theory, but aligned with Google’s current practices. Look no further than Google’s current practices with YouTube, where “partners” are paid different rates & are forbidden to mention their rates publicly.

    Negotiating with a monopoly that controls the supply chain isn’t often a winning proposition over the long run.

    The flip side of the above situation – where competition does help market participants to get a better revenue share – can be seen in the performance of AOL in their ad negotiation about 8 years ago. Their credible threat to switched to Microsoft had Google invest a billion Dollars into the company, where Google later had to write down $726 million of that investment. If there was no competition from Microsoft, AOL wouldn’t have received that $726 million (and likely would have had a lower revenue sharing rate and missed out on some of the promotional AdWords credits they received).