Covario Point Of View

B-OO! Will Bing and Yahoo Scare Google?

July 29, 2009

The saga continues. A year ago Microsoft tried to buy Yahoo in a hostile bid worth $44B. Recently, the Bing launch caused the two firms to trade some short term market share — none of which had much effect on the industry powerhouse, Google. However, that saga may be coming to a new stage as both firms have agreed on a partnership around search advertising. The purpose of this note is to describe Covario’s views on what this partnership means for our clients — the world’s largest search advertisers.

What’s the Deal?
Bing AdCenter will become the global paid and organic search system for the combined platform. Advertisers will be able to purchase paid search inventory through Yahoo. The engineering teams will be combined in order to integrate and leverage the information flow from search to provide better targeting over time. It seems like Microsoft is buying the Panama platform and will selectively integrate functionality from the system into Bing AdCenter. The display and content network businesses of both firms will be independently owned and operated. The deal is global — and will impact engines like Naver, which are powered by the Yahoo search algorithm. Yahoo Paid Inclusion program and Site Explorer were not commented upon. Many of the mechanics are still not available, and as they come available we will share additional details.

What’s It Mean?
For advertisers, this announcement includes some good news and some bad news.

  • Market Share
    Much is being made of whether the two firms combined create a credible threat to Google. The
    answer is — “not for the next 2 years.”

    • Our customers spend an astonishing 77% of their paid search budgets on Google globally (See Covario Global Paid Search Spending Analysis). In the US this share is 76%, in EMEA it is 97%! Spending on Bing/Yahoo combined totals 20% globally — with <3% in EMEA. So assuming current market dynamics — the combination of the two platforms will still be <1/3rd of the market share of Google. The combination does not change the fundamental dynamics of the paid search market for the foreseeable future.

      • The only segment where the combination MAY have an impact is in platform sales for managing search on mobile networks. Bing recently signed a deal with Verizon to be the exclusive search platform on the network. Mobile paid search spending represents a very small percentage of all spending in the US — slightly higher in EMEA. However, we do expect Bing/Yahoo to aggressively try to dominate this market — particularly in EMEA.

      • It will take 6-12 months (minimum) to fully combine the systems — during which time innovation on either platform independently effectively will stop. Google will continue to innovate and our expectation is that its advantage in technology and integration with other forms of media (Youtube, Google TV, Google Mobile, etc.) will continue to expand. The likelihood is that Google actually will gain small market share in the next 12-18 months as the result of this combination.

  • Media Planning & Buying
    The combination of the two platforms will be a boon to paid search advertisers.

    • One of Google’s major advantages is simplicity — not only with its user interface for consumers, but through AdWords as well. Many advertisers and agencies, depending on budget, will setup campaigns on Google first, then replicate those campaigns on Yahoo, and if budget exists, replicate them again on Bing. Bing is often not even an option if the budget for a campaign is smaller and/or the value of replicating the campaign for the network is not worth the effort to address less than 5% of the market.

    • Having a single platform will simplify this process — since AdCenter will allow users to eliminate the high cost / low return step of replicating campaign setup on both Yahoo and Bing. Building global campaigns through AdCenter will drive incremental spend to the network for smaller campaigns and internationally. Advertisers on Bing should be able to reach inventory on “associate” search engines like Naver in Korea if the Yahoo engine powering the engine is replaced with Bing.

    • There have already been some hysterical comments by industry gurus about how CPCs will double as the result of this integration. That seems preposterous. Why would organizations pay 2X for CPCs (and by extension CPAs) for ability to reach an only slightly expanded market? We have seen that Bing (and MSN traditionally) had higher CPCs than Google for similar keyword sets, and Yahoo had slightly lower CPCs as compared to Google. It is likely that advertisers will find a new target CPA and CPC for the combination that will be a blended average of the two — roughly equal to Google CPCs and CPAs.

    • This integration of the two platforms lessens the value of 3rd party bid management systems as the media buying process will now become about 50% simpler. We expect prices on bid management systems to come down sharply as a result of this deal — as the value proposition of using something other than AdWords and AdCenter for free, or a system
      like DART Search becomes overwhelming. Most systems are priced at between 2-5% media now — these prices should come down to 1-2% or lower over the next 12 months.

    • We do not expect this integration to drive “in-sourcing” of paid search management programs. By all accounts, companies outsource paid advertising because they do not want nor need to develop the competency in-house. The decision to outsource is not due to the
      complexities of the media buying process - it is a core competency issue, not a mechanics issue.

    • Lastly, due to their combined ability to see more data, Bing/Yahoo will be able to provide advertisers with more salient and useful industry research for use in media planning. This too, will greatly simplify the media planning process.

  • Search Engine Optimization
    There will be some ramifications to natural search programs.

    • In the past, it was acceptable to optimize only for the Google algorithm, and in some cases for Yahoo if there was enough resources and market share to support the effort. Few companies took any efforts to optimize for the particulars of the Bing algorithm.

    • With the Yahoo algorithm becoming defunct, site optimization geared toward Bing will have to be executed in the next 12 months. Covario’s analysis of the differences in the algorithms, using our proprietary data from Covario Organic Search Insight, shows that Bing (like Google) weighs linking strategies more aggressively than Yahoo has done traditionally. Also, Bing weighs aspects of URL construction more heavily than Yahoo. There is a Covario white paper available on these differences if customers and prospects are interested.

      • One unresolved issue regarding link building is Site Explorer. This system, offered by Yahoo, is considered the best source of linking information for large scale sites. If this is not replicated in Bing, then a valuable source of link analysis information will be eliminated. The good news is that Microsoft traditionally has been very open about supplying advertisers with key information regarding their programs — and we expect that to continue.

  • Paid Inclusion
    This will impact retailers especially, who have traditionally ignored SEO knowing they could buy paid inclusion on Yahoo.
    • Paid inclusion has not been mentioned in the news to date, however, if the
      algorithm for natural search is Bing, we believe this offering is at risk.

    • There are advertisers and agencies that focus on paid inclusion — who are now going to have to focus on the heavily lifting of SEO.

    • If in fact paid inclusion is discontinued, the budget will be redeployed — not necessarily on Bing/Yahoo.

    • If successful, we do believe that the two firms will field a superior product in 12 months time. The combined platform will drive incrementally higher returns based on improved targeting from a larger information set. That is good news for search advertisers, as it will make spending on search more effective overall.

What to Do?
Here are our Actionable Insights.

  • Bing AdCenter will be the paid search media buying system for the combined
    platform. We recommend making NO changes to search allocations in 2009,
    and to revisit a) integration success and b) changes in consumer usage of the
    platforms in 1H 2010.

  • Allocations should continue along the lines of Covario’s suggested Planning
    Assumptions from Covario Global Paid Search Spending Analysis.

  • For mobile paid search programs, investigate aggressive deals for usage of Bing
    platform — particularly in EMEA and APAC.

  • If paid inclusion from Yahoo is discontinued, then firms leveraging this technique
    will have to invest in SEO and redeploy funding for paid inclusion.

  • If looking at 3rd party bid management systems — customers should
    exert pricing pressure on these firms as the process of placing paid search
    advertisements has become significantly less complex. Traditional pricing was
    between 2-5% media spend for these systems — we expect the pricing should
    fall to well below <2% in the next 6-12 months.

  • Reinvest in link building and revisit URL structures for SEO as the Bing algorithm
    weighs links more heavily than the Yahoo algorithm.

 

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About Covario, Inc.

Covario, Inc. is the leading provider of search marketing solutions for large advertisers. The Covario portfolio provides global organizations with robust interactive and search marketing analytics solutions for paid search advertising and organic search engine optimization across the enterprise and throughout the channel. Covario enables complex and distributed organizations to control brand integrity, ensure budget transparency and deliver quantifiable results across business units, distribution channels and languages.  Headquartered in San Diego, Covario’s growing customer list include some of the world’s best known brands in high tech manufacturing, financial services, electronics, media, entertainment, publishing and consumer packaged goods. 


For more information on Covario call (858) 397-1500