Yahoo embarks on a critical overhaul to its search engine starting today, although very few users will probably notice. But, in effect, Yahoo has left hundreds of millions of dollars in revenue on the table, with major repercussions.
Search engine advertising is a major business that is expected to generate $8.3 billion in sales in 2007, according to eMarketer, and advertisers are increasingly flocking to it as a way to hawk their products to what is considered a highly receptive audience.
Unlike television commercials, search ads are tailored to an individual user’s interest. Advertisers can choose which search queries their messages appear next to. The more aligned with the product they sell, the better. However, on Yahoo the ads were too often off the mark, Yahoo executives acknowledge. The problem was with the formula the company used to determine ad placement.
Yahoo’s technology gave most- prominent placement to advertisers that were willing to pay the most. But it turned out that those ads were not necessarily the ones users clicked on. Either users did not trust the companies advertising, or their pitches had no appeal.
To correct the problem, Yahoo will start considering an ad’s past success in generating clicks, in addition to the amount advertisers are willing to pay. Advertisers that are willing to open their wallets wide will no longer be guaranteed top billing. The change starts in the United States on Monday and will be phased in overseas by the end of the year.