Yahoo has finally proved that the old advertising model on free websites will not stand the test of time. Yahoo placed advertising on all the Geocities websites – and clearly, this model failed. At Yola we purposefully do not place any ads on our users’ website – it makes no sense to us, for many reasons, including the fact that our users do not want it in the first place. We offer an advertising-free free website service – plain and simple. The quick observation is that if Yahoo, which is an advertising juggernaut, cannot monetize it’s free website service with advertising – how do we even stand a chance? We’re not even trying to…

That business model is so Web 1.0! Bandwidth costs were high, storage, computing & technology costs were high and you needed large data centers and many engineers to keep the lights on. Geocities built their business model upon an age old premise, that sites are expensive to host and therefore you needed to run advertising on each page in order to monetize pageviews and generate sufficient revenue to cover costs. Enter Web 2.0 – bandwidth is dirt cheap, and so is computing power ( which is available on demand via the cloud, almost like a utility). The economics have changed and advertising on our users websites is no longer the only way to generate revenues. Yahoo build a revenue base for Geocities around advertising, and as advertisers got smarter and understood the value of that inventory – when rates dropped, they did not have alternative income streams to fall back on. In addition Yahoo also sported a desktop based application which was heavyweight and did not work on multiple platforms (unlike Yola – which is entirely browser based). The costs of maintaining this piece of technology (written in Java) for the desktop exceeded the revenues – basically, the business model did not scale and also was not well leveraged. This resulted in a broken business model.

The demands among Web users have changed as well. Web users, and particularly small businesses, don’t just want an online presence (which was Geocities key value proposition), they want a professional-looking site that they can quickly and affordably build and the tools to help themselves and/or their businesses succeed (online marketing, commerce capabilities, etc.) – and that’s what we’re about. Meanwhile Geocities, while once revolutionary in the space, has failed to meet users’ changing needs and as a result, has been shut down.

We believe the model of the future is to create a platform that anyone can use to create their own personal or business website – and then we are able to sell add-on services (domains, templates, etc.) that allow the users to further customize their websites. Hosting & bandwidth is and should always be free to the end user. I look at the Internet as a really big LAN (Local Area Network). Why would you pay to transfer files across a LAN? Also, people can currently get free web pages in a limited sense through various providers, but a page with ads is like a social network site or similar – and not a true, professional web presence. People are sophisticated enough to want real websites, and that is what we offer them. And, when you provide a valuable service, your customers becomes loyal advocates, and you succeed if you have a profitable business model.

My most recent blog post was about freemium business models and how startups should consider moving away from advertising based business models, and focus on charging their customers for add on services (premium services). In order to build a long term sustainable business, you need to understand what value you’re creating as a company, and who would be willing to pay for it and build your revenue streams around that. Advertisers are just not willing to support websites that do not deliver ROI anymore – the game is changing…

My Top 5 thoughts:

1. I think Yahoo finally gets it! The Peanut Butter Manifesto has sunk in and they’re rationalizing their business in order to create depth of product offering, and not breadth.
2. Panama’s roadmap is looking impressive and although they were slow out the gate, I think it will become a very close competitor to Google Adwords, with the exception of the volume differences in traffic.
3. Yahoo gets “Web Apps“! Some of the new features and enhancements are moving more and more to browser based apps, and away from desktop ones.
4. Affiliates are a key part of Yahoo’s growth plans for the next few years, across all their properties.
5. I see a sense of empowerment within the organisation that hasn’t been there in the past. The groups we chatted with, gave me the impression that there was more under their control now, then in the past and that the winds of change are blowing which is leading to a more aggressive approach by each individual business unit to go out there and get ahead of the market.

Time will tell, but I think Yahoo is well down a path of recovery from the hiccups it has had with Panama just 6 months ago, amongst others.

Enterprise Web Services Version 2.0.0 Coming Soon

During mid- to late-May, Yahoo! Search Marketing is planning to launch a new version of the Enterprise Web Services (EWS) Marketing API. EWS Version 2.0.0 offers a new service, enhancements to the existing services and data objects, and 13 new reports. Please read this email carefully to understand all of the new features this release provides users like you.

About this Release
EWS Version 2.0.0 will be released to the EWS sandbox and production at the same time in mid- to late-May. At that time, we will also provide documentation about the new version. As with any new version, some features are not backwards-compatible. We suggest that you first experiment with the new version in the EWS sandbox, make any required changes to your client application and test your implementation. Then be ready to switch over to production before the old version is removed. The old version will be available in production for 60 days after the new version is released.

New Features
Here’s a summary of the new features in EWS V.2.0.0.

• Account Data Object: An existing element, vatCode, has been renamed vatRegistrationNumber. The VAT registration number is required for certain markets only.

• Ad Data Object: An existing element, shortDescription , has a new restriction. This element is now required.

• AccountService: A new parameter has been added to the addAccount operation, accountDailySpendLimit. Use this parameter to set the daily spend limit when creating a new account.

• AdService: A new operation has been added to the AdService, setAdUrl. Use this operation to conveniently change the URL for the ad.

• BidInformationService: Two new operations have been added to the BidInformationService, getMarketBidsForBestRank and getMinBidForKeywordString. The getMarketBidsForBestRank operation returns the highest and lowest keyword bid for a given ad group in a given market. The getMinBidForKeywordString operation returns the minimum bid for the specific keyword.

• CompanyService: A new service has been added to the Marketing API, CompanyService. This service returns information about a company.

• KeywordResearchService: Two new operations have been added to the KeywordResearchService, getCanonicalKeywords and getCommonKeywords. The getCanonicalKeywords operation returns the exact-canon form of a keyword for a given set of keywords. The getCommonKeywords operation returns the most popular phrase for a given set of keywords.

• KeywordService: A new operation has been added to the KeywordService, setKeywordUrl. Use this operation to conveniently change the URL for the keyword.

• MasterAccount Data Object: A new element has been added to the MasterAccount data object, marketID. Now you can use this element to access the marketID from either the MasterAccount object or the Account object.

• MasterAccountService: A new parameter has been added to the addNewCustomer operation, company . Use this parameter to provide company information for the new customer.

• RelatedKeywordRequestType Data Object: A new element has been added to the RelatedKeywordRequestType data object, offset. Use this element to specify the starting point for the next set of keywords.

New Reports
Additionally, we have added some new reports to the Marketing API. The majority of these are “ByDay” reports that aggregate data by day (rather than by reporting period). Another report, the BillingTransactionDetail report, provides information about billing transactions. We invite you to check out and use these new reports to take advantage of the more specific account data that is now at your fingertips.

What I really like is the KeywordResearchService call – something that is sorely missing from Google. This will be great for keyword research!

“The two days will consist of meeting the CJ/Yahoo! Affiliate Team plus top Y! Executives, product discussions from each property included in the Y! Affiliate Program, Panama roundtable session, Yahoo! Developer Network presentation and the future of the Yahoo! Affiliate Program.”

This is a hugely positive move by Yahoo! and kudos to them for driving affiliate marketing into the mainstream online marketing channel. This cements affiliate marketing as one of the key online marketing channels, and for a group the size of Yahoo! to embrace affiliate marketers so closely, it really does show both momentum in this space, as well as recognition of the value that affiliate marketers can offer to both large and small enterprises.

Basically, James already details what I said during the show, but just to clarify what I mean by Return on Effort, here is my short and simple take on things:

The question was asked as to whether or not it is worth spending time on 2nd tier (non-Google/Yahoo/Ask/MSN) search engines and running campaigns with them.

There are a couple of key issues here, one is market growth (momentum) that Google in particular has, and the second is ROE (Return on Effort)
Let’s make the following assumptions for the US market search engine market (taken from VastPlanet):

Google Market Share = 53% (with AOL)
Yahoo Market Share = 28.1%

MSN Market Share = 10.5%

Ask Market Share = 5%

The Total for The Titans is a whopping 96.6%.

Now, until Snap, Become, Miva & all the other 2nd tier engines send traffic out of the massive :- combined 3.4% market share that they have & I can’t see the logic in advertising with them, and here is why:

If in one of our campaigns at Clicks2Customers, we have to allocate a campaign management resource to setup a campaign on a 2nd tier engine (which we don’t deal with). Now let’s assume for a decent sized researched campaign of 5,000 keywords with dedicated ad copy (as all engines are different and have differing editorial rules), it takes them 100 hours to do (and that’s quick, using our technology and existing processes).

Let’s assume that currently on Google, we are running with 50,000 keywords and generating $100k a month in sales and in our category, we’re getting 5.3m impressions (searches) per month. All things being equal, by the ratios above, the maximum searches we would get out of ALL the 2nd tier engines combined, would be 340,000 searches with 50,000 keywords. Let’s further assume that we went with the largest 2nd tier engine (not even sure who that is) and the engine had a 20% market share, then I’m going after a market of 68,000 searches related to my product/service – if you divide that further with the fact that you’re only loading 5,000 keywords – it would get scary, so I will neglect to include this in my calculations.

Again, ceteras paribus, if you just work out the back of the envelope stuff, then the absolute maximum that this traffic is worth to me if it converted even just as well as Google does is $1,283 in sales (which I highly doubt, as there are large amounts of Clicks Fraud on 2nd tiers). And that’s with a 20% market share which is not even possible in such a fragment tail-end market.

So, assuming I could spend my 100 hours on Google, and push my campaign performance up by just 10% with an extra 5,000 keywords, then I would be pushing the needle on my revenues by $10,000 (a nearly 400% increase in ROE), why would I bother with 2nd tier engines? I know the argument (from the 2nd tiers) is that it’s cheaper, etc – but at the end of the day, spending those hours improving clickthrough rates and other metrics like conversions etc, will translate into greater savings anyways on the majors like Google – so I don’t buy that argument.

Most Google PPC campaigns I have seen are not even 50% at peaking in terms of digging into traffic in the long tail, and most people are so worried being on other engines that don’t matter and waste their time there. Mine the Google keyword gold instead, and when you’re finished making triple digit gains, then go visit Yahoo and then MSN, and then finally, Ask.

Lather, rinse & repeat.
Someone today said to me that no one ever made a fortune by worrying about the numbers after the decimal. I think that this definitely holds true in this case.

Kudos to Yahoo for the new and improved Yahoo Bookmarks (and My.Yahoo.Com)!

My Yahoo has always been my preferred feed reader – to the angst of most of my friends.  Honestly though, I’ve played around with Google Reader and many others, and I always come back to My.Yahoo.Com.  I’ve been waiting for ages for them to do a decent upgrade – and I have been extremely impressed by the most recent one.  IMHO it’s the best feed reader out there, complete with all the AJaxy coolness you come not to expect from Yahoo!

I have over 100 feeds that I skim over daily, and the new version makes it effortless to do!  Give it a try and tell me what you think!

What Yahoo doesn’t understand (and probably won’t anytime soon):

By allowing merchants to create their own affiliate policies, they will get more ads into their marketplace and all they have to do, is dedupe the ads, as Google & MSN does to ensure that their users receive the MOST RELEVANT ad, not the only ad that a merchant has uploaded.  GOOGLE DOES THIS!!! This is not technically difficult at all, and let me ask the question again: “Why does Yahoo insist on creating policies instead of letting their merchants decide for themselves – this is not customer centric at all!”

Affiliate Marketers are very often more savvy than the merchants they represent and will go after a larger and more diverse universe of keywords.  What is the point of trying to police merchant advertising policies if it does not contribute to having more relevant listings for YAHOO USERS!!!

If the (baseless) argument is that affiliate ad copy is poor, then do what Google does and disable the keywords for low CTR’s.

I see no reason whatsoever, to prevent affiliates from launching campaigns on behalf of their merchants (assuming they concur), as ultimately, we believe that the best model for managing paid search is NOT the typical agency % of spend, but instead on a mutually agreed upon success based relationship (ultimately, profit share).  We even wrote a special report on it last year - run this through any mathematician, and I’ll bet that they concur!

If Yahoo is trying to catch up with Google using these terms, they have a long way to go!  We spend a lot of money with Yahoo (we WERE budgeting over 7 figures this year, and we’re not the only affiliate out there) – and technically, all that is going to go out of the window.  If these terms get enforced rigidly, then we’re going to see Yahoo’s quality of listings drop (less ads per keyword per merchants, means less chances to get good performing ads), as well as less competition and spend from affiliates (which lowers prices).  This simply will translate into less revenue and way you slice and dice it.

Can anyone explain this logic to me, because it simply does not make sense?!

Ultimately, isn’t the end user (the searcher) best served by having the largest possible number of ads competing for his click, in order to find the best ones (which would be originated via the quality score).  What’s worse is that they allow 1 “Co-Brand” (Cough *Bullsh*t) site – which surely will just be abused. I am baffled.

At least Google gets it…

Here is the email we just received:

February 22nd, 2007

Dear Mr. Lingham,

Thank you for contacting Yahoo! Search Marketing regarding your UK account X.

The decline reason Site Ownership basically means in order for Yahoo! Search Marketing to provide a breadth of results for users, affiliates must take users to their own unique site and terms that relate only to the content on that site will be approved, as in our “Content” guideline.

Affiliate sites that link directly to their grantor’s site, either directly or through a frame, will not be granted terms relating to their grantor’s content, unless substantial information has been presented for that term prior to the link. This applies to shopping carts, secure servers, third-party databases or fulfilment engines.

Co-branded sites may bid on a search term only once, as in our “Duplicate” guideline.

Affiliates must also state that they are affiliates in their title or description. This can be achieved simply by adding “Affiliate” at the end.

To ensure that you will receive all necessary information regarding your account, we need accurate contact information for every advertiser. Please take a moment now to check your account contact information at https://secure.overture.com/login.do?mkt=uk&locale=en_GB and update it as necessary. You can edit your information in the ?Edit Profile? section of the Account tab.

Please do not hesitate to contact us if we can be of any further assistance.

Yours sincerely,

Customer Solutions

Yahoo! Search Marketing

There’s obviously a major mathetical error in their calculations & code, because at a certain point in the estimation ranges, the calculation breaks (and basically points to an infinity function that is simply not there). There is a 6-point 0 data range on either side of the break point. This is over and above the volume/clicks/cost ratios being totally out of whacked. I applied a logarithmic budgeting curve in order to save time whilst doing the projections – the numbers are pretty inconsistent. I’ve documented the price breaks in this spreadsheet as well.

Update 14 December: I’ve had a lot of enquiries today to clarify the problems presented in this post – so here they are. It would be handy to have the spreadsheet open.

Basically, the analysis was performed in order to get an idea of the slope at which Yahoo’s bid prices would increase to the maximum CPC. In plotting this slope, I discovered that the increase in CPC’s was linear to a point, and then became logarithmic. Also, in the beginning, at low recommended CPC based on low daily budgets, the amount of impressions actually drops until your CPC moves past the 50c mark – very weird.

The more concerning aspect around this opaque budgeting algorithm is the point at which the system recommends a 0 value and also eventually at the midpoint of the twelve “0″ values, there is an infinity error, which basically means that the maths behind the algorithm receives a number that it can’t handle (like divide by 0). Also, once your campaign budget passes through the “0″ values and error, the number mysteriously jumps about 3 fold.

Without looking at the calculations, I can’t say what the problem is, however this will seriously damage any credibility from advertisers as it appears that there are massive increases in cost toward the end of the spectrum, after a break in the algorithm. It seems like Yahoo needs to hire some of Google’s Ph.D’s in math or get better Beta testers, like yours truly .