The text-advertising wars

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In a new Wired article titled How Yahoo Blew It, Fred Vogelstein highlights the many mistakes Yahoo committed that led to them losing text-advertising dominance. He quickly glosses over what, in my opinion, was their largest mistake by not buying up Google’s search techonlogy when it was first offered to them on the cheap. To Vogelstein, their main problem was that they didn’t refine their text-based advertising quickly enough, buying Overture and then not updating its technology and implementing it into Yahoo right away. At one point of the article, he claims that Yahoo CEO Terry Semel was infuriated because Google’s success “could have been [Yahoo's success]“:

Semel could talk tough because he had a backup plan. Yahoo would go out and buy its own top-notch search engine and its own search-advertising technology, and it would beat Google in the emerging arena of little text ads that pop up next to search results. Semel’s decision to opt for this plan B was a fateful one. It was a smart play — but Yahoo fumbled, bungled, and mishandled its execution at every step. (More on that in a moment.) As a result, Google today controls nearly 70 percent of the search-related advertising market, an industry worth more than $15 billion a year and growing at roughly 50 percent a year. It’s these ads that are the source of Google’s riches and the basis for its expanding power.

And what must infuriate Semel: This could have been Yahoo.

What Vogelstein fails to note properly is that Yahoo’s loss on the text-advertising market is only a small part of the problem. The main obstacle lies with the fact that Google has such a large dominance in search. Sure, if Yahoo had better advertising technology quicker, then they could have gotten a slightly larger chunk than they did, but that still doesn’t mean they would have grabbed the largest market share in online text advertising. They can only get so many people to click on their ads when only a certain number of users are performing Yahoo searches instead of Google searches.

Checking my own stats, 92.58% of search engine hits to Bloggasm come from Google. From Yahoo? A measly 1.88%. It doesn’t even beat out MSN search. To suggest that Yahoo could even come close to out-performing Google in text-based advertising would be to ignore the total number of users who search from the two engines.

Yahoo just simply doesn’t have the numbers.

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