Will Yahoo! Shares Bounce Back?

Jul 24th

It seems a large part of the reason that Yahoo!'s stock recently tanked was the market was punishing them for delaying their ad system.

I know factoring clickthrough rates into ad costs will help optimize their revenue stream, but does anyone think the new system will help them catch Google on the monetization front?
I don't. The three main reasons are

  • They are losing marketshare daily. Google has a stronger search technology and search related brand, and the next version of IE is going to integrate search into the browser. Even if MSN loses most of the associated browser distribution deals they will still drive up the traffic acquisition costs for those who win them, and since Yahoo! has a less efficient marketplace than Google they are not going to be able to outbid Google.

  • Google is already busy taxing noise out of their ad network when Yahoo! is just fighting to keep up with pricing, let alone creating easy account management tools.
  • Yahoo! is more cautious with trademark protection in search ads. Since branded terms are some of the highest converting and most valuable terms that choice probably costs them a fat packet of cash.
Published: July 24, 2006

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Comments

July 29, 2006 - 1:14am

Branding issues, IMHO, are nonsense in most online venues over the long term.

I think YHOO will rise next year as it's very likely they will capture more of Google's adsense stream of revenue, which is about 43% of Google's PPC revenues which in turn are about 98% of Google's total revenues.

All Yahoo (or MSN) needs to do to get publishers to switch is pay more than Google. Initially, if they are smart, they'll pay out 100% to get people to switch. Advertisers won't care who they pay and publishers will want the most for their efforts. Google's got a HUGE share now and this will go down.

But then, I had WCOM stock so don't listen to me.

July 29, 2006 - 3:19am

I think they have to look at ad targeting and display as a way to catch up. If they are too aggressive with payout they are just going to get arbitraged to bits.

July 30, 2006 - 7:49pm

I don't think increasing the payout is going to help that much as the volume that you lose from switching from Adsense to YPN is more is not worth the higher price point.

IMHO, I think Yahoo will come back and the reason is that they are really strong with branded advertising which is anticpated to grow at a faster rate than PPC.

Nick Pang
July 25, 2006 - 12:41am

don't underestimate the yahoo panama team - i worked with some of these guys before at a previous start-up. they're smart and creative folks from stanford and berkeley. google is spreading itself thin with too many unprofitable projects...

July 25, 2006 - 2:38am

In response to reason #1) I agree - Google has both superior search technology and more significantly the most powerful Internet brand in a world where money is moving more and more online. IT IS THE BRAND that will win the war. If Google = Internet then YahooSales = (YahooSales - GooglesIncreasedEarnings).

In response to #2 - Overture's software stupidity has long been a laughable part of office life in our building. It's like they WORKED at making the most unintuitive, ambiguous, time consuming interface. Many times I have realized that I would like to spend more money with Yahoo, but can't because the process of ad generation is sooooo time consuming. While they have plenty of reps offering to create ads they always do a lousy job and inevitably fail to identify essential negative kw or create ads that are really original or compelling. I always thougt if they would just cut half of their account reps and spend some money on useful, intuitive software they would double (triple?) their ad revenue.

Well now they are finally launching a new software interface, but unfortunately they missed the starting block. Too little too late . . .

In response to #3 - I have several times sought exception for trademarked terms and almost always received rights of usage. Do you really think that these terms amounts to a huge revenue loss overall? If so why wouldn't they make more exceptions (and hire one more lawyer or somthing)?

In response to Nick - I agree that Yahoo's people may be equally talented, but I disagree on Google launching too many philanthropic projects. It will be those non-profit projects that will bolster the brand and will eventually be the demise of Yahoo. I can't think of how many times I have seen "Google Earth" on CNN News. Google Video may be another Froogle at present but also has mad potential for widespread viral propogation. By expanding the usage of the Google brand they have not weakened their search brand but expanded the Google=Internet concept.

Just my opinion though and I'm often wrong (usually?).

mblair
July 25, 2006 - 2:48am

I think that Yahoo! stock is going to be seeing a lot of one-step-forward/two-steps-back in the future, until they find a way to focus their brand.

Plain and simple, the Yahoo! brand speaks more about community than search.

If Yahoo! acknowledges this, and finds a way to tie their offerings together into some kind of 'social search' mechanism -- a more people centric approach to combat Google's perceived tech-centered approach then they can probably carve out a good niche in the more casual search space.

As brand-development advertising shifts more and more from tv/print towards the internet, Yahoo could be well suited to capitalize on it by delivering nice, orderly demographic slices.

But I just don't have confidence that they can continue to try to play with Google on Google's turf for that much longer without repercussions from the financial markets.

There's always a chance that Google will slip and fall, but I'm not so sure they should be sticking their eggs in that basket, when they can take a much more proactive approach and attain a real leadership role by pioneering a new kind of search landscape.

July 25, 2006 - 3:59am

Yahoo is way behind the eight ball when compared to Google particularly in the online advertising front. Yahoo's current online advertising interface functionality is poor when compared to Googles Adwords interface. Yahoo is so cumbersome in getting things done particulary for managing multiple client accounts that you have to ask yourself if it is worth the effort.

Google is keeping Yahoo's best efforts in a distant second especially now that Google is providing extra value to Adwords clients by offering incentives with lower online sales costs when using Google Checkout.

Google is again showing how their continued efforts providing innovative services are keeping them at the forefront of search and online advertising for some time to come.

July 25, 2006 - 5:07am

In regards to brand protection I've found just the opposite to be true. Two of my blogs focus on identifying counterfeit goods, namely Rolex watches and other brands. I've found that Google has a small number of ads related to replica watches, while Yahoo has quite a few replica watch advertisers, enough so that there's some competition for placement on my sites.

I'm bringing in more money on Yahoo because of these ads than I ever did with Google.

So far I'm happy with the switch I made to Yahoo, but I know it's all ephemeral. If all of a sudden the CPM drops on Yahoo I'd move back to Google in a heartbeat. I miss Google's Link Units...

July 25, 2006 - 5:07am

I think Yahoo! will gain some marketshare as soon as they will allow non U.S webmasters to use their ad system. A lot of them are waiting for it, and ad is the sinews of war.

July 25, 2006 - 7:02am

Google is a search engine, Yahoo is a directory, it is that simple. And Google has more power to back up its decisions.

Since MSN is powered by MS, and Yahoo doesn't have some strong influence behind it, it will sooner or later resort to using Google as well, I suspect.

Unless Yahoo finds its own way (niche), of course.

Nick Pang
July 25, 2006 - 7:09am

to dave:
i meant 'unprofitable', not 'non-profit'. projects that have yet to monetize or not-monetizable...

July 25, 2006 - 2:25pm

I'd say there's no doubt that the stock will rise. Their product offering is very strong, and there attempting monetize video more everu day.

Yahoo has managed to carve out a lot of revenue streams. I think they're a lot more diversified than Google.

July 25, 2006 - 3:54pm

The stock will rise, but Yahoo has to do a lot more than update their ad system to catch Google. They have to do something truly remarkable to catch up.

July 25, 2006 - 7:04pm

Just eliminating more than 90% of the spam in their search results would be a good start. How many times is a user going to come back if 8 out of 10 of the first results are spam sites?

That goes for MSN too, but they've been cleaning up their results a lot faster.

Anyone have any suggestions on what Yahoo could do that is truly remarkable?

July 25, 2006 - 9:06pm

Well the price drop was entirely their mistake, thats what they get for spending more time on turning their web portal into an entertainment portal and not looking to improve their rankings or their advertising systems.

July 26, 2006 - 9:13pm

A while back Jon Glick (former head of crawl quality at Yahoo!) and I were having dinner and talking about how the market loved Google just because it is Google and that the $400+ stock price was completely unwarranted. In that same conversation he told me that he buys Yahoo stock when it's around $29 because, in any given year the stock will go back up to $34 before it tumbles back down into the upper $20's.

Now Jon doesn't have any insider information but he did work at Yahoo! for quite a while and was familiar with the nature of Yahoo!'s stock and his words have been pretty accurate from where I sit. So I say buy some Yahoo! right now because in the next 6 months it's gonna be back up at $34.

Of course I'm no broker and I don't play the stock market but you can look at the data and make your own decision.

July 27, 2006 - 8:49am

Stocks flunctuate daily, but in the end its about the long view. And the success in the long haul is about 80% luck and 20% strategy.

Seemingly, Google's strategy is betting that "superior technology => success = profits". It worked for their search and AdWords, why not for everything else?

Yahoo appears to be taking a far more comprehensive approach and looking well beyond search. While not improving their Ad System on time is a major setback, they lost a battle but the war.

Keep in mind that Yahoo is attempting to build a social media platform and portal. This explains why Yahoo has poured resources to create their own content (like with Kevin Sites) and snatching up sites like Flickr, del.icio.us, etc.

I think in the long run, Y! is actively trying to datamine this wealth (from TripPlaner, Y!Answer, upcoming, del.icio.us etc) of information and create a portal, search and community web site with precision targeted marketing ads.

Assuming Y! can pull this off technologically (with privacy protection in place) and that social media is here to stay, I think we should bet on Yahoo over Google. While technology is important, there needs to be a social context. Y! is trying to create one.

On a sidenote: Personally I would like Google to win this. Since they seem to be a more progressive and a more open company compared to Yahoo at least in corporate culture.

I've written my own post related to this here:
"Social Media, Yahoo and Data Mining"

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