Some time ago John K posted, partially, about Microsoft AdCenter Revenues. I think that the search revenues should be lower, after passing up on Overture. I think it is basic economics. What implications might this have for use of contextual advertising and publishers?
Let’s pretend that you are one of multiple players using an advertising platform. That platform is shared with other paid search outlets and has a significant volume of advertisers. You then create your own advertising platform which starts with no advertisers. What will happen?
Your cost per click from the few advertisers that you initially gain, will be lower. Even if you offer a great ROI, the number of competitors is not enough to allow the CPC to drift up, fast. So you could serve as many adverts, but you won’t get the revenue stream, until you’ve recruited more advertisers to drive up the competition and hence make the prices rise.
What brings in advertisers? A good ROI, for sure, but also users. Usage stats suggest that Live has a small but not negligible proportion of the market. Enough of a portion that advertisers might include them in the Pareto (80/20) rule to include as a target. But that’s a long way from a mandatory requirement, such as Google SERPs and AdWords. The advertiser volume is low, so ROI is good. User volume is low, meaning that the marginal cost of using the system is relatively high (if it takes the same management time to manage 10% of the business as to manage 60-80% of the business, what should you prioritise?).
That all says “low revenue” to me. If the advertising platform were rolled out to appear on more sites, then the user base would increase. Well, looky here - John’s already spotted the next installment in the thinking!
By offering more impressions, Microsoft can increase the user base. The low cost of adverts makes that attractive for advertisers. But the low revenue potential makes that a no-brainer no-way for the affiliate - why publish low revenue adverts from Microsoft when the higher competition on Google offers higher priced adverts?
So… can we expect that those people publishing Microsoft adverts will see a better share of revenue? How much share of revenue does it take to make a Microsoft advert as valuable as a Google advert? And given the difficulties that Google has had in targeting contextual match in 2006, do you expect advertisers to be happy with what Microsofts weaker search technology can do with contextual match?
I’m expecting that Microsoft will offer a greater share of the advert cost with searchers. That they won’t use Google-style “smart pricing” on contextual match and then that the contextual match will offer a weaker ROI. That’ll drive up revenues, but eat into profits. Given that Microsoft sees crocodiles anywhere it moves in the swamp, it’ll probably throw some cash to see if it can drive away competitors. Dunno that anyone has ever proven that throwing money at crocs makes the world safer, but it is a common tactic.
Is contextual match advertising revenue a problem that you can make go away by throwing cash at it? Probably not. The fundamental problems are that keyword search is relatively simple - users tell you what they want to know, and your problem is to crawl and index the existing pages and apply a bunch of filters to prevent spam sites from getting too high a rank. If you have to infer the conceptual meaning of a web page to deliver suitable adverts, then you are in a different domain of expertise. It could be that somehow Microsoft have jumped Google on this, but it seems… unlikely. So I’m expecting that advertisers will complain about the quality of site matching. I can think of an approach to beating Google, or at least matching them, but it relies on some wierd stats that are most popular in the old Soviet bloc and doesn’t rely on much of a conceptual matching system. But given that content-based publishing system is part of the Search Empire, that is an unlikely path…
So far, none of our clients have expressed any interest in testing or using Microsofts’ contextual matching. They have enough difficulty with the more mature, and improved over the 2006 performance, Google contextual matching. And they’ve seen Microsoft Live Search… Even those that enthuse about the ROI offered on Microsoft AdCenter are still using Google as their default search engine. So we have no evidence that Microsofts’ contextual search is strong or weak. But would you think that it might be strong? Care to gamble your next bonus on that?
This all suggests to me that publishers may be in for a good year, with Microsoft. If you have to burn money to grow, then buying new outlets for adverts has to be good news. It drives up usage, makes advertisers more competitive and that will ultimately drive up the revenue. But that’s a slow, uphill drive. Especially slow when the engine isn’t working properly and when you risk increasing advertiser defection through poor matching. Hard times for whoever is currently in the hot seat at Microsoft Live Search.
