Oliver Thylmann’s Thoughts

As sad as it is, Yahoo! has given up and Google is now running ads within Yahoo!. Check Michael’s post here entitled Massive Destruction of Shareholder Value for some good thoughts and links. The thing is that this is actually bad for almost everyone. For example, Google is monetizing better than others because they have more inventory, and more advertisers and more inventory advertisers invent. advert. i.a. …. As Steve Balmer said, the Flywheel is just bigger. So the advertisers are paying more to buy ads within Google. So now for a search result within Yahoo! for the term “Insurance” you can either buy it cheap on Yahoo! or expensive on Google and in the end, it will be the same click, with Yahoo! probably opting to choosing the expensive one.

Of course, Yahoo! will make more money in the short term, but in the long term that money will move to Google, and their Flywheel will get a size that is just too big to replace. We are almost there, but I still believe there are options to build something truely open that leverages the power of the internet. With the deal being non-exclusive, and Yahoo! being able to mix and match as they choose, the deal is a bit more open but the internet can go bigger than that. There is a nice thing that Eric Schmidt said:

If there were an issue, it’s perfectly possible that you can do commercial deals that look like outsourcing deals which are not exclusive and where industry structures allow everybody to win. If you look in the automobile industry and lots and lots of industries like that, you have suppliers who supply other people. So if there were a deal, it would be based on those sorts of principles.

The thing is that the example just does not hold under analysis. I know somebody working in the part-supplier industry, and yes, by now some car manufacturers are actually buying from different providers just so there will still be 3 different ones at least. That alone would be like Yahoo! buying from Google and X and Y to make sure competition remains high. They don’t, but help create a monopoly, something that automobile industry would make sure to not have happen. But there is another difference. This is more like Mercedes outsourcing the sales of their cars to a 3rd party. Above that, these cars cannot be stored, but fall of a cliff and die if not sold when created, and with each car your sell (not produce) you gain a bit of knowledge how to sell better. Your short term goal is to let the best seller sell your cars, but your long term goal would be to become the best seller of your cars. Otherwise, sooner or later in that model you become the parts provider where the seller knows your exact cost structure and will make sure you produce content the cheapest possible. Because if you can’t sell your cars yourselves, you depend on Google to do it for you … or ads in this respect.

Of course we can presume that giving it all to Google will result in highest prices and best system for all, but that’s just not have this economic model of ours works. Believe me, I do believe in Google’s performance marketing model and actually believe even CPM ads should be performance based, but that’s another subject. The problem is this moves us more into a monopoly and somebody needs to start thinking strategy please, and long term, because short term strategy will default to Google at this point, or to someobdy else that will ultimately be there to market your site for you.

Google actually has something to say about all of this. Of course this is a not a merger, which is a good thing, but if it results in Google becoming the sole provider of search advertising, then emm… who cares. Google says this does not remove a player from the field, but this is untrue if the investors and management in Yahoo! are thinking short term, because then they do not have an incentive to keep improving and innovating in search advertising (and content advertising which is really what Google is moving to next, all performance based). Yes, Yahoo! can do similar arrangements with others, but who would those others be? If Yahoo! is not doing all of this to make more money, then I am lost, and there is nobody else that would allow Yahoo! to make more money, because there is nobody yet who has applied performance based advertising to an entire property, even though Yahoo! is close to that. But as said, there are no others. And yes, this does not let Google raise prices for advertisers, … but as detailed above, again, who cares.

So this is a lot more dangerous then some make it out to be. We need a real strategy, we need some bold steps, we need a Linux of Advertising actually.