AdWords bid prices affect Yahoo’s prices
I just read a pretty interesting post, originally raised by a member on the Search Engine Watch Forums:
Does Google AdWords PPC Prices Affect Yahoo! Search Marketing’s Prices?
I would like to chip in on this a bit. But first I want to state that I assume search marketers are rational players, meaning they will do what is in their best interest and make rational decisions. I think it is a fair assumption, given that we are in the most metrics-driven industry there is.
There are two logical arguments why prices on Google influcene bid prices on Yahoo:
Google is profitable - just replicate what works!
Growing competition generally occurs in industries with a) relatively low barriers of entry or b) high profits. For example, it is extremely easy to sign up for tons of travel affiliate programs and start driving traffic to an affiliate site via AdWords. Whenever money is easy to make people want to participate - it gets crowded. At the same time, high-profit industries with high barriers to entry like mortage loans or online education degree programs provide incentive enough to push up the prices. It just happens to be that Google is the largest search engine and easy to use, so starting out marketing on Google instead of Yahoo come natural to marketers constrained by a marketing budget.
Given my assumption that marketers are rational, they will generally only bid so much that they don’t lose money. Or even better, they bid just enough to still make a profit. Once time passes and data accummulates, bad keywords are being bid down or deleted. At this point, one is left with the good keywords, the gold nuggets. So what do with them? Throw them up on Yahoo, MSN & Ask. Chances are they bring in some bacon as well. And instead of waiting to get some good data, just submit the same bids you have on Google.
To shorten my point, competition on Google is likely going to spill over to Yahoo, because the bid prices and distribution of compeitors on Google are a reflection of profitable business.
Budget constraints vanish
Quite simply, if Google is profitable then over time a marketer’s cash stash gets bigger, freeing up additional funds for marketing initiatives. Sure, those could be invested in Google. But why experiment around with a new keyword portfolio and risk losing money? Now that your hard work has paid off on Google, leverage it and throw stuff up on Yahoo & MSN - chances are very good that the same things that worked on Google will work on Yahoo. So as you enter Yahoo, like other rational marketers as well, competition drives up the bids.
However, I think that the spill-over effects are not one-directional, going from Google to Yahoo. They are bi-directional - if some keywords or copies are perform well on Yahoo, they will receive the marketer’s proper attention on Google.
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