Yahoo! Google - Game Theory and Ontology


Not quite sure how I feel about the big Yahoo! announcement. To my mind, the deal raises uncomfortable ontological issues about just who Yahoo! is. If they’re just another publisher, then I guess it might make sense to outsource ad serving to maximize CPMs but as a tech platform, it seems to be a big concession of defeat.

Google’s adsense has a much better UI for media buying and campaign management than Yahoo’s Panama. http://www.portfolio.com/images/feeds/blogs/yahoo_logo.jpg Google has much better contextual ad serving capabilities, considerably more advertisers, and considerably more distribution. Combined, this enables them to offer publishers higher CPMs than competitive platforms like Panama.

Perhaps Yahoo! is being sly by taking the cash - by their estimates it will increase their topline by about 10% - while they fix Panama. But, Adsense is not just better technology but has far greater economies of scale. It is these two factors combined that make it great for advertisers and publishers. Adding access to Yahoo’s inventory greatly diminishes Yahoo’s competitive position.

Unless, Yahoo really is, at heart, just a publisher. The original Yahoo search functioned like a human editor aided with some database and content management technology. Google took a very different route to making sense of web content and we know how that horse race turned out.

The long tail issue is problematic for Yahoo!. There is a large tech component (relevancy algorithms, data acquisition/structuring) but, I think, it poses even larger scale problem. Allowing Google to sell against the Yahoo inventory greatly exacerbates this.

If General Motors is really just a vehicle finance and distribution company, then it makes sense for them to outsource the development of hybrid engines. But, by doing so, it limits their competitive options. And what exactly does it mean to be a great publisher? News Corp and Viacom produce content that is in great demand but they’ve also built terrific sales organizations. Through acquisitions, both companies have a considerable amount of ad inventory and it is the combination of content, sales, and inventory that allows them to go after big accounts that pay the highest CPMs. Yahoo’s ceding of sales and inventory greatly weakens them even as a publisher.

It is interesting that for Google, as evidenced by their announcement, that their biggest concern is a regulatory one. I think they wisely underplay how this is a great strategic win for them and focus on how the Department of Justice might view the transaction.

I think this deal leaves a couple of questions unanswered: Y? and Who?

bill
blog.workhound.co.uk
workhound.co.uk