Yahoo! One Up On Google

Thursday, April 12, 2007 | 3 comments

This week, Viacom announced a multi-year partnership under which Yahoo! will serve as the exclusive provider of sponsored search and contextual ads to all of Viacom’s 33 broadband sites, including MTV.com, VH1.com, Nickelodeon.com, comedycentral.com and BET.com, with potential expansion to more than 140 additional Viacom websites across the globe. The ads will be powered by Yahoo!’s newly launched search marketing system, “Panama”.

Yahoo!’s PR coup? Viacom’s dig at Google? Does it really matter for Google?

Yahoo!
Coming on the back of the NBC Universal and News Corp. deal where it is a launch distribution partner, this deal is definitely good news for Yahoo! and what can be more assuring, than the fact that brokerage houses are assessing the impact of this deal on Yahoo!’s financials. The deal will help Yahoo! to add a huge inventory of high quality content to its portfolio and partner Viacom, a dominant player in the tweens, teens and youth category. Soon after the deal was announced, UBS issued a research note saying how this deal is a positive for the Company. If not for anything Yahoo! would definitely use this as a marketing tool for its Panama.

Yahoo! has finally arrived in the search marketing space. According to stats released by comScore, Panama’s click through rates had gone up by 5% and 9% in the first two weeks of its launch, clearly an indication of the success of the delayed project. Brian Pitz of Bank of America is of the view that Panama will aid Yahoo! to increase its click through rates by 15% to 25% and monetization by 30% to 40%. Yahoo! is definitely closing the gap with Google.

Yahoo! seems to be finally working its way back, and this is rewarded by the fact that the stock has moved up 37% from $23.21 on October 20, 2006 to $31.69 on April 10, 2007.

Viacom
Viacom has made significant progress in the digital space. Viacom’s online properties have grown rapidly, registering more than 40 million unique visitors in December, 2006 and ranking as the number one online entertainment portfolio and the tenth most popular overall portfolio on the web.

With its $1 billion lawsuit against Google in the courts the current deal with Yahoo was along expected lines. The agreement with Yahoo will aid Viacom to get closer to its target of $500 million revenues from online businesses in 2007. The Company is expected to receive 70% to 80% of the revenues from the Yahoo ads that will be posted on the Viacom sites. This could lead to more partnerships on the digital business front, or be a step towards the rumored merger of the two companies. Such a merger would certainly play to Terry Semel’s strength.

The thrust at Viacom is to monetize its Internet properties and this is evident from the fact that the Company recently reorganized its sales staff at MTVN to grow multi-platform sales and formed a new marketing team at BET to facilitate digital expansion. Thus, the current deal is of significance on the backdrop of Viacom’s initiatives to expand its online businesses and subsequent monetization.

Google
Google is the clear market leader in online search marketing and commands much higher click through rates than Yahoo and the 9% gain registered by Yahoo! in the second week of the Panama launch is too little too late. Google has been out of favor with many media companies including Viacom, due to copyright infringement of video clips on Google Video and YouTube.

Ofcourse, it’s not that Google has been sitting and sucking its thumb. It has signed a multi-year (three years nine months) advertising deal for $900 million with News Corp., which owns the highly trafficked social networking site MySpace. Even though monetization rates are low, this deal is important for the future of the Internet, as the MySpace generation matures. Google also snatched the search marketing deal for AOL from Microsoft, and continues to march ahead.

The onus really is on Yahoo! and we have to see how well it is able to leverage the Viacom deal. Yahoo! also has to show material gains on the click through rates and monetization front. The market is eagerly waiting for the 1Q 2007 results and the guidance for the remaining year. Viacom on the other hand would have benefited either way but the big question is will it meet its revenue target of $500 million, I think it will, with its new initiatives.

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