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Search Wars: Is Google Losing the Battle With the Bing-Yahoo! Alliance?

Yes. Or no. It depends on which of two new reports you believe. (Both agree, though, that Google maintains a strong lead overall.)

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The recent Bing-Yahoo! combination has either been a windfall for Google, or a thorn in Google’s side, depending on who you ask. Two large companies from the search marketing world have recently released reports examining the third quarter performance of the paid search market. The reports come from SearchIgnite, which manages $600 million in pay-per-click advertising money, and Efficient Frontier, which manages about $900 million. Both, naturally, have a lot of data.

The two reports do agree on the big picture–which is that it’s a good time to be in the paid search business. Efficient Frontier, for instance, sees a 19% year on year growth, with a return on investment for advertisers up 7%. The two reports also agree that Google remains the real powerhouse, with 80% of the market share.

Where the reports diverge somewhat, though, is in their assessment of the recent Bing-Yahoo! combined platform. SearchIgnite is more sanguine than Efficient Frontier.

One of SearchIgnite’s central findings is that the Bing-Yahoo! alliance is “positive for advertisers” for two reasons: first, widely feared cost-per-click inflation did not occur; and second, click-through rates on ads served on the combined Bing-Yahoo! search inventory appear to be improving. Several outlets have picked up on SearchIgnite’s claims, quoting the statement SearchIgnite CEO Roger Barnette made in a statement: “We feel that there is a real opportunity for Bing to capture significant market share in the near term if these early results continue to play out in the fourth quarter.”

>But Siddharth Shah, director of business analytics for Efficient Frontier, disagrees with SearchIgnite’s claims. To the first point, he tells Fast Company that since Bing always offered a higher return on investment, that’s why advertisers have always been willing to spend more on Bing ads; talk of “inflation” is misleading. To the second point, he contests the idea that Bing-Yahoo!’s search inventory is fully integrated, since “only 10% of Yahoo ads are served through Bing.” He also thinks that Yahoo’s own internal efforts, rather than the Bing partnership, have improved the click-through rate on its ads.

Efficient Frontier thinks the Bing-Yahoo! alliance will suffer, at the very least, a “short-term hit.” Why? Yahoo!’s return on investment is 21% worse than Google’s, while Bing’s is 10% better, according to Shah’s data. But in the combined marketplace, advertisers get a single rate, “despite different traffic quality,” says Shah. Bing effectively will be subsidizing poorer quality Yahoo! traffic, creating a volatility that will drive advertisers to Google, at least for the time being, according to Shah. He also predicts that Google will perform particularly well in the fourth quarter, since it is “over indexed in retail,” a major player come holiday season.

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The Bing-Yahoo! alliance may yet bear fruits, says Shah, and particularly makes Bing more attractive to small advertisers than before. But it’s hardly giving Google a run for its money.

About the author

David Zax is a contributing writer for Fast Company. His writing has appeared in many publications, including Smithsonian, Slate, Wired, and The Wall Street Journal.

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