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Yahoo Strategy from the Yahoo Magic 8 Ball?

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Yahoo's Yodel Turns Into a Whimper. That's how BusinessWeek described the Yahoo earnings call. In his NY Times Tech blog, Saul Hansell savaged Yahoo execs on the conference call for not articulating a strategy, obfuscation, and excessive use of jargon.

I disagree, so we'll let our search industry readers decide for themselves.

Here are the 5 most important questions Wall St. analysts asked and Yahoo executives answered about Search, excerpted courtesy of SeekingAlpha.com, where you read the full transcript of Yahoo's earnings call and tomorrow's Google earnings call (January 31).

Judge the answers for yourself. There are golden nuggets you'll be able to use when developing your search engine strategies.

Brian Pitz, Banc of America: Would you comment on whether you continue to see click-through rate improvements from Panama accelerating since Q3?

Susan Decker, President, Yahoo: Brian, the click-through rate improvements have been the primary driver of the RPS (revenue per search) gains, as we have said in the past. We don't get too specific on all the components, but I did mention that in Q4 a couple of initiatives that will help advertiser ROI actually may have limited our gains and were deliberate moves against coverage. We have seen continued improvement in click-through rates and as I mentioned, the RPS gains in Q4 were pretty consistent with what we saw in the prior two quarters of close to 20%.

Mark Mahaney, Citigroup: You (Susan Decker) made some comments about some macroeconomic uncertainty. What kind of impact in a hard recessionary environment do you think you could see in your display and search advertising, whether one would be more insulated than the other? Specifically in Search, to the extent that you were to see a major negative macroeconomic impact, do you think you would see that more in terms of advertiser demand or a change in user or searcher behavior?

SD: Just going back to some of the comments I made in my script, we have, from time to time, seen pockets of weakness and certainly a couple of pockets in the fourth quarter as I outlined. We've also had areas of strength that have been offsetting.

The challenge in answering your question is clearly the secular trends in online advertising have historically, and even today, very much been overwhelming the cyclical environment. It's early to tell though if the weakness in the housing and financial and travel sectors -- a little bit in retail -- will start to affect the consumer more broadly and the advertiser more broadly and therefore searches in terms of what kind of commercial searches happen.

I don't think we have a crystal ball in that, but we are encouraged, actually, by how much offsetting strength we've seen in some of the other categories which has kept our overall marketing services growth rate in line in display and Search with what we saw earlier in the third quarter, or actually even a little bit better.

Jason Helfstein, CIBC World Markets: Can you give us some color on the affiliate weakness? How much of that was pricing versus volume? What was headcount at the end of the quarter?

Blake Jorgensen, Yahoo CFO: On the headcount front we didn't disclose headcount in this conversation but it is roughly 14,300. As a reminder, we closed two acquisitions during the fourth quarter that added approximately 200 heads to that group.

SD: On the affiliate -- this is Search affiliate, just to be clear on that -- the overwhelming majority of it is price. I said in my comments that the TAC (traffic acquisition cost) rate for the last two years really looking at 2006 to what is implied in our projections for ‘08 has gone from 72% to about 80% on TAC-attributable revenue and that excludes the Yahoo! Japan deal which has been restructured.
…In terms of volume, the only real volume changes have been some traffic quality partners and really not much else.

Justin Post, Merrill Lynch: On query volume, I know market share has been an issue for The Street. Can you talk about how your query volume growth has trended both U.S. and internationally over the last three or four quarters?

SD: On the Search side we talked about our overall revenue being up about 30% plus in Q4 and RPS being up about 20%. You can do the math, but the implied query growth is up about 10% double-digits.

Business Week asked search marketing firms for commentary on Yahoo's dilemma: Didit Executive Chairman Kevin Lee, was quoted as saying, "We give them every dollar we can but if they don't have the traffic, there's nothing for us to spend the money on."

That's the general sentiment of the SEMs managing paid search campaigns. Everyone's rooting for Yahoo, MSN adCenter, even Ask to win back share from Google.

Ellen Siminoff, CEO of Efficient Frontier (whose search spending study was detailed by ClickZ yesterday) noted Yahoo can't cut its way to prosperity and shared an astounding statistic: overall search ad spending on Yahoo by Efficient Frontier clients fell 3.8 percent in Q4 y/y while Google's share of search ad spending rose to 76.6 percent from 70.5 percent last year.


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