Let's assume there are two possible outcomes for Yahoo: Either it gets hitched to Microsoft after a long, drawn-out engagement, or it marries AOL and outsources its search to Google.
Federal regulators will likely have a heyday with either scenario, but advertising veterans say a Yahoo-AOL-Google agreement could drive up search ad rates overnight. And that, of course, would increase regulatory scrutiny.
"The average CPC (cost per click) on Google is higher than Yahoo," says Zorik Gordon, CEO of ReachLocal, a local ad provider that works closely with Microsoft, Yahoo and Google. "[Google] monetizes better and has more search activity. If you apply Google rates for the same search terms on Yahoo, you're going to be paying more than you were the day before."
Assuming Google inherits Yahoo's search business, it could collectively control more than 80 percent of the search market. (Google had about 59.2 percent of search market share in February, according to comScore, while Yahoo had 21.6 percent of the market.) With that sort of dominance, Google should be able to exert all sorts of control over ad rates, right? Not so, say some advertising industry veterans.
"My opinion is that most ad markets will act like financial markets," says Jay Kulkarni, CEO and Founder Theorem, a web analytics company that works with DoubleClick and Digitas. "There are new technologies that allow buyers to bid on ads. Media buyers will pay a premium to place ads that get response. If they don't get a response, they won't pay as much for it."
Photo: Flickr/debaird
