Yahoo, Google and My Underlying Philosophy

Years ago I mentioned my underlying philosophy to a friend in the domain business and he never forgot it.  I still remember the evening.  We were out for dinner with our wives. It wasn't me who said it to him, it was my wife.  I had told Michele my philosophy several times over the years and she spoke my opinion for me when it fit into a spot in the conversation.

Successful businesses are always growing. They don't have to grow in the same way mind-you, but they do have to grow.  Whether you're taking on leverage and grossing up through acquisition and merger; or just growing organically. There is no such thing as a perfectly flat line. There has to be growth or there is decay.

Had I known how my friend would run with my philosophy, I may have thought twice about letting that pearl of wisdom escape. Then again, that colleague could completely change the domain industry in the years ahead, so in a funny way, I also feel proud to have planted the seed.

Over the last few months we have all noticed some subtle (and not so subtle) changes in PPC programs.  By and large they have been revenue negative.  A lot of this has to do with internal modifications at the dominant keyword marketplaces relating to click-fraud and improving their ad markets. Google has become a juggernaut and against their success, they have become emboldened to make changes that their publisher partners have little visibility into.

Years ago I chose Yahoo as a publisher partner for a few reasons: 

1) Google has Google.  Google is in a position to call the shots against their publisher partners because they can leverage the visits they get to Google.com (the search engine) against any traffic you or I might be able to drive to them. "You want what?  Why should we listen to you? We're Google ".  While that line is overly simplistic, it sums up my fear in selling traffic to the all powerful master of Search.  In addition to their negotiating position, Google has "black-box execution". They throw a big black box of mystery around everything.  A "black box" is like saying:  "Send us all your traffic, we'll pay for what we think is good and then we won't tell you how we decided."  That makes me very uneasy.

2) Yahoo was transparent.  Historically speaking, I could see into Yahoo and their statistics talked plainly about PPC, CTR, Coverage, Bidded Clicks, Searches etc. Also, Yahoo has few major growing search properties of their own.  Without their publisher network they would be in a good deal of discomfort.

So here we are today. Google has grown very big and put Yahoo in a great deal of discomfort.  I have even heard Yahoo insiders suggest that Yahoo could plug its entire Yahoo Ad Network into Google and arbitrage the payouts against nearly 100% (negotiated) rev-share. Very clever.  Let GOOG carry the weight of staffing, and infrastructure on their side. YHOO would just cash checks like an Adsense publisher. Yahoo has not plugged their PPC network into Google yet for at least two reasons: Pride and Fear.

Pride = Google beat us?!  Never!!
Fear = If they beat us and we fire all our staff, Google will change our rev-share at some future point and hollow out our advertisers/publishers -- We will be powerless once we "put it down".

So it’s a cold war stalemate of sorts. Google keeps trying to consolidate its lead by rolling out changes that make more money (ie. CPA). Yahoo keeps modifying their ad network to copy what Google is doing correctly (ie Panama).

Running on a parallel track, you have Microsoft (watching, learning) trying to roll out an ad network of their own, to compete with Google and Yahoo.  That is ultimately good for third-party publishers as another viable ad marketplace is born.

As these machinations play themselves out, it occurred to me:  Today, Google is like Yahoo was years ago, vulnerable in the sense that they have stopped growing as quickly. With every day of slower growth Google moves towards dying.  In some respects , Yahoo has already seen decay, they recognize they are the underdog now, and are moving to gain ground. Through another optic, you could argue that Yahoo is growing again. It’s still early and they may ultimately not execute; but Yahoo is a good position to do something disruptive. It’s when the chips are down that people are more willing to mix things up and take risks.

In my opinion, the winner of this game will be the paid search network that excels at rolling up (and permanently retaining) their publisher partners; and the publishers themselves. Many third-party publishers control an unusually large percentage of high quality traffic. The Domain Name channel is a good example. These folks deliver very good traffic to one ad market or another. What surprises me the most about Google and Yahoo is that one of the most integral parts of their enterprises (the publisher partners) bring in a significant percentage of revenue; yet those partners are available to anyone.  If I was running these two paid search networks (or the third comer: Microsoft), I would be buying 5-10% of every publisher I could find.  Get a minority stake in the traffic source as Google did with AOL, so that they do not leave for the competition. That is what network control is all about.

Google is raking in cash and IMO they are blowing the opportunity of a lifetime.  They should be saying to every single domain and content publisher of significance: “We are the dominant / ad market..  Sell us 5-10% of your enterprise and in exchange we’ll give you BIG% rev-share. That way they assure that if somebody invents another Google to compete with Google, they retain some ability to shape destiny by owning and controlling a network of others.

Yahoo and Microsoft should consider this approach as well. They have the cash and they too know where the high quality publisher bodies are buried. Pony up now and you solidify your traffic supply into the future. 

Regardless of whether they consider this advice, the next few years will see power return to the publisher as ‘somebody’ takes advantage of this golden opportunity in time to sieze on the obvious (and my underlying philosophy):  If you’re not growing, you are dying.

Comments

[C_Sivertsen]

Hi Frank, your blog is a great read!

As one Yahoo's largest customers, how have you dealt with their decline in the domain space overthe past few years?? Meditation?

Do you have a line in the sand for the success of Panama? Meaning do you ever think..."...if they don't get things ship shape by (insert date) i'm taking my biz across the street..."?

Chris

***FS*** I am not really one of Yahoo's largest partners anymore.. They have massively grown their biz since that b2 article came out.. but I think they are going to execute their way out of their problems. Failure is a funny thing. It destroys some folks but makes others stronger. I see Yahoo in the latter bucket.

[Omar]

Frank,

Great post.

What are your thoughts on Microsoft entering the paid search business? Is this something for domainers to look forward to?
:-)

***FS*** Will take time for them to build a base.. between here and there they may get discouraged and opt to buy Yahoo.. that would probably be fast and cheaper.. but not better from the 3 market outlook.

[Rob Sequin]

You suggest the big three buy 5% of publishers/domain owners.

Do you think any one of them would make a bid for your portfolio or that of Name Media or Fabulous?

They should buy 100% of the big portfolios then they own and control it all.

Possible?

***FS*** I'm glad you made this comment Rob.. on rereading my post this isn't me trying to get bought.. in actuality I would prefer to go last because I don't think the market fairly values generic over typo style traffic.. there is a premium for high quality generic names but not enough.. valuations still based on ppc. But the ad marketplaces do not own anything that can not be duplicated with money. The only thing that can't be duplicated are type in traffic domains and large scale content publishers (well content-pubs 'can' be recreated but not without considerable time and expense) I think goog, yhoo should look down at the 20% of their 'partners' generating 80% of third party revenue and make a decision about trying to buy in.. 5-10% is 'nothing' for these guys.. and then they'd have more control over future destiny. Not all publishers partners may take the bait.. but nothing begets nothing.

[DNCatalog]

"Years ago I chose Yahoo as a publisher partner"
This may be slightly off topic, but your post made me wonder what the advantage is of using only one partner versus trying both networks and using the one (on a name by name basis) that delivers the best results. I know that with a portfolio as large as yours, it would be difficult to scale and do with every name, but what would happen if you just took your top 1% (or top 50 or top 1000) most visited or best converting names and did this?

[kamal]

I like your philosophy, Frank, not only for business, but life.

Great job on this blog, it's quickly becoming my favorite.

Best,

Kamal