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Why is Google (NASDAQ:GOOG) transcendent and Yahoo (NASDAQ:YHOO) a takeover target? Compare the following:

Yahoo! President Sue Decker Outlines Vision for Online Advertising Transformation in Advertising 2.0 New York Keynote

Sue Decker, president of Yahoo! Inc., addressed the advertising industry during a keynote this morning at the 2008 Advertising 2.0 New York conference.

“Yahoo! is helping to accelerate the transformation of how display advertising is both bought and sold,” Decker told the audience earlier this morning. “First, we are developing the technology, products and platforms that are designed to help advertisers find the right audiences and publishers find the right advertisers. Second, we are partnering with publishers to secure and monetize inventory that advertisers and agencies find desirable. And third, we are partnering with advertisers and agencies to channel demand to the right consumer.”

The Humans Behind the Google Money Machine

Over time, the company also looked beyond click-through rates to rank ads. Google now takes into account the “landing page” that the ad links to, and, for example, gives low grades to pages whose sole purpose is to show more ads. Soon, the loading speed of a landing page will also be considered, Mr. Fox said.

These factors contribute to an ad’s “quality score.” The higher that score, the less the advertiser has to bid to secure top billing. For example, an advertiser who offers to pay $1 per click to attract those searching for “vacation rentals in Colorado” may receive more prominent placement than another who bids $1.50 for the same query but has a lower quality score. An advertiser with a very low quality score may have to bid so much for placement as to make it uneconomical.

Quality scores work as an incentive to advertisers to improve their ads, which benefits users and, in turn, benefits Google, Mr. Fox said.

“An incentive to advertisers to improve their ads.”

Think about that for a second.

Compared to: “help advertisers find the right audiences and publishers find the right advertisers.”

While Yahoo is developing systems to enable advertising online to work the same as it does offline, Google is completely reinventing how advertising works.

I gave a keynote at the MagsUniversity conference in Toronto yesterday, and I put this on slide:

Dear Advertiser,

Based on our evaluation, including feedback from our audience, we regret to inform you that your ads suck.

To improve the performance of your campaign, and to stop annoying our audience, please take immediate steps to improve the quality of your campaign creative.

Sincerely,
Your faithful publisher

P.S. Fed up with your agency? We’d be happy to help.

In the room full of publishers there was stunned laughter, and a lot of nodding heads. Publishers understand the problem of bad advertising at a deep level, and yet what do they do about it? They are stuck in the system. The advertiser gives you a crappy ad, you run it, it creates no value for your audience, and the advertiser blames you.

Google, on the other hand, has the numbers to call bullshit on bad advertising.

Social networks are running crappy traditional ads and vaporizing ad value.

When I wrote last week about why traditional advertising fails on the web, some responded that this is why an ad-supported Web 2.0 will fail.

But the problem isn’t advertising as a means of monetizing media — it’s a complete lack of new ideas.

So let’s sum up the new ideas for digital media advertising:

  • Social network user data
  • Video
  • Mobile

Am I missing anything? I’m sure I am, but you get the point — these aren’t even ideas, they are contexts. Lots of social networks. Lots of video. Lots of mobile use. So we should be able to make money with advertising, right? Just slap on some banners, some pre-roll, and some text ads.

Google got to become Google because nobody thought search was monetizable — even Google wasn’t sure, until lightning struck.

Just think about the term “monetize” — it’s generic. It assumes that innovation is not required. Just get an audience and then “monetize.” Then flush.

But even Google, outside of pay-per-click search and contextual ads, is as stuck as everyone else. They put someone in charge of YouTube “monetization” and the result (according to Om):

My sources say that YouTube made around $80 million in 2007, a number that could grow by more than 50 percent this year to around $125 million. A Bear Stearns report estimated YouTube revenues at around $90 million for 2008.

Advertising 2.0 = FAIL (so far)

Source: Dear Advertiser: Your Ad Sucks