Early Panama Results

24 Apr

With so much information out there, its easy to miss some interesting tidbits. However, when its the company you work for putting out the info, I feel shame.

From:

http://blog.channeladvisor.com/blog/2007/04/16/yahoo-panama-how-is-it-looking-so-far/

With the launch of Panama early this year, there has been a lot of industry buzz around Panama improving Yahoo’s advertising fortunes. Early reviews have been positive. Because people ask us a lot how Panama is working for our customers, I thought it would make a good post.

In 2006, our clients’ Yahoo spend as a percentage of Google spend steadily decreased. The decrease was due to a number of factors including lower search volume, lower clickthrough rates (CTR), and most importantly for our clients, lower return on investment (ROI) on Yahoo relative to Google.

However, in the first two months of 2007, spend on Yahoo as a percentage of spend on Google began to increase. During this time, most of our clients were migrating to the new Panama platform (because our client base is primarily retail, many had declined to do so during Q4). With the official launch of Panama in February, our clients saw this as an opportunity to re-launch campaigns and, given the promise of Panama, retry a more robust keyword set (keywords that have been deleted or taken off-line over time due to poor performance on Yahoo).

In March 2007, though, spend on Yahoo as a percentage of spend on Google decreased substantially. Why did this happen? In February, the increase in Yahoo spend did not result in the corresponding increase in sales required to hit our clients’ ROI goals. Because the conversion percentage and ROI declined on Yahoo in February, our clients’ spend on Yahoo necessarily decreased in March to ensure that they were hitting their ROI goals. Based on aggregate ROI on Yahoo relative to Google in March, I don’t anticipate a further decrease in this ratio and I suspect that Yahoo spend as a percentage of Google spend will level off or slightly increase moving forward in 2007.

From Yahoo’s perspective, Panama seems to be having some benefits. In 2007 to date, we have seen Yahoo’s CTR increase (even as keyword volume has increased), suggesting that Panama may be having a positive impact on CTR. But, if ROI is not sufficient for our clients on Yahoo, our clients (working in collaboration with our full-service paid search team or using our self-service tool) will cut spend on the lower ROI keywords and exercise a bit more caution experimenting with new keywords. This is one reason, but certainly not the only one (search volume!) that spend on Yahoo trails spend on Google.


But, this begs another question: Why do we see lower ROI on Yahoo than on Google? There are a number of potential explanations but one that sticks out is the minimum cost per click (CPC) on Yahoo. While Google’s minimum CPC can get as low as $0.01, Yahoo’s minimum CPC is $0.10. This does not have as large an impact on tail terms (more specific search phrases), for the most part, where Google’s minimum bid can be much higher than $0.10 (until quality score gets high enough to potentially bring the minimum bid lower). However, this has a major impact on the ROI of retail brand terms (i.e., the brand name of the retailer and variations of that name).

For example, we have a number of clients with strong national brands. Actual CPCs on Google for these brand terms are $0.01 to $0.06. On Yahoo, the CPCs on the same terms are at least $0.10. So, even though Yahoo sometimes has a higher conversion percentage on those terms, ROI on Google can be two to three times or more what it is on Yahoo (using return on ad spend—ROAS—as the measure of ROI). And, because retailers with strong national brands drive a large percentage of their paid search sales through brand terms, brand term ROAS is a significant contributor to overall ROAS. As a result, overall ROAS on Yahoo is lower.

Now, let’s return to the topic of spend on Yahoo as a percentage of spend on Google. For retailers that truly measure each and every keyword individually (which many of our clients do), lower ROAS on brand terms on Yahoo should theoretically have little impact on overall spend on Yahoo. But, some retailers look at overall ROAS on a channel/provider basis. As a result, retailers in this category with fixed budgets divert their limited resources to the provider (i.e., Google) that can deliver the highest ROAS. Other retailers in the “overall ROAS” camp have open budgets (but strict ROAS goals by channel/provider). These retailers don’t experiment as much with Yahoo because the ROAS from brand terms does not provide them with as much cushion as it does on Google, where the ROAS and search volume is generally higher. Less experimenting means that these retailers could potentially miss out on positive ROI opportunities that drive additional spend for Yahoo over time. As I mentioned above, this is certainly not the only reason or even the primary reason that Yahoo spend is lower than Google spend (again, search volume), but it certainly could be a contributing factor

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