Category: Google

Microsoft finally understands – dog chasing is dead

Yaron GalaiLeave a comment

Ms_yahoo_2With today’s news re Microsoft looking to acquire Yahoo, it seems like they finally get it –
The performance-based advertising world is like no other space that Microsoft has ever played in before.

In spreadsheets, browsers, servers, databases, etc, etc – the Microsoftian way of doing business works like a charm. In all those categories, dog chasing proved to be a great way for Microsoft to win the market because it could out-price and out-patient its competition. Oh – and tying products into the OS monopoly didn’t hurt too much either… 😉

With performance-based advertising[1], dog chasing ceased to be an option. You can’t undercut competition, because competition ain’t pricing their product (it’s the customers/advertisers who do, and they price it upwards, not downwards). You can’t out-patient your competition because performance-based advertising has this wonderful virtuous cycle about it:

  • The more clicks you have, the smarter your yield-optimization algorithms get…
  • …as the algorithms grow smarter, you can better predict your revenue per page…
  • …as your revenue-prediction power grows, you can better price new distribution deals with the confidence of not losing money…
  • …the better you can price deals, the more distribution you get…
  • …and the more distribution you get, the more clicks (and $$’s…) you have.

This virtuous cycle means that with every *second* that Microsoft was spending figuring out its world-domination dog-chase plan, Google (and others, Quigo included) were opening the gap making it even closer to impossible for Microsoft to become a real player in this space. And every purchase of a DoubleClick, RightMedia, etc just moved way more click data out of Microsoft’s hands, opening the gap even more. Chasing a dog that’s only gaining momentum faster than you, well – that’s not a great chase to be in… 

I’ve had many conversations with good friends over at Microsoft over the past couple of years. And while the notion was that "we changed", "there’s no more NIH Syndrome", "we’re ready to make bold acquisitions needed to win this market", etc, etc – It’s clear now that none of that really registered there and the plan all along was to dog-chase Google to victory. Looks like the price for realizing this mistake is going to be pretty big.

A ton more coverage on TechCrunch, Henry Blodget… oh what the heck – and everyone else on the planet.

[1] Disclosure: I’m co-founder of Quigo, a player in this space.

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Seth gets it right, almost…

Yaron Galai4 Comments

Seth Godin (a WebX.0 favorite!) responds to the NY Times piece on Quigo today with all fair points:

If you’re running a pay per click ad designed to support a cost-per-acquisition strategy, (Google AdWords, et.al.) then does it matter where your ad runs?

Remember, the point of the ad is to get someone to click (that’s what you’re charged for…  the click) and then the goal of the site is to convert that click into permission and eventually a customer.

So, does it matter where the ad runs if it works?

From the marketer’s perspective, I agree 100% with Seth on this point – if (and that’s a huge IF… [1]) the campaign works, and the ROI is good, it’s insignificant where the traffic came from. But while advertisers may not care where they get their clicks from
them, they certainly do adjust their bids to account for the mix of
high-quality clicks and spam/fraud/foreign/etc clicks.

What happens in essence, is that the premium publishers in this mix are
getting lower bids than they should have, while the low quality traffic
sites get higher bids than they would have had they sold to advertisers directly [2].

Now, while Quigo caters to both marketers and publishers, we view our platform primarily as a publisher solution. We offer it as a private label to publishers, and let them acquire and manage their advertisers through it. It’s the publishers who we see benefiting most from the AdSonar solution, with marketers benefiting as a result of our insistence on catering only to the highest quality publishers in the country.

The TV network example is not applicable to our space… Unlike any advertising medium in the past, we don’t (nor do our publishers) determine the pricing of the media sold. That is determined by the marketers, and therefore it generally reflects the value the marketers get from the media they’re bidding for. The fact of the matter is, that marketers are willing to bid higher for a site with quality, US-based, non-fraudulent, non-spam, non-accidental-traffic traffic than they are willing to bid for that same site combined with 100,000 other lesser quality sites.

And that, publishers really care about.

 

[1] The Big Co‘s mix into their traffic a bunch of awful sources (misspelled domain names, spam blogs, etc, etc). They can get away with this to some extent because the junk traffic is mixed and diluted with the quality traffic on their network and search destinations…

[2] Google’s SmartPricing does mitigate this issue a little, but it certainly does not come close to solving this issue. When junk sites are part of the mix, and they’re getting paid something, someone is bearing that cost and that’s the marketers…

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Google, Yahoo and stock prices

Yaron Galai1 Comment

I’m pretty much clueless about the stock market (unless watching Jim Cramer throw around chairs counts for anything). I guess that stuff simply skipped my DNA. So if the following sounds to you like a 2nd grader asking stupid stock questions, you are absolutely right…:

With all the Google stock mania going on, alongside the poo-pooing of Yahoo as being a terrible investment, I’m mystified about one thing:

Isn’t stock investing all about the future financial growth of the company?

Google is an incredible company, no doubt about it. Their revenues are beyond staggering. One of the main reasons their numbers are so great is that they figured out how to monetize a search query and optimized and optimized and optimized. And optimized.

They’ve done such an amazing job with optimizing revenue-per-query, that I wonder if there are any other big optimization tricks up their sleeve. If not, it seems inevitable that revenue-per-query will flatten or at least its growth rate will drop sharply. When that happens, overall *revenue* growth will result from overall *query* growth. This can come from 2 sources: New internet users, and/or converting users over from competition. Both ain’t exciting growth prospects. [1]

Yahoo on the other hand has done a terrible job at monetizing their search queries so far. Their ads were too long, the placement was by bid price and not by overall yield, the relevancy was questionable, etc, etc, etc.

But that’s all part of the past. At this point it seems like Yahoo has all the optimization growth in front of it, while Google is basically done with most of its per-query optimization growth. With Yahoo’s new Panama system being soft-launched these days, it seems like they’re focusing exactly on squeezing the hell out of each query’s revenue potential.

So, if stocks are all about the *future* financial growth prospects of a company – Is it terribly stupid to go long on Yahoo, and short Google? I’m surely missing something that the rest of the market is seeing.

[1] Of course YouTube might start generating gobbles of money, etc. That might be. But today Google is basically a 1-trick revenue pony called AdWords (AdSense is mostly a money wash because of the low margins Google is operating it on).

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