Paid Search Advertising Drives Microsoft Bid for Yahoo

More "relevant" search results and social media innovations won't solve the problem of Google's dominance in paid search advertising. Microsoft-Yahoo still need to beat Google brand equity and searcher loyalty. Search is a habit. For some, search is an online addiction.
Switching costs may be low --and search engine alternatives are "one click away" - but Microhoo will still need to win over the Google ravers and junkies.
When Microsoft or another suitor finally buys Yahoo , no one need feign surprise. The Redmond giant finally went public with a formal buyout offer because the Yahoo board (sans Semel) won't fight back. The last bid was rumored to be $50 billion. Today's offer comes in at $44.6 billion because Yahoo stock price dropped below $20 per share.
Look for other bidders to force Microsoft to pay a higher premium. While display advertising is a key driver for creating two super-portals on one efficient ad serving and ad management platform, Microsoft-Yahoo would never win government approval unless Google had achieved what some call near-monopoly leadership in paid search.
Yahoo Panama -- Yahoo's paid search auction algorithm and search ad platform would move to Redmond even if the Yahoo engineers remain in Silicon Valley. MSN adCenter is innovative, but Yahoo Panama improved topline revenue -- although not as much as Wall St. and Jerry Yang would have liked.
Some reports had attributed Microsoft's urgency to close a Yahoo deal to Google's successful bid for DoubleClick. Formal negotiations between the two companies are clearly driven by Google's dominance of paid search and share of searches. Today's conference call confirmed that Google's dominance in paid search advertising -- pegged at 75 percent of worldwide paid search share by Kevin Johnson,
The revenue engine that drives search engines is auctioned paid search (PPC) advertising. As Pay-Per-Click advertising has evolved, traditional banner ad networks suffer from consumer banner blindness. That's led to the rise of behavioral targeting, or more accurately, "search re-targeting" -- another key driver of today's deal.
Neither Yahoo Search Marketing nor MSN adCenter has made significant inroads in creating a search management or web analytics platform to rival those of Google. Microsoft's acquisition of DrivePM, for example, through the Aquantive acquisition was immaterial to MSN search and online advertising revenues.
Microsoft and Yahoo have held informal talks for years -- with neither company making inroads against Google. As recently as May, Yahoo has turned down an unconfirmed offer worth $50 billion to Yahoo shareholders. On the call, Steve Ballmer said the companies have been in talks for $18 months, and confirmed that Jerry Yang had nixed his initial offer, citing timing as the reason.
Given Yahoo's share price, it's unlikely Yahoo shareholders will give Yahoo execs more time to turn around the company's fortunes. Terry Semel's resignation from the Yahoo board last night removes the last vestiges of his controversial reign as Yahoo's chief.
So the pundits and reporters who attribute Microsoft's bid to ego -- "stung" by the success of Google's DoubleClick bid -- don't understand the fundamentals of paid search. Steve Ballmer does -- and he knows he can't beat Google without adding Yahoo's critical mass. It's not about winning or losing a bid for a rival's ad serving platform.

VerticalResponse Wins 2008 SmallBusinessComputing.com Excellence in Technology Award for Online Marketing

SAN FRANCISCO, CA -- VerticalResponse, a leading provider of self-service email marketing and direct mail solutions for small businesses, today announces the win of the 2008 SmallBusinessComputing.com Excellence in Technology Awards in the Online Marketing category. SmallBusinessComputing.com is a leading online information resource designed to provide technology solutions for small businesses. Nominees were announced on SmallBusinessComputing.com in November 2007 and winners, determined by reader votes, were announced on January 22, 2008.
"At VerticalResponse, we strive to meet the marketing needs of our customers. We are particularly pleased that this award is voted on by the small businesses we developed our product for seven years ago, and continue to listen to as they help us develop new features and services," says Janine Popick, CEO of VerticalResponse. "This award demonstrates that VerticalResponse is more than email, but an effectual marketing solution for small business."
The online marketing category included pay-per-click campaigns, surveys, social commerce initiatives and email marketing. VerticalResponse, with its comprehensive product, services and educational resources, won their category by a landslide.
"This year, VerticalResponse takes home the gold. The majority of its customers are small e-tailers and they seem to be happy," according to SmallBusinessComputing.com. "VerticalResponse won by a large margin with more than 66 percent of the vote."
In the past year, VerticalResponse has integrated new features such as Google Analytics, and a powerful List Segmentation tool, all while maintaining the same affordable pay-as-you-go pricing model -- ideal for small business. Last year's winner, Google AdWords, placed second this year, with close to 30 percent of the vote.
About VerticalResponse
VerticalResponse, Inc. (http://www.verticalresponse.com/) is a leading provider of self-service email marketing and direct mail services empowering small businesses to create, manage and analyze their own direct marketing campaigns. VerticalResponse's flagship product, which allows customers to deliver sophisticated yet easily deployed email campaigns, is the most intuitive and affordable Web-based direct marketing solution available. VerticalResponse is headquartered in San Francisco, California. For additional information, please visit http://www.verticalresponse.com/.
About SmallBusinessComputing.com
SmallBusinessComputing.com (http://www.smallbusinesscomputing.com/) is a daily information resource designed specifically for Internet and IT professionals dedicated to providing technology solutions for small business owners. The site features a product testing and review section, a buyer's guide, business tools, daily news for e-marketers and Webmasters, and a free e-mail newsletter. SmallBusinessComputing.com can be found on internet.com's Small Business Channel.

Big Internet earnings week points up uncertainties

SAN FRANCISCO (Reuters) - Big Internet stocks have fallen 25 percent to 40 percent in the last quarter and haven't looked cheaper in years. But despite expected strong year-end results, many investors are likely to shy away in the short run.
Investors are set to focus on company outlooks and how a slowing U.S. economy will lead to advertising cutbacks and more hesitation among online shoppers over the course of 2008. Yahoo Inc posts results on Tuesday, followed by Amazon.com Inc on Wednesday and Google Inc a day later.
"At the moment, investors are paying an awful lot more attention to outlooks than they are to past performance," said Jeffrey Lindsay, an analyst with broker Sanford C. Bernstein. "Any sign of lowering guidance is instantly seized upon."
Google faces uncertainty over how its online ad business performs in a tighter economy and questions over shifting its computer-based business on to mobile phones, if it wins rights to U.S. airwaves and becomes a wireless operator.
Because Google does not comment directly on its outlook, investors must read the body language of Chief Executive Eric Schmidt or decipher the meaning of any passing comment Google offers about key advertisers in financial services or autos.
The Internet market leader is expected by Wall Street to post fourth-quarter revenue growth of better than 50 percent amid ongoing market share gains in Google's search business. Analysts look for revenue at Yahoo to grow just 15 percent.
Highlighting the contrast with Google, Yahoo is set to announce job cuts alongside lower earnings this week. Sources familiar with the plan say fewer than 1,000 employees could lose jobs -- about half what was rumored on some blog sites.
Yahoo's fourth-quarter profit is seen down 31 percent to 11 cents per diluted share, while Google is slated to post a 40 percent rise, excluding stock options and one-time items.
"We think at the moment, the most negative scenario for Yahoo is fully priced in," Lindsay said. Yahoo shares, which closed 5.3 percent down on Monday at $20.78, are down nearly 40 percent from year-high levels in late October.
He said Yahoo is likely to lose highly profitable broadband partnerships with AT&T Inc and others in the next 18 months, while warning of further weakness in its corporate brand advertising business as the U.S. economy hits the skids.
Lindsay sees no short-term catalyst coming out of Yahoo's expected "mediocre" results; "What investors want to see is how they are going to improve their core advertising business."
On the back of strong toy sales, Amazon revenue is expected to rise 34 percent over a year ago to a record $5.36 billion. Net profit is expected to double to about 48 cents per share.
"Amazon and Yahoo are likely to hide behind deteriorating macroeconomic conditions," Global Crown Capital analyst Martin Pyykkonen said. "They can always raise their outlooks later in the year if things improve."
CHEAP? OR GETTING CHEAPER?
Marking a dramatic reversal, Google was trading near $750 12 weeks ago -- and was forecast to approach $900 in 2008 by bullish Wall Streeters -- and now trades just above $550.
Google is trading around 32 times the 2008 earnings estimate of Bernstein's Lindsay, compared with the pricey 55 times price-to-earnings valuation that he has on Amazon.
Pyykkonen said Amazon remains "priced to perfection" -- meaning the stock price assumes perfect execution. Amazon has a price-to-earnings multiple three times that of eBay's beaten-down valuation.
Despite a 25 percent decline in Google stock since early November, Wall Street is far from capitulating. Nineteen analysts still recommend investors buy Google stock, while only three rate the shares "hold" and no one advises selling.
Clayton Moran of Stanford Group is among the most bearish analysts on Google's stock. He takes aim at the notion that Google's pay-for-performance Web search advertisements somehow insulate the company from a weakening economy.
"A pullback in consumer spending could negatively affect Google's search volumes and click prices and therefore (its) advertising revenue," Moran argued in a research note to clients as he downgraded the stock to hold from buy last week.
Moran has the lowest price target of any analyst formally following the company, at $615.
To win the airwaves needed to launch a national wireless network, Google would likely pay upward of $10 billion just for radio licenses, along with $5 billion a year over the next five years to build out the network, Bernstein has calculated.
Unless it finds a deep-pocketed partner, Google would be committing itself to a business with far lower capital returns, Lindsay argues. Until recently, most analysts had bet Google would stay away from investing in wireless networks.
But strongly worded comments from CEO Schmidt about Google's focus at the World Economic Forum in Davos on Friday have many analysts believing Google may be serious about a U.S. wireless network.
"Google on a relative basis, is starting to look quite cheap," Lindsay said. "But investors are hanging back. They want to find out if Google intends to bid to win in the wireless auctions."

Google spars with European lawmakers over privacy

BRUSSELS (Reuters) - Google attacked European parliamentarians and privacy advocates on Monday for trying to have competition authorities consider the handling of personal information in its $3.1 billion takeover of rival DoubleClick.
The argument was the centerpiece of a European Parliament hearing to consider the burgeoning role of the Internet in impinging on the privacy of citizens.
The U.S. Federal Trade Commission (FTC) signed off last month on Google's $3.1 billion deal, which combines its dominance in pay-per-click Internet advertising with DoubleClick's market-leading position in display ads.

After listening to a visiting FTC commissioner, U.S. and European privacy advocates and European parliamentarians question the impact of the deal on European citizens' on-line privacy, Google's global privacy counsel shot back.
"People (are) trying to take a privacy case and shoehorn it into a competition law review ... I can understand that people continue to peddle this theory in Europe after having lost in the United States," Peter Fleischer said. His attack did little to calm the waters.
"The reason you want to have the data is because it gives you a competitive advantage. It is business. I don't think they can be completely disconnected. And we should discuss that side of things too," said Sophie in 't Veld, the Dutch parliamentarian who sought the hearing.
She called information a competitive factor and declared: "Having that much information is market power."
Federal Trade Commissioner Pamela Harbour said her four colleagues at the FTC had taken a traditional approach and excluded questions of privacy in their decision. She dissented.
"I believe a traditional approach does not capture the interests of all the parties. There is no proxy for the consumer whose privacy is at stake," she said.
The European Commission has said it will not take privacy into consideration. In the past six years, it has not turned down any all-U.S. deal approved by U.S. authorities.
Fleischer, asked about the deal rationale, said Google wanted to get into banner advertising. He said his firm did not build dossiers on individuals through searches, instead using the words of each search to decide what ads to display with it.
Contractual limits would prevent Google from using DoubleClick information from individuals, he said.
Stavros Lambrinidis of Greece, who chaired the meeting, asked whether Google turned information over to government authorities.
Fleisher said that if authorities go "through a valid legal process we will respond to it."

Ads for a gun course (plus free gun!) are turned down by Facebook as a violation of its guidelines.

With the shootings at Virginia Tech and so many high schools still echoing around the country, it’s perhaps not too surprising that the social networking site Facebook has turned down ads from the Front Sight Firearms Training Institute, which is owned by millionaire Dr. Ignatius Piazza.

Vnunet reports that the site refused to host pay-per-click ads from the Institute that offered a four-day course in handgun training, as well as a one-day concealed weapons permit. To top all that, they also offered the first 5,000 respondents a free handgun.

Facebook rejected the ad – perhaps somewhat contentiously - under Point 6 of its guidelines, which state:

"Provocative images will not be accepted. Ads may not contain, facilitate or promote adult content, including nudity, sexual terms and/or images of people in positions or activities that are excessively suggestive or sexual. Ads may not contain, facilitate or promote offensive, profane, vulgar, obscene, or inappropriate language. Ads may not contain, facilitate or promote defamatory, libellous, slanderous and/or unlawful content."

To be fair, the ads don’t seem to hit any of those criteria, and Piazza said,

"Facebook administrators must find the idea of Front Sight positively changing the image of gun ownership through training law-abiding citizens in the safe and responsible use of handguns to be offensive, profane, vulgar and obscene. It appears to me that Facebook is discriminating against gun owners and placing gun ownership in the same category as pornography."

But that is another debate altogether. Facebook has offered no comment on the decision.