Yahoo and Bing’s revised deal is worth a look

April 29, 2015 03:43 PM

More than halfway through their 10-year partnership, Yahoo Inc. and Microsoft Corp. are staying aligned but with more room to wiggle.

Yahoo and Microsoft’s revised search agreement gives both companies more flexibility in their desktop search ad deal. Microsoft owns the Bing search engine, which has been providing search results on Yahoo sites since 2009 as part of a 10-year agreement between the two companies.

Under the new terms announced April 16, Yahoo no longer must use Microsoft’s Bing to serve all desktop-search generated ads but it must serve Bing ads and search results for at least 51% of its desktop search traffic, Yahoo says. Mobile search was not a part of the original deal, nor is it in the revised terms. Although some retailers may be unconcerned with the deal revisions, marketing software analysts advise retailers to monitor their search ad traffic, especially on mobile.

One reason for Bing and Yahoo’s original partnership was to gain a larger user base to cater to advertisers, in hopes of chipping away at Google’s stronghold on Internet search ad revenue, says Collin Colburn, associate analyst at Forrester Research Inc. Google sites have 64.4% of the U.S. search market, with Microsoft sites at 20.1% and Yahoo 12.7%, as of March 2015, according to web measurement firm ComScore Inc. Ask Network and AOL Inc. make up the remaining share.

In 2014, market research firm eMarketer reports Google had 71.4% of the U.S. search ad revenue, Microsoft 10.5% and Yahoo 5.7%. (Other search companies including Yelp and AOL make up the remaining share.) For 2015, eMarketer predicts Google to have 69.8% of the U.S. ad search revenue, Microsoft 11.1% and Yahoo 5.5%. In 2016, eMarketer predicts Google will have 67.3%, Microsoft 11.4% and Yahoo 5.4%.

Google declined to comment on whether Yahoo and Bing’s partnership threatens its market share.

While retailers often focus on Google, the changes in the deal should call their attention back to Yahoo and Bing, says Will Martin-Gill, senior vice president of product for Kenshoo Ltd., a digital marketing firm.

“So many people have been focusing on Google because they are the biggest, and they let Yahoo and Bing fall under the radar,” Martin-Gill says.

In fact, market research company AdGooroo reports that for 20% of retailers the click-through rate on their ads was better in the Yahoo Bing Network than on Google AdWords in 2014. The Yahoo Bing Network encompasses the websites that show ads placed through Bing and Yahoo. AdGooroo examined paid search performance by looking at 690,000 keywords that the Yahoo Bing network and Google AdWords had in common in the U.S. in 2014, across the six categories: Shopping and classifieds, financial services, travel, education, business and automotive. 

Overall, the recent changes are a good thing, Martin-Gill says, as the companies are still aligned but can each focus on their mobile strategies. 

“They have a common interest together to grow and be a bigger part of the web, but they have a new battleground, which is mobile,” Martin-Gill says.

Mark Ballard, director of research at search and digital marketing agency Merkle RKG agrees. When Yahoo and Bing first joined forces six years ago, mobile traffic was not as important as it is now, making mobile a big opportunity today for both of these companies. In Q4 2014, mobile accounted for 50% of Yahoo’s search engine traffic in North America and 28% of Bing’s search engine traffic, according to Merkle RKG client data.

As a part of the partnership, Yahoo and Microsoft will continue to run their own mobile ad platforms, Microsoft’s Bing Ads platform and Yahoo’s Gemini. Gemini lets marketers buy search-based promotions along with native ads, or spots that run alongside related editorial content.

Yahoo’s mobile revenue reached $234 million in Q1 2015, growing 61% year over year, Yahoo reports.

Now that Yahoo has more flexibility in its desktop ads, Yahoo might try to build out its Gemini platform for the desktop, Colburn says. Yahoo did not respond to a request for comment.

While it may require additional work for advertisers to set up search ad campaigns across Google, Yahoo Bing and Gemini, retailers should thoughtfully consider each platform, Martin-Gill says. Kenshoo is advising its retail clients to update their mobile search advertising to make sure they take advantage of mobile opportunities, especially Gemini, Martin-Gill says.

In 2014, Yahoo captured 5.1% of U.S. mobile Internet search ad revenue, according eMarketer data released in March 2015. Google had 68.0%, Yellow Pages 5.9%, Yelp 1.4% and other 19.6%. EMarketer did not break out Microsoft data. The other category includes search apps such as, Kayak and Expedia. For 2015, eMarketer predicts Yahoo will capture 5.0% of search ad revenue, Google 66.5%, Yellow Pages 5.0%, Yelp 1.8% and other 21.7%.

Yahoo could gain more traffic through a recent partnership with Mozilla’s Firefox browser. In Q4 2014, Mozilla’s Firefox made Yahoo its default search engine on mobile and desktop.

The change in the deal terms may not affect Diamond Candles very much, says Justin Winter, CEO of the online candle retailer, No. 220 in the 2015 Internet Retailer Mobile 500.

“Our volume might go down,” Winter says about the traffic that will come in from Yahoo since the search engine is only required to serve 51% of the Yahoo Bing network ads. Winter anticipates Yahoo to present new opportunities for search ads to compensate, such as in mobile.

In the last 30 days, the Microsoft Yahoo ad network delivered 1 million Diamond Candle ad impressions and Google’s AdWords delivered 3 million impressions to consumers searching for both branded and non-branded terms. Branded terms include “Diamond Candles” and non-branded terms include “buy candles.”

Diamond Candles’ cost per click on the Microsoft Yahoo ad network for branded terms is 50 cents. For non-branded terms cost per click is $1, Winter says. For Google AdWords, Diamond Candles’ cost per click is 30 cents for branded terms and $1.27 for non-branded search terms.

Per week, Google AdWords drives between $20,000 and $25,000 in sales for Diamond Candles and the Microsoft Yahoo network drives $8,000, Winter says.

“The return on ad spend (for Microsoft Yahoo) might be better in some cases, even though the volume is less,” he says.

Nicholas Cole, director of marketing at The Catholic Company, also does not think the partnership changes will have an immediate impact on his business.

The e-retailer, which sells religious goods, has seen a swing in its website traffic coming from Bing or Yahoo verses Google. In the past six months, The Catholic Company’s website traffic originating from a search engine went from 20% Bing or Yahoo to 50% Bing or Yahoo. Cole could not the shift, but he’s happy about it. “It’s great to see diversification in our customer acquisition,” Cole says.

The Catholic Company’s click-through rate on AdWords is 2.30% versus 1.68% on Microsoft Yahoo. The cost per click is 33 cents on Bing and 43 cents on Google, Cole says.

While its rivals maneuver for position, Google continues to work to improve how its search engine works on smartphones. On April 21 it changed its mobile search algorithm to penalize websites that are not mobile-friendly in smartphone search results.

“It would be very difficult for Google to drop a majority of its market share,” Colburn says.

Follow mobile business journalist April Dahlquist, associate editor, mobile, at Internet Retailer, at @MobileStrat360A.

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