….and it will take me some time to get my head back to Real Time. Bonnaroo was, simply, amazing. I never thought I’d want to go to a Metallica concert. As I said on Twitter: Where else can you walk around and in one hour see the likes of Cat Power, BB King, !!!, Phil Lesh, Jackie Green, My Morning Jacket. And to that I’d add Pearl Jam, Chris Rock, the Raconteurs (wow…), Iron & Wine…the amount of music I took in is overwhelming. I feel like a massive pipe cleaner has been taken to my head.
Meanwhile, while I was gone, Yahoo did the deed with Google.
Mark it, folks. We’ll be talking about this again and again, as either the beginning of something at Yahoo, or the end. I’m going to wager it’s the end. I’m hoping to be wrong. But this is too little, too late. And no amount of spin will change that.
Oh, and by the way, the whole “This isn’t about Microsoft” BS is so, well, BS.
The price of crude oil is set in an auction. But OPEC still has control on the prices, because they control the supply. For an example, the prices on gas-pumps in USA can be easily increased to $5 overnight if OPEC announces deep cuts on crude supply.
Same is in the search engine business. Search for something, the supply that is the number of ad-slots on a search page is controlled by the search engine.
There may be more conditions, but I could identify at least four conditions which must be satisfied before a dominating search engine can say that the domination will not be misused to overcharge the advertisers:
1. Show the maximum number of ads on each search result page, which are not set by the search engine depending upon the query. Algorithmic part of the search page shows 10 blue links on most of the queries and pretty much on all the queries of commercial interest. But that’s not the same for the ads. The number of ad-slots are reduced, if that helps charge more money from the advertisers. Some pages have 3 ads on the top and some zero. Some pages have 8 ads on the side and some have 0. Whenever reducing the supply to raise the prices make sense, it is currently done. Not much different than OPEC.
2. No reserve price. Reserve price is essentially setting the prices by the seller, i.e., the dominating search engine.
3. The auction must be transparent. Whatever is the auction formula in use must be announced to the advertisers in full detail. If there are fuzz factors they should be told to the advertisers and how they are computed in a transparent manner.
4. The role of relevancy and the bid must be separated. For an example, the dominating search engine can choose the ads on the top slot based only upon relevancy (or quality) or more broadly the ordering of ads can be solely chosen on the relevancy (or quality). The bids can only decide which ads are actually shown and not their ordering. Another possiblity is to do the reverse. For an example, relevance (or quality) can be used to find the set of ads to be shown and bids can be used to determine their ordering. Whatever be the criteria, having a translucent relevancy (or quality) component in the auction allows the dominating search engine to set the prices. The prices will be set even higher if the dominating search engine controls an even higher share of the market.
Typically in a market the power of dominating player is even higher in the cases when the prices are set by the auction. Auction is a mechanism which allows the seller to charge the maximum prices proportional to its market power. Other mechanisms such as posted prices do not give as much power to the seller. For an example, Apple could not use its domination to set the prices of iPod as Google could use to set the prices of its search engine. If Microsoft starts giving away Zune for essentially free, Apple would have to cut the prices of iPod. But if Microsoft starts giving away ads for free on its search engine, Google could still charge the maximum for its search engine. That’s the extra ordinary power of domination in the search engine market. This power is unprecedented and even OPEC does not have this power in its market of crude oil.
The example of Toyota and GM is a non-starter. Even if they merge and become a single company, they won’t have as much domination in the car market as Google already have in the search market. The domination is not defined by the number 1 and 2. If there are 19 players in a market and the top one controls 10% then that player does not become the dominating player.
The commentator is a scientific researcher in Microsoft. The above analysis is only a scientific analysis of an auction based market.
Commentators around the web all seem to be saying the same thing… Yahoo is doomed.
I find this strange as the company is uber profitable and number two (by some distance) in the sector.
Would anyone say Pfizer, PepsiCo, Royal Shell, or Goldmann Sachs are doomed because they are number two, or three in their sectors?
Just because a phenomenon has emerged over the past few years to overtake Yahoo it doesnt mean that the mgmt team are incompetent… again as many are applying in their posts.
Let us remember that it was Yang that built the company into the multi-billion Dollar business it is today.
Michael Arrington and the rest can only dream of being 0.5% as successful.
Bonnaroo was unbelievable.