Yahoo: The Real Problem With Panama

Received the following note from a Yahoo advertiser, responding to my earlier post on how everyone's praying for the success of Panama. The advertiser has drastically cut spending on Yahoo (in favor of Google) and argues that Yahoo's problem is not Panama, but rather poor conversions and click fraud. This problem, the advertiser says, is the direct result of Yahoo's refusal to allow advertisers to select which sites in the Yahoo Network their ads appear on. The advertiser likes Panama, but won't increase spending on Yahoo until/unless the above problem is addressed.

The note is lightly edited. The writer wished to remain anonymous (with regard to publication). If Panama works as planned, the improved targeting will presumably help address the conversion problem, but offering an opt-out does seem like a basic solution:

I thought your recent post regarding the Yahoo Switchover to Panama left out one crucial point.

I am a long time advertiser on both of their Pay Per Click programs [PPC]. As a moderate sized advertiser, I actually find the new Yahoo Panama program easier to navigate and easier to get placement in exactly the location I choose. Up until 18 months ago I spent about 60% of my on-line ad dollars with Yahoo and about 40% with Google. Now I spend about 5% of my ad dollars with Yahoo and most of the balance with Google (small percentages go to MSN and ASK). Based on the dramatic declines in Yahoo’s posted quarterly ad revenues [relative to Google], I posit that many other advertisers are also doing the same kind of switch.

The simple reason is not the auctioning system and targeting algorithm. Advertisers really care mostly about Click Through Rate [CTR]. And if they have no confidence in the accuracy of the CTR then they will not continue to spend their money.

The real reason Yahoo is failing and will continue to fail is because it has allowed its PPC program to be hi-jacked by fraudulent affiliates (and fraudulent clicks) to the point that an advertiser can no longer have any faith in the accuracy of its CTR. An advertiser who spends any time with their web hit logs can clearly see this. And the real test of their faith in the accuracy of their CTR statistics is to just look at how and where they spend their ad dollars.

Advertisers are voting with their pocketbooks and the sound of pocketbooks snapping shut at Yahoo should be deafening. And I am sure that it has been, except the decision makers at Yahoo either cannot or will not make the necessary changes to stop the free fall or they just simply do not understand the reason.

Somehow they think that their new ad targeting model (“Panama”) will solve the problem. They may even believe this--at least they tell everyone this will be their solution. Reliance on this solution is simply an invitation to be part of a “dead company walking”. Yahoo will tell you that their new sophisticated system will stop fraudulent clicks from affiliates. Advertisers certainly do not believe this.

If Yahoo wants to reverse their slide, they only have to make one very easy-to-implement change. (I want them to stay in the PPC game as viable competition to Google). All they have to do is simply let their advertisers choose where they want their ads to be served.

“Free to Choose” should be their new advertising mantra. As does Google, let Yahoo advertisers choose NOT to have their ads served up on the Yahoo affiliates. This change would open up my pocketbook at Yahoo again and I am certain it would do the same with many other previous Yahoo advertisers. For those advertisers who have faith in the Yahoo affiliates, they can choose to have their ads served up on those sites. If Yahoo fails to correct their current unwillingness to offer a choice of where ads are served in their Panama version, then I would urge all to buy “puts” on Yahoo stock.

Comments

[oceandude:]

This comment from an advertiser does not make sense. Panama has only been out for a few months (and only that long for the most early of adopters). How can this person talk about "the dramatic declines in Yahoo’s posted quarterly ad revenues" when there has not been enough time to evaluate Panama's ad revenues? Are they talking about the old system? Well, of course the old system was worse than Google - that's why it is being replaced!

It would be interesting to hear more tales from advertisers. I hope no one is making investment decisions on one story. Would you sell GM because you heard someone's Chevy broke down?

2007 Jan 23 07:39 PM

[Andy Sweet:]

Here is a comment from another advertiser: Panama isn't the fix. The reason the budgets have decreased and the bid prices for the high priced terms have fallen is due to low quality traffic from Yahoo's distribution network.

Since Yahoo lost MSN as a distribution partner, they have been left with questionable search engine partners and domain parking programs. These partners largely generate traffic from sources like second and third-tier search engines (who buy traffic from other, even more questionable places), Pay To Read programs and toolbars. That traffic tends to be very low quality (read 'non-converting').

Panama will help to eliminate the non-North American traffic that comes from these distribution partners, but it won't eliminate the US and Canadian IP bogus traffic.

2007 Jan 26 10:49 AM