Public Policy Blog
Updates on technology policy issues
Ending our agreement with Yahoo!
Wednesday, November 5, 2008
Posted by David Drummond, Senior Vice President, Corporate Development and Chief Legal Officer
In June we announced an
advertising agreement with Yahoo!
that gave Yahoo! the option of using Google to provide ads on its websites (and its publisher partners' sites) in the U.S. and Canada. At the same time, both companies agreed to
delay
implementation of the agreement to give regulators the chance to review it. While this wasn't legally necessary, we thought it was the right thing to do because Google and Yahoo! have been successful in online advertising and we realized that any cooperation between us would attract attention.
We feel that the agreement would have been good for publishers, advertisers, and users - as well, of course, for Yahoo! and Google. Why? Because it would have allowed Yahoo! (and its existing publisher partners) to show more relevant ads for queries that currently generate few or no advertisements. Better ads are more useful for users, more efficient for advertisers, and more valuable for publishers.
However, after four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement. Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long term interests of Google or our users, so we have decided to end the agreement.
We're of course disappointed that this deal won't be moving ahead. But we're not going to let the prospect of a lengthy legal battle distract us from our core mission. That would be like trying to drive down the road of innovation with the parking brake on. Google's continued success depends on staying focused on what we do best: creating useful products for our users and partners.
New website: Facts about our Yahoo! ad deal
Thursday, September 25, 2008
Posted by Adam Kovacevich, Senior Manager, Global Communications and Public Affairs
Some people have questions about our advertising agreement with Yahoo! and there are some misconceptions about it. So today we are putting facts about the deal on a new website,
www.yahoogooglefacts.com
, to provide more information on the agreement and why it is good for consumers, advertisers and website publishers. We'll be updating the site regularly so check back when you have additional questions.
Facts about our Yahoo! ad deal and competition
Friday, September 19, 2008
Posted by Tim Armstrong, President, Advertising and Commerce, North America
Yesterday I
wrote
about the impact of our
recent advertising agreement with Yahoo!
on advertising prices. There have also been some questions posed about the deal's impact on competition in the online advertising industry. Here are the facts:
Question:
Is this agreement bad for competition?
Answer:
Just the opposite. This agreement - unlike Microsoft's proposed acquisition of Yahoo! - means that Yahoo! will remain an independent company in the business of search and advertising. Yahoo! has stated that it will reinvest the additional revenue from this agreement into improving its user services and competing vigorously against Google, Microsoft and other companies. This is similar to other standard business practices where competitors share components. In addition, the agreement is non-exclusive, meaning Yahoo! could make a similar deal with another company.
Question:
Some claim that Google and Yahoo! will have a combined 90% of the search advertising market. Is this true?
Answer:
No. This agreement is not a merger. This is about expanding the pie, not dividing it differently. Yahoo! will continue to run its own search engine and advertising system. Yahoo! will benefit from Google ads in areas where they have low ad inventory and maintain control over how much and what inventory they make available to Google. Yahoo! will invest additional revenue in remaining a viable competitor in advertising.
Question:
Will Google benefit from access to Yahoo!'s user data?
Answer:
No. We have taken steps in the Yahoo! agreement to make sure that neither company has access to personally identifiable user information from the other company.
Question:
Over time, will Yahoo! just outsource more and more of its ads to Google and cease to exist as an independent ad platform?
Answer:
Yahoo! has made clear that it will still use its own system to serve ads, and it will use extra revenue from this deal to improve its ad platform. The arrangement only covers the U.S. and Canada, and does not cover the fast-growing mobile segment. Yahoo! also has a strong economic incentive to keep serving as many of their own ads as possible, since they get to keep all of the revenue from those ads, while Yahoo! will only receive a part of the revenue from ads served by Google. In addition, Yahoo! has a leading position in display advertising, and will be able to offer advertisers a unique combination of advertising opportunities.
Question:
Once the deal is implemented, why would advertisers keep advertising on Yahoo!?
Answer:
Yahoo! will make the sole decisions about when to use Google ads. They have stated that their plan is show them primarily on pages where few or no ads currently appear. The only way for an advertiser to guarantee placement for their ads on Yahoo! is to advertise through the Yahoo! platform itself.
The online advertising space is a competitive environment, and we believe that this agreement only furthers that competition. Consumers will see more relevant ads, advertisers will have new ways to reach customers more efficiently, and website publishers will benefit from our ad matching technology.
Update (9/19):
This post was updated to remove an analogy that we have learned is incorrect.
Facts about our Yahoo! ad deal and ad prices
Thursday, September 18, 2008
Posted by Tim Armstrong, President, Advertising and Commerce, North America
As Hal Varian
wrote
earlier this week, there's been some recent discussion about the impact of our
recent advertising agreement with Yahoo!
. While Hal addressed a recent study about the deal's potential impact, today I wanted to address of a few of the questions that advertisers and others have raised about the deal's impact on ad prices. Here are the facts:
Question:
Will the Google-Yahoo! agreement raise ad prices?
Answer:
Neither Google nor Yahoo! set ad prices. Ads are priced by an auction where an advertiser only bids what an ad is worth to them. Furthermore, ad price is only one part of the story. A more important measure for advertisers large and small is the return on investment of their advertising dollar. The Google-Yahoo! agreement will help advertisers convert more clicks into customers by showing more relevant ads on Yahoo!, giving advertisers a better return for every dollar they invest.
Question:
Yahoo! claims they will make an extra $800 million from this deal. Does that money come out of advertisers’ pockets?
Answer:
There are two main reasons Yahoo! is likely to earn more revenue. One, the deal will allow Yahoo! to show more ads on pages where they previously showed no ads or only a few ads. Two, advertisers will get more clicks on ads because the quality and relevance of those ads will be better. As is true today, advertisers are ultimately in control of how much they spend because they only pay what an ad is worth to them. So consumers will see more relevant ads and advertisers will attract more customers as a result.
Question:
Can Yahoo! pick whose ads to show based on who has the highest price?
Answer:
No. Under the terms of our agreement Yahoo! won't be able to see the current auction prices for Google ads, and Google won't be able to see Yahoo!'s prices.
Question:
Can Google and Yahoo! use minimum bids to set a unified price floor for ads?
Fact:
No. Google and Yahoo! will continue to set minimum bids in their auctions independently. Google uses minimum bids to help advertisers know what they need to bid in order to have a realistic hope of having their ads shown. Minimum bids also help deter low quality spam ads. Google has never based minimums on what competitors are doing and this agreement won’t change our approach to minimum bids in any way.
Question:
Does Google's quality score effectively raise prices for ads?
Facts:
A quality score helps ensure that users see the most relevant ads not just the most expensive. All the major search engines, including Yahoo! and Microsoft, assign quality scores. Quality score is a formula that reflects which ads consumers prefer based on how they respond to the ads. By including quality score in our advertising system, smaller companies can more effectively compete with larger businesses by creating highly relevant ads and websites.
Tomorrow we'll address some of the questions and misconceptions about the deal's impact on competition.
The SearchIgnite study on ad prices and the Yahoo-Google deal
Tuesday, September 16, 2008
Posted by Hal Varian, Chief Economist
There has been some recent discussion in the press about the potential impact of
our advertising agreement with Yahoo!
on ad pricing, and we wanted to help clear up a few misconceptions.
Some of those misconceptions appear to be based, in part, on a July
report
by SearchIgnite that
concluded
, among other findings, that once the agreement is implemented, keyword prices on Yahoo! might increase by an average of 22%.
After taking a close look at the study, I believe it makes several flawed assumptions and uses questionable methodology. The paper suggests that advertisers will be getting the same performance from the same ads, just at higher prices. We believe that advertisers will be getting significantly
better
performance at prices that reflect that improved performance.
Let's take a look at some problems with the SearchIgnite report.
First and most importantly, the report fails to acknowledge that
ad prices are not set by Yahoo! or Google, but by advertisers themselves
, through the auction process. Since advertisers set prices themselves via an auction, the prices must ultimately reflect advertiser values. That process will remain completely unchanged by our agreement.
Second, the report mistakenly claims that for any given keyword, Yahoo! will have the ability to see whose ads are priced higher -- Yahoo's or Google's -- and then decide which ads to serve. In fact, under our agreement
Yahoo! won't be able to see the current auction prices for Google ads
, just as Google won't be able to see Yahoo's prices.
Third, the report
mistakenly assumes that Yahoo! will serve Google ads for as many of its search queries as possible
. This contradicts Yahoo's own statements that
their plan
is to serve Google ads on search results pages where they have few relevant ads to serve. Yahoo! also has a strong economic incentive to keep serving as many of their own ads as possible, since they get to keep all of the revenue from those ads, while Yahoo! only receives a part of the revenue from ads served by Google.
Fourth, the report includes a
misplaced focus on cost per click (CPCs)
rather than the more important measure for advertisers --
return on investment of their advertising dollar
. One of the reasons Google's ad system has performed so well for advertisers is that our ads tend to be highly relevant to user queries, which makes it more likely that a user will click on an ad and purchase the advertiser's product. We have found that advertisers are generally willing to pay more per click so long as those clicks result in more sales. We anticipate that our agreement with Yahoo! will bring more relevant ads to Yahoo! users -- which is better for both advertisers and users.
Finally, the report suffers from a number of methodology flaws. For one, the study fails to take into account that fact that
Yahoo! shows significantly more ads per page than Google
. Since both search engines tend to show higher cost-per-click ads in higher positions, showing more ads automatically tends to reduce the
average
cost-per-click. Also, the study's
terms are vaguely defined
. Its authors discuss "head" and "tail" keywords, for example, but never clearly define what they mean. Are those terms that appear less often than once a day? Or once a week? There's a big difference.
As we have
said before
, Google doesn't set advertising prices -- advertisers do. Prices must reflect how much a sale is worth to an advertiser, and that will continue to be the case after our agreement with Yahoo! is implemented.
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