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Wednesday, August 1, 2007

Two paths to targeted marketing - Google and Yahoo

Yahoo has been attempting to move toward what some advertisers regard as the ultimate manifestation of marketing: ads tailored to the individual. With the announcement of their SmartAds product, Yahoo is claiming that they can target narrower groups of individuals and target ads more directly to the characteristics of that group. By analyzing users past web behavior combined with what a user is currently doing, Yahoo says they can more accurately determine the kinds of ads that a particular group of users should see. Yahoo's new technology will then cobble together the appropriate pieces to present a complete banner ad tailored to that group.

Google has chosen to pursue a different path and has announced that they do not intend to pursue behavioral targeting. They have opted instead to refine their flagship technology around search ads. The enhancement they are currently testing includes the previous search terms as well as the current search terms to determine what ads to show to users. This approach requires no knowledge of the user's past behavior on the web and uses only the user's current session. The benefit of this new approach is based on the contention that a user will do several searches to research a subject area. By addressing ads to the "theme" the user is searching on it is anticipated that the ads will be more relevant for that user.

Google has been working hard to maintain a consumer-friendly posture. This approach to ad targeting is being touted as preserving user privacy and to a great extent, it does. Clearly, it does much more to maintain user privacy than the recently announced policy of setting cookies to expire. (The cookie announcement has been criticized in the blogosphere as not really accomplishing much.)

Why the two approaches to targeted marketing?

Each company is playing to its strengths. Google is undisputedly the dominant search engine. That has created a powerful revenue stream from search-related advertising. Continuously refining the technology behind search ads is a logical progression. Using the lessons learned in search advertising probably allows tuning of the AdSense process whereby ads are served based on the content of the pages where they are hosted.

Yahoo's strength is content; as opposed to Google, Yahoo has more traffic that comes for the content as opposed to search. Building a new strategy around configurable banner advertising makes more sense than trying to beat Google in search advertising. Because there is more variety of content around which to place ads, Yahoo can benefit from the new style of behavioral targeting as well as the old style of behavioral targeting where ads were placed on sites that expected traffic from users with specific interests (placing car ads on sites for car enthusiasts, for example). Meanwhile, the Panama technology for search advertising that Yahoo recently rolled out at least keeps them in the game though not on a par with Google.

With all these different methods of serving ads and all the visitors that they get, why can't Yahoo be more profitable?

With search ads, and by extension AdSense (both can be considered contextual advertising), Google just sticks to core functionality and grows market share and earnings.

Where would you put your money?

Disclosure: I have no positions in either Google or Yahoo

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