A deal between Yahoo and Google that would see the latter's ads run on the former's web sites is receiving increased regulatory attention, both in the US and the EU. Google is obviously anxious for the opportunity to serve its ads through Yahoo's high-traffic sites, and doesn't want to see the deal founder on the shoals of antitrust concerns. That's the clear message being sent by a blog post from Google's Chief Economist, Hal Varian, who took the time to critique a marketing firm's study that suggested the deal could raise prices for some advertisers.
The study was performed by SearchIgnite, which makes money by managing the search advertising efforts of clients. The company compared rates for different classes of ads that appeared at Yahoo, contrasting ad rates for what it called "head terms," which appear above the search results, and "tail terms," which appear on a right-side column. Yahoo's auction system currently winds up charging more for head terms than Google, but the situation is reversed for tail terms. Depending on how and when Yahoo replaces its own ads with those supplied by Google, this dynamic could result in changes in advertising costs. If Yahoo pursues a pure profit-maximization approach, the report concludes, it could raise keyword prices by up to 22 percent.
Not so, says Varian, who lists a series of complaints with the analysis. Those prices are set by auction, and if they go up, advertisers are likely to drop out of the auction and limit the pricing pressure. Yahoo has also stated that it's not looking at the deal as a way of maximizing profits, but rather to get some cash in cases where its own stock of ads don't fit the search terms well. Varian also takes issue with how well the head and tail terms are defined, and the metric chosen for comparing pricing.
It's not in the least bit surprising that a UC Berkeley professor of economics could find issues with a report of this nature; it consists only six pages of text and provides the perspective of a marketing company that's heavily involved in the industry it's analyzing. The surprise is that Varian's actually bothering with the study at all, and doing so on one of Google's corporate blogs.
A quick search using Google News itself reveals that SearchIgnite appears only four times, and only one of these stories is actually relevant to the Yahoo deal. Meanwhile, checking Varian's history in the Google Public Policy Blog reveals that this is only the third post he's made there, even though he has been with the company in one form or another since 2002. It's clear that his analysis here is exceptional in a number of ways.
The obvious explanation for it is a hypersensitivity to anything that puts the advertising deal with Yahoo in a negative light at a time where government regulators are threatening to scuttle it. Varian himself links to one reason for concern here, a New York Times technology blog post that displays the 22 percent increase figure prominently in its headline. Although the blog post dates from July and doesn't appear to have been indexed by Google News, the Times is a prominent shaper of opinions, and it appears that Google felt it couldn't go unanswered.Posted on