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Monday, June 04, 2007

Yahoo to Release Quality-Based Content Click Pricing

Today Yahoo! announced quality-based pricing for clicks coming from distribution partners in the sponsored search and content match programs. Similar in intent and implementation to Google's "Smart Pricing," it will automatically discount a publisher's click revenue (and the amount the advertiser pays for that click) by "a certain percentage" based on traffic quality as measured by conversion rates and other factors.

This systematizes the same process that has taken place with interactive ads for years: advertisers run tests, find out which sites convert well, and reprice their offers when they re-order, lowballing the low quality publishers.

My take:

This is a much-needed initiative for Yahoo!. Although it will initially dampen revenue, it will put Yahoo's relationship with advertisers on a solid foundation, allowing for future growth. I've witnessed first hand the slow increase in the ROI graph on Google's content network, to the point where we now feel confident bidding on this inventory in almost every advertiser account (although still lower than we bid for search inventory, usually). Smart Pricing has been an important part of this picture, as blunt an instrument as it may seem to some publishers. It's worth noting that by taking away ill-gotten revenue from bad publishers, these networks can afford to pay out better to quality publishers.

This initiative will further cramp click arbitrageurs' style, though not all forms of arbitrage will be negatively impacted, because not all publishers are part of the same content network (did you know that?) so different rules might apply. That being said, these distribution partners that are classified as falling under "sponsored search" appear to be subject to the new quality-based pricing; however, nothing some select partners won't be whitelisted or made exempt from the policy.

One possible criticism of such policies (I called this an "actuarial" approach to content pricing when Google rolled it out 38 months ago) is that it's a way of blunting criticisms of fraud-prone distribution partners without actually offending the partner network by taking direct action. In other words, it's an abdication of past responsibility for click fraud in the network, while trying to quietly rectify the problem. A further indication of a gradual acceptance of responsibility for the quality of the partner network is in point 17 of the FAQ's: "Although we do not currently offer the ability for advertisers to opt-out of particular sources of traffic, this is a feature that we plan to begin offering later in 2007." Good thing, because for some partner traffic, as far as many advertisers are concerned, the only smart price is zero.

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