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Yahoo's FailOver Strategy: AdSense?

By - November 01, 2006

Eric speculates on a Wall St. analyst’s speculation. Man, I could not see this happening.

Now here’s an idea I hadn’t heard before: Rob Sanderson, an analyst with American Technology Research, asserted in a research note today that there’s an easy fix for Yahoo (YHOO) if its Panama search platform doesn’t succeed: revert to being a Google (GOOG) affiliate, as it was before the company bought Overture. Throwing in the towel on Panama and becoming a Google affiliate could allow the company to capture at least a portion of the 66% gap in search query monetization begtween Google and Yahoo, Sanderson asserts.

He contends that, while a black eye for management, such a move could be a “financial boom” to Yahoo investors. He says EBITDA could be at least 35% higher that current forecasts at Google’s rate of monetization, especially given lower costs.

Update: Doh. Of course I knew this and should have noted it, but Yahoo did not get its paid search results from Google, it got organic results. Overture, which it bought, provided paid search results. The analyst got that wrong.

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10 thoughts on “Yahoo's FailOver Strategy: AdSense?

  1. Why not? It’s worked for…

  2. Understanding the budget economics of hundreds of thousands of advertisers is the key to Google’s business model. It enables them to pay more for YouTube and MySpace and allows them to build new products at a pace never seen before. If Yahoo were to “outsource” their core monetization to Google, their ability to monetize other assets in the future would be completely dependent on Google, putting a “once” large media portal into dangerous territory.

  3. Bob says:

    I have just finished The Search and had some comments to share with the author. 1. How do I do this (have not blogged before)? 2. I cannot believe how many ads were delivered to my PC when I clicked on an ad – they pop up faster than I can delete them!

  4. dumbfounder says:

    If yahoo gives up, our last hope is Microsoft… seriously, we really really really need competition in this market or Google alone will decide the fate of many a company out there. If all we have is Google, and Google one day decides they don’t want to do business with you (which they have done to many many people, and usually without much explanation). We need alternatives.

  5. The proposition of Yahoo dumping Overture and marrying to Google is definitely not welcome for the user community. It would mean monopoly and dictatorship by one company and users will be at their mercy. It is better to have healthy and balanced competition. In Japan many electronic companies coexist, they do not try to eat other and still succeed in their niches. That kind of approach is healthy.

  6. I don’t think this strategy has really “worked” for in the larger sense. Their search market share is trending from 2% to closer to 1%.

    From a product standpoint, Yahoo Search and Yahoo Search Marketing are two quite distinct products, competing with Google Search and Google AdWords.

    They aren’t necessarily tied together, and to be honest, the superior monetization of Google AdWords isn’t the only issue for Yahoo. Google’s lead in search means that Yahoo suffers from a threat to its search market share. But even if it installed Google Search to power Yahoo Search, that market share could continue to decline.

    While they may be in second place, Yahoo’s only viable option right now is to continue to develop their various search and ad options independently. Using Google’s technology not only doesn’t solve anything, but would be a potentially fatal error.

  7. Bryan says:

    Who’s to say Panama will fail? What Google did was not rocket science. All they did was realize that CTR is an important consideration for monetization.

    Yahoo has learned, and is taking corrective measures. The only difference is that they inherited Overture’s antiquated infrastructure. Panama is their ticket to a higher yield.

  8. Doug says:

    What about Yahoo’s distribution network and the potential growth of the network outside of Yahoo’s owned and operated properties? This goes to Google under this theory. Amazing how out of touch some analysts are…

  9. It doesnt require rocket science to make money.Google’s simple bidding enhancements gave them a huge boost. Now they have raised their technology further and can bid CPM/CPC/CPA ads on the same platform. Its catching up game for yhoo. A huge catching up.

  10. PhillyGuy says:

    Highly unlikely. Various reasons including money already spent, monopoly issues and of course ego will prevent this from even being brought up at Yahoo.