With Q2 over and the major search engines set to release their earnings reports over the next two weeks, there's a renewed focus on the competition between them in PPC and a bunch of data being released for us all to pore over. So far, little information has come out to suggest a significant turnaround for the struggling Microsoft/Yahoo Search Alliance and RKG's data does not break that pattern.
Here's an updated view of the Search Alliance's share of paid clicks across a representative sample of the RKG client base:
Over the last several months we've documented a few areas of concern that advertisers and investors should have with the Search Alliance, with the key takeaways being:
- Even though combined Bing and Yahoo revenue per click (RPC) has improved since Bing took over ad serving, CPCs have not kept pace.
- Bing's ad serving is much more restrictive than Yahoo's was before the Alliance, as shown by a sharp drop in broad matched traffic.
- An upturn in Bing traffic at the beginning of the year appears to be more the result of the acquisition of Conduit toolbar traffic, which is being sent directly to a Bing SERP, rather than organic user adoption.
The main narrative, as confirmed by Yahoo on their last earnings call, is that Bing's revenue per search (RPS) has not lived up to expectations. As advertisers, we care far less about which engines are driving traffic than how well we are able to take advantage of the traffic that exists. If Bing really is gaining overall search share from Google as the traffic measurement firms suggest, its lower paid search share suggests lost opportunity not only for Microsoft and Yahoo, but for us as well.
Bing ROI vs Google
Since the Alliance, we have consistently seen higher non-brand ROIs on Bing compared to Google. They're roughly 10% higher since November 2010 and 8% higher since the start of Q2 2011:
Because our clients rarely set a priori budgets by engine and because we are confident in our proprietary bidding systems' ability to recognize and adapt to this opportunity, we do not believe this to be the result of irrationality on our end. It's certainly possible that irrationality still exists among our competitors, but we would expect to see our clients' proportion of clicks on Bing to increase following the initial drop at the start of the Alliance as we overtake any irrational competitors. We do not see a jump in Bing share, and the increase we did see at the beginning of the year is largely tied to the Conduit deal.
This suggests higher bids are not leading to the kinds of CPC and traffic increases that we would expect. A handful of factors may be influencing this:
- Search partner traffic is still declining, albeit slightly, on the Alliance.
- Bing's more restrictive broad match prevents keywords with raised bids from entering additional auctions to the same extent as we would see on Google.
- Lower competition on Bing and their handling of Quality Score may be resulting in wider gaps in the bid landscape, so bid increases are less likely to result in CPC increases for any given auction.
- Google's promoted position thresholds serve to drive up costs for terms in position 1, a factor not believed to be at play on Bing.
In April, Yahoo CEO Carol Bartz noted that they had expected their RPS to return to "neutral" by year-end, a time-table that was apparently pushed back from mid-year. There's a number of ways the Microsoft engineers can do this, but we hope any changes will ultimately benefit advertisers by driving increased traffic, even if ROI takes a small hit.
Ultimately this will hinge on the ad serving logic, which may favor a large-scale overhaul rather than incremental change. One change that has gone into effect was to loosen AdCenter trademark policy to bring it in line with Google's. We have data that suggests this drove up CPCs for our clients' own trademark keywords, but it wasn't a game changer for overall performance.
How About Those Earnings?
With an announcement today at 4:30pm, Google is the first of the search engine companies to report earnings. While we're not in the financial analysis business, we did manage to "predict" a few of the big numbers in Google's last report in a roundabout way, so I'm willing to venture another guess this time around. Reports from other agencies have generally been more pessimistic than what we see on our end, but it appears their YoY comps from search will probably be a bit weaker than in Q1. I expect Google's reported paid clicks to grow in the neighborhood of 17% YoY, CPCs to grow 5% and total revenues to grow 26%.
While you can't take those numbers to the bank, it is safe to say that Bing and Yahoo's growth in paid search will not be nearly as strong as Google's. It's also important to note that if Google disappoints, it does not appear to be due to paid search share losses to the Alliance from QtoQ. Yahoo's earnings call will be next Tuesday and the best news they have on paid search may just have to be forward-looking.
Update 7/14/11 4:15pm ET: Well, Google's numbers are in: Total revenues up 32%, paid clicks up 18% and CPCs up 12%. The CPC number is the biggest surprise. Google hasn't shown that level of growth in at least 8 quarters and the data out there, including our own, was not pointing in that direction.