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Yahoo Advertisers Happier Than Investors

Lately, even good news is bad for Yahoo.

Take the buzz surrounding the Yahoo advertising platform, code-named Panama. Three weeks after its Feb. 5 launch, word came from metrics firm comScore that click-through rates for Yahoo-sponsored search ads were up and so were sponsored clicks as a percentage of total user clicks on Yahoo.com.

Yahoo designed Panama in hopes of creating just such an impact. Specifically, Panama's innovations were supposed to help Yahoo make sure it was pairing the highest "quality" advertisements with users search queries, instead of simply displaying ads with the highest bids.

In late February, it seemed like that was happening. The good news about Panama got around, and on Monday, the company's stock price had reached a near 52-week high of $32.09. But then the market closed and Yahoo reported its 2007 first-quarter earnings. Then came the bad news.

Quarterly profits were down 11 percent to $142.4 million and once-optimistic investors bailed on Yahoo. Company shares dropped 11 percent to $28.31 on Tuesday. News of morning trading today isn't much better for Yahoo, with shares going for $27.51.

Given the fallout, was the good news about Panama only empty hype? Not according to several of Yahoo's search-marketing advertisers. They told internetnews.com life has been good since Panama's debut.

Thomas Pitts, president of Flagstuff.com and a Yahoo search-marketing customer, lauded the upgrade. He said prior to Panama, Yahoo's advertising system wasn't user friendly. He said Yahoo's limit on the amount of keyword search terms on which he could bid hurt his business. With Panama, he finds it easier to upload keywords and track their success.

"They do a better job than anybody else," said Pitts, who also spends advertising dollars with Google and Microsoft. He said that since Panama launched, the number of visitors from Yahoo passed both Google and Microsoft for the first time. Before Panama, Pitts said, about 45 percent of users would come from Google, 30 percent from Yahoo and the rest from Microsoft.

Considering comScore reports that 45 percent of all online searches in March were on Google, compared to only 27.5 percent for Yahoo, Pitts's results, though anecdotal, remain an impressive indicator for Panama.

Pitts said he's paying more money to Yahoo than he ever has before and that he's happy to do it because it means his online flag store is seeing a lot of traffic.

Other advertisers experienced similar success.

Patricia Curry, founder of Wellhaven Gifts for Seniors, told internetnews.com her company is also paying more to Yahoo than before Panama, but only because Wellhaven is getting better click-through rates now.

"We don't mind paying for something we're getting value out of," Curry said. She said that while Google is still the number one referrer to WellHaven.com, Yahoo is "approaching" the market leader, increasing its referral rate by 15 percent to 20 percent.

Interviewed before Yahoo announced its first quarter results, Curry expressed the widely held view that Yahoo would surprise with unexpectedly high profits. She based that view on her own positive experience.

"I'm pleased with the upgrade," she said. "It's immensely easier to use and if there's an opportunity and I have an easy to tool use, I'm going to use it."

Brad Geddes, director of search at LocalLaunch, a company that helps marketers manage their local search campaigns, said his clients are getting more traffic from Yahoo and paying more, too. He said that Yahoo has lived up to its promise to serve more relevant ads and that it's leading to better click through rates.

Panama also allows marketers to target their ads to certain geographic regions now, and Geddess said that's been particularly helpful to his clients.

So among this group of advertisers, Panama has been far from hype. They're getting more from Yahoo and happily paying more, too. So what held Yahoo's profits back on Monday?

To listen to Yahoo, the biggest issue is time. When reporting year- end earnings for 2006, Yahoo CFO Susan Decker suggested that Panama's complete adoption would lead to increased profitability for the company beginning in the second quarter.

Advertisers said they can see that pattern developing. Geddess said because of Panama's rolling launch, his clients saw incremental growth in their click through rates since Panama's launch and not any sudden burst.

Curry said she saw the same for Wellhaven.com. But despite the steady growth, she doesn't plan to adjust the company's search marketing budget till later this year.

"Yahoo has definitely picked up," Curry said. "But we're not going to gauge all the results until we have a six-month span."