Yahoo's been arguing for years that its two main advertising businesses, search and display, are stronger together than separately, but a new development Wednesday could illustrate just how much truth there is to that statement.
Traditionally, search ads combine a short amount of text with a Web link, but Yahoo is testing the use of display ads such as graphics and video alongside search results in "Rich Ads in Search," described in a blog post Wednesday. The move opens a new chapter in the company's competition with Google, whose search-driven ad system dominates online advertising.
Right now, Yahoo argues one of its strategic advantages is being involved in both search and display advertising. For example, people's search terms help Yahoo better target display ads, the company has said. But so far the company's search and display ads are widely separated operations, with advertisers grappling with independent systems to use both types of ads.
Now that's changing. The company has been testing rich ads for search since the fourth quarter, and now has opened the invitation-only program to more people. Later this year, though, Yahoo plans to integrate them with its Panama search-ad technology, which will make the technology a self-service operation that won't require Yahoo ad sales personnel to manually set up the ads, spokeswoman Kristen Morquecho said Thursday.
Given Yahoo's large base of display advertisers, the move has the potential to change the online advertising balance of power. Google holds the biggest search market share by far, but Yahoo's roughly 20 percent share is considerable, and if advertisers like branded search ads, it could help the Internet pioneer bolster its revenue.
Google hasn't tried display ads in its search results, though it has experimented with "plus boxes," small icons that if clicked can show images. Although Google acquired Doubleclick in 2008, Yahoo remains the leader in display ad technology.
Another reason the ads could appeal to advertisers: a recurring issue between Google and advertisers is the fact that advertisers in the United States can bid on rivals' search terms. Google won one search keyword trademark lawsuit over Geico; American Airlines settled a related suit against Google earlier this year and now is suing Yahoo.
Although branded search ads might not increase Yahoo's search market share, it might produce revenue as advertisers seek to gain more control over their brands shown in conjunction with search results.
Search vs. display
Yahoo's rich ads "combine the relevance of search with the impact of rich media," Yahoo said in the blog posting. "A small group of advertisers tested it in the fourth quarter of 2008 and saw click-through rates rise by as much as 25 percent. They've also seen improved brand exposure and conversion rates," in which ads result in some sort of action on the part of the people who saw them.
The bulk of Yahoo's revenue comes from showing display ads on Web properties such as Yahoo.com, Yahoo Finance, and Yahoo Mail. Advertisers pay for those ads on the basis of how many times they're shown. But Yahoo has been trying to catch up to Google's power in search ads, which in comparison are paid for when a person actually clicks on them.
Because search ads cost the advertiser money only when people take an action with them, it can be easier for advertisers to measure performance and therefore to justify investing in an ad campaign. In addition, people reveal "intent" when they type in search terms, which can make it easier for computers to decide when to show a specific ad. Because of these pay-per-click and targeting factors, many believe search ads will fare better during the current economic hard times.
Yahoo's rich ads for search are a hybrid of the two categories.
The payment mechanism stems from the display ad world. A select group of advertisers pays Yahoo as an extra monthly fee on top of their regular branded advertising elsewhere on the site, Yahoo said. It's a flat fee that doesn't change according to how often the ad is shown.
The targeting comes from the search world, but it's adapted. Where traditional search ads are shown according to a wide variety of keywords used as search terms--"hybrid car," for example--the rich ads are shown only when people search for a small set of specific terms an advertiser has trademarked, Yahoo said.
There aren't issues with the two varieties of ads vying for the same advertising space, though. The rich ads for search are shown in an area labeled "promotional results" above the regular search results. Yahoo shows the search ads to the right of regular search results in an area labeled "sponsored results."