Why the Google-Yahoo Ad Deal Is Something to Fear
Why the Google-Yahoo Ad Deal Is Something to Fear.
Randall Stross at The New York Times goes to bat for the Google/Yahoo search marketing deal, saying there’s “nothing to fear” from the two companies linking their search products. I believe most of his analysis is wrong, and he also skips the publisher side of the market entirely. In short, I feel that he is exactly wrong in both his approach and his conclusions.
He begins with “GOOGLE controls about 70 percent of the search advertising market. Doesn’t that give it a monopolist’s ability to set prices as high as it wishes?”
Well no actually, a monopoly controls only the supply side of a transaction, so it can’t change whatever it wants. If prices go too high, users stop buying (this is known as demand elasticity). Being a monopoly just gives you the ability to charge much higher prices than you otherwise would be able to because you don’t have a competitor who can undercut you for less profit.
But Stross skips that analysis and jumps into the meat of his argument. Ad rates are set by auctions, not dictated by Google, he says, so Google has no control over the pricing of those ads. If ad rates go up, it is just the market doing its thing.
This is the focus of his article – saying that there may not be any ad rate increases (which is absurd on its face), and alternately saying that if the rates increase it is simply the market responding to more robust ad auctions.
At the end of the day, advertisers will pay only what they want to get the ads they need. Most advertisers closely track ad performance to return on investment. If bids go up, they step back.
Continue…. Why the Google-Yahoo Ad Deal Is Something to Fear.
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