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Will paid search prices be affected by Google – Yahoo search ad deal?

Hal Varian, Chief Economist for Google, Berkeley Professor, author of the awesome book Information Rules and amateur Sam Eagle impersonator, tears down a white paper by an SEM company that predicts that the deal Yahoo made to serve Google ads will cause a 22% increase in Yahoo PPC bid prices. Varian asserts that the defects in the paper’s methodology make its conclusions about as legitimate as a $50 Rolex.

Whew, I’d hate to be those guys. The thought of going toe to toe with Varian is terrifying. But Professor Varian’s critique of the study does nothing to address advertisers concerns that changing the bidding structure will impact the price of advertising on Yahoo keywords.

Ask Jeeves partnered with Google to serve ads on Teoma and other products back in 2002. They determined whether to display an Ask Jeeves ad or a Google ad by the $$$$ they’d receive. Expensive ad goes to the top. Makes sense. Professor Varian says that Yahoo has a “strong economic incentive” to serve their own ads rather than Google’s; full share vs. partial share of profit. He also points out that Google and Yahoo won’t be able to see one another’s bid prices.

But neither company has detailed how their ad services will be integrated. Advertisers make higher bids for Google than Yahoo; it’s not unreasonable to speculate that Google and Yahoo might adopt a bidding model that would result in advertisers driving up prices on Yahoo keywords. There has been no information on the workings of the bidding system that demonstrates that this won’t occur.
it's a search engine spider, get it?

Here’s Google’s press release about the agreement to provide ads for Yahoo. http://googleblog.blogspot.com/2008/06/our-agreement-to-provide-ad-technology.html

Here’s Yahoo’s press release on the same subject.

http://yhoo.client.shareholder.com/releasedetail.cfm?ReleaseID=316450

Search Engine Watch Article about Google deal to provide ads for Ask Jeeves
http://searchenginewatch.com/showPage.html?page=2164921

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