What's the Matter with the Search Alliance?

The Yahoo! and Microsoft Search Alliance has received some good news in the past couple of weeks with both comScore and Hitwise showing it gained appreciable market share from December to January.  For the month of January, the two market research firms show Bing powered searches comprising 25.6% and 27.4% of search traffic respectively. From our perspective though, the picture isn't as rosy as we see signs that the Alliance's share of paid search traffic has eroded since the transition to Bing-powered results was completed in late October, 2010. At this time last year, the typical RKG client received 24% of their paid search clicks from Bing and Yahoo, when the two were independent.  Now under the Alliance, just 20% of clicks are coming from the two sites and their partners: It should be noted that Bing powered searches on Yahoo began well before the transition was completed with around 10% of Yahoo ads served by Bing in September 2010 and close to 50% by mid-October.  In other words, we wouldn't expect to see a precipitous drop in share as a result of the transition and we don't. So what is going on if Bing and Yahoo are really chipping away at Google's dominance in overall search share as comScore and Hitwise indicate? Reduction in Paid Search Partner Traffic In the months following the transition to Bing-powered ad serving we have seen a sharp decline in the share of traffic originating from search partners: As the transition to Bing ad serving ramped up, we were seeing around 30% of combined Bing and Yahoo traffic from search partners and that has steadily dropped to around 20% today.  For comparison, Google partner traffic currently makes up roughly 28% of their total.  Part of this decline may be due to the increased vigilance of RKG analysts in blocking the worst performing partners, but it appears Bing has simply done a better job of policing its program. Along with the partner traffic decline, sales per click has increased dramatically for the Alliance since the transition and we now find it roughly on par with that Google after it languished around 85-90% of the value of Google for the previous year. We've argued previously that poor quality partner traffic and inadequate advertiser control is likely to result in lower overall spend, so we would expect the decline in poor Alliance partner traffic and the increase in sales per click to lead to increased Alliance PPC share.  Why hasn't it? Monetizing the SERP After an initial decline in Alliance CPC relative to Google tied to the integration of lower quality Yahoo traffic with Bing's, we have been increasing our bids for the Alliance as traffic quality has improved overall.  Despite the more aggressive bids, the Alliance's share of paid clicks has continued to erode as seen above. This is a bit anecdotal, but it appears that Bing is not monetizing its search results pages nearly as well as Google.  On search after search, we see Bing devoting far less real estate to ads, even for keywords with high commercial intent.  Take this example for the phrase "buy flowers" (with paid search ads highlighted in green): Google SERP Bing SERP Google shows 11 paid search ads taking up 571,000 pixels, when ad extensions are fully expanded, on a monitor set at 1680 x 1050 resolution.  In contrast, Bing displays a single paid search ad taking up just 19,000 pixels.  Google's result devotes roughly 30X the real estate to ads as Bing's result does for the same query. One of the touted benefits of the Alliance to Yahoo and Microsoft was that it would draw in new advertisers who had not found traffic levels sufficient previously to justify the extra efforts involved with running on multiple platforms.  There's no reason to believe it hasn't, so it is odd to see such a disparity in the number of ads running on Google and Bing and for our CPCs not to be keeping pace with the improvement in sales per click. We've seen cases where we have a handful of independent RKG clients advertising on the same keywords and Bing chooses to show just one or even none of the ads despite all having fairly aggressive bids.  It's possible that the results we see in our offices are not fully representative of what the average user sees, but given our overall data, it's hard to believe this isn't a real effect.  It's possible that Microsoft is deliberately keeping its results less commercial as it works to gain overall share or they may just be having a difficult time keeping up with Google's ad innovations. There has been some conflicting data out there on this issue from other search marketers, but our figures sound similar to what Efficient Frontier has seen, so we are in are in good company there.  Microsoft's and Yahoo's most recent quarterly earnings filings also show weakness in search revenue relative to Google with Yahoo reporting an 18% decline YOY in Q4. On our end, it does appear that the Alliance may be turning a corner in the last few weeks when it comes to PPC spend and traffic, but it's a little early to call. We're sure the engineers at Microsoft are working hard on these issues and we hope to see traffic levels trend more in line with the sales per click improvement soon.  One change coming up in the near future that could help is the loosening of trademark restrictions to bring them more in line with Google's and we expect there will be additional tweaks to Bing ad serving as well.  Stay tuned.
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