Yahoo-Google deal could raise ad costs by double digits

Yahoo's search advertising agreement with Google could result in more than a 20 percent jump in keyword prices for advertisers, according to an independent report released Tuesday by SearchIgnite.

The report, culled from 12 million paid search clicks from January through June via 15,000 active keywords managed via SearchIgnite's technology, examined the cost difference between Yahoo and Google for tail terms, head terms, and brand terms.

A Yahoo-Google deal could drive up Yahoo keyword prices by an average of 22 percent if the Internet search pioneer seeks to gain as much profits as possible from that deal, according to the report.

"The deal is clearly financially beneficial for both Yahoo and Google, however, advertisers need to be aware of the potentially significant impact to their search marketing efforts," Roger Barnette, SearchIgnite president, said in a statement. "Most marketers will see their overall costs for search advertising across the Yahoo network increase, and will need to adjust their search strategies accordingly."

That information may be of particular note to lawmakers, who are gathering Tuesday for a hearing to review the search advertising outsourcing deal for possible antitrust issues.

In striking its Google deal, Yahoo said it mainly planned to run some of Google's search ads for its tail category. The Internet search pioneer has previously said that some of its search pages have no ads on its right hand column and, as a result, will use Google's search ads to fill out its inventory. Under the deal, Yahoo will receive a portion of the advertising proceeds from those Google ads that appear on its search pages.

The tail category is used by advertisers who have very specific keywords they want to use, in order to have their ads delivered to relevant search result pages. For example, take a fictitious business like Relaxcity Spa in Tinytown, Calif., it may bid on the No. 1 spot should a user type in the keywords "relax, spa, massage and Tinytown."

On average, the cost per click for bidding on the same tail keywords on Google, compared with Yahoo, costs 12 percent more for the No. 1 position on a search result page, and as much as 28 percent more for the No. 5 spot.

According to the report:

The price difference for bidding on tail terms on Google vs. Yahoo increases as the ad's page rank decreases. Therefore, it would be economically advantageous for Yahoo to outsource a significant amount of their tail term inventory, paying closer attention to the outsourced inventory's rank rather than the keyword terms themselves. Acting this way, Yahoo should be able to better monetize the majority of their tail terms with the Google partnership.

As for the head terms, which are frequently used keywords like "insurance," Yahoo on average receives more for the No. 1 through No. 3 spots on its search pages, than Google.

Yahoo receives 16 percent more than Google for the No. 1 and No. 2 spots using head terms, for example. But Google tends to earn more for the lower spots on the search page, such as 23 percent for the No. 4 spot.

Brand terms, which are keywords with the advertisers' own name or product name, are substantially more expensive with Yahoo for marketers who wish to have the No. 1 spot on a search page. The cost is generally 38 percent higher, whereas the No. 2 and No. 3 spots are comparable.