What Does the Google / Yahoo Service Agreement Really Mean?

Earlier in the month Google announced a search technology partnership with Yahoo!

Essentially this does two things:

• Gives Yahoo! Access to AdSense for Search:

AdSense for Search is a highly customizable search box that can be placed on a website and will feed Google’s search inventory through relevant results. The publisher has additional control as he or she can specify certain keywords to add or omit, or limit the search results to some or all of the search categories.

For instance:

A publisher with a site about diet & nutrition could automatically fill in certain keywords to users’ online searchers through the AdSense for Search box. A user that searchers for “equipment” would see results filtered for “excercise equipment”. They also have the option to list only results from sites from the health & nutrition category. These filters ensure higher relevance and an improved liklihood of a clickthrough (resulting in revenue for the publisher).

So in this case, for Yahoo to utilize AdSense for Search it would be agreeing in principle to replace its paid listings with Google results. When a lesser search site has agreed to show Google’s search traffic it has usually been at a cannibalization of its own paid search listings (see Ask.com for an example).

But Would This Work for Yahoo?

While its possible that Yahoo! might go the way of Ask.com and show Google results directly on the homepage, I think Yahoo! has enough of its own search traffic and a robust base of customers that they won’t go for this. Since Yahoo! only gets a portion of the CPC fee that Google generated for the click, the average CPC on Google would have to be dramatically higher for this to make sense economically for Yahoo.

Unless of course, as reported, the clickthrough rate drastically improves.

On the other hand, Yahoo does have hundreds of properties that display organic and Sponsored Search Results through a search box. I would expect that these would quickly be replaced with an AdSense for Search box. This can be done without the loss of goodwill involved with jettisoning the entire Yahoo! paid search program.

• Gives Yahoo! Access to AdSense for Content:

We are all familiar with AdSense for Content – or traditional AdSense as we’ve come to know it. Yahoo! claims that this partnership will generate an additional 450 million dollars within 12 months and I’m fairly certain the vast majority of it will come from here.

Yahoo’s content network is a distant second to Google’s network. The quality of sites is worse, and more importantly the relevance of the paid results is worse. There is no discernible reason a publisher might choose to show Yahoo results on their page instead of Google’s (unless they have some deep rooted hatred for Google).

Yahoo’s content network is, however, quite good at creating impressions, and if we factor in the improved clickthrough rate generated from Google’s more relevant ads, this could result in huge monetary benefits for Yahoo.

But at What Cost?

If anyone is successfully using Yahoo’s content network, then unfortunately that may change in the short term. This may affect a handful of people, as I said before, Yahoo’s content network has a lot of room for improvement.

For Advertisers on Google:

Business as usual for the leader in search. Expect even more impressions on the content network. Prices will not change in the short term, but may rise if these additional content impressions turn into success for advertisers. Keep a close eye on placement reports over the next couple of months to see if any of Yahoo’s content sites are becoming prominent in your content campaigns.

Also be advised that if Yahoo does allow Google to feed ads on Yahoo’s homepage or major properties, you would have to be opted into the Search Partners network for your campaign to reap these benefits.

For Advertisers on Yahoo:

Yahoo has traditionally been a low cost incremental increase in volume for paid search advertisers. This will not change. There is an opportunity to lose search impressions and clicks if Google ads begin to dominate the Yahoo! homepage and properties.

Ultimately, we’ll have to let the dust settle before we can make any long term judgments. The biggest question that remains to be seen is whether or not Google’s influence can resurrect Yahoo’s content network or is this just really an exercise in expanding the reach of AdSense.