Google, Yahoo Defend Marriage. Do Marketers Buy It?

Appeared in ClickZ, quoting RM'er David Gould:

Yahoo and Google have lately cranked up the volume in defending their search ads tie-up.

The first to speak up recently in response to growing criticism of the deal was Yahoo EVP Hilary Schneider. She declared it will create previously non-existent inventory for advertisers. Then Hal Varian, Google's chief economist, went on the offensive, churning out a five-point rebuttal last week to a two-month old SearchIgnite report declaring keyword prices would rise more than 20 percent as a result of the pairing.

And yesterday, North American sales chief Tim Armstrong stepped into the fray, addressing advertiser worries over the inner-workings of the arrangement and its impact on prices.

Some of their arguments hold water with marketers. Others don't. ClickZ contacted a few agency execs to get their take on the main points in the companies' defense.

Claim: Yahoo won't know in advance how a Google keyword is priced.

This point was made by both Hal Varian and Tim Armstrong. Armstrong noted: "Under the terms of our agreement Yahoo won't be able to see the current auction prices for Google ads, and Google won't be able to see Yahoo's prices."

While literally true, the underlying message -- that Yahoo won't know what it's making from Google's ads -- is hogwash, according to Kevin Lee, CEO of search agency DidIt.

"They may not have query-by-query visibility into the ad prices," he said. "But the engineer in charge of [Yahoo's] platform can build a model by which it can decide whether to give it to Google or keep it."

That's simply a matter of testing keywords to establish which ones produce substantially higher monetization through Google. Yahoo can also create models to identify millions of related keywords that are likely to earn more when outsourced to Google. Then it can test those too.

"Whether or not I had transparency before the fact, I had 100 percent transparency after the fact," said Lee. "It's not even close to rocket science."

Claim: Neither Google nor Yahoo set ad prices. Marketers do through the bidding process.

This is undeniably the case, yet also a bit of a red herring, said some marketers.

"It's a great line," said one exec at a major search-centric agency who asked not to be identified. But the executive finds it hardly reassuring in light of the fact prices will go up for some keywords anyway.

However another search exec who spoke with ClickZ believes you can't discount this fundamental fact. "Advertisers are the ones determining what's going to be paid for certain keywords," said David Gould, Resolution Media's president. "Google's in the business of maximizing revenue. To the extent that prices rise and volume drops, there's going to be a reaction." He believes Google and Yahoo will be sensitive to negative marketer response when prices go up.

Claim: The deal will show more relevant ads on Yahoo, resulting in higher overall ROI for marketers.

Resolution's Gould said the ROI claim seems to contradict Google's point that prices are auction-driven. "If that's the case, why do you feel the need to make the ROI argument?" he asked.

Many marketers said they don't have enough information to judge Google's and Yahoo's assurances about the deal's underpinnings. And they don't necessarily trust the companies to prioritize their interests.

For instance Craig MacDonald, VP of marketing and product management at Covario, characterized the looming integration as clearly bad for marketers, but also said he lacked enough information to comment on the merits of Google's specific arguments.

The issue for many concerned marketers boils down to simple math.

"In order for them even to consider serving an ad out of Google, that ad has to be 15 percent more expensive," said Lee. "What would happen in that instance is you would have Google serve the ad and both Google and Yahoo would make more money at my expense."


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