Sunnyvale, California — Last month, Yahoo began redirecting all of its organic search traffic to Bing, and when Microsoft finally begins powering all paid searches scheduled to make the switch by next month, the cost paid by advertisers may rise sharply after the duo merges their Internet search services, clicks will go through the roof, and the market for search ads will be extremely volatile for weeks, according to a report from ad holding company GroupM.
Media investment firm GroupM, which broke the news, over the long term expects this transition could create a three-week period of volatility in the advertisement market, which could to drive up cost-per-clicks (CPCs) by about 13% for non-branded keywords over the current going rates on Bing.
GroupM foresees that advertisers can expect digital marketing campaign costs to spike up by 64% for unbranded keywords, while branded keywords could see a 78% lift. Once the market settles, the firm expects Bing paid search prices to stabilize at 13 to 23% above current levels.
“The industry has long witnessed the inconsistency of performance between Yahoo and Bing. What we discovered and what we consider has the immense material consequences for advertisers are the vastly different competitive sets between the two,” said Chris Copeland, CEO of GroupM, in a statement. “When you put such a large set of new advertisers of varying sophistication into the mix, you are going to see a less stable CPC [cost-per-click] marketplace.”
“Any time you introduce change into the auction you invite pricing pressure,” said Copeland. “In this case, we see historical evidence that suggests regardless of the bid tools and the preparation, a period of short-term volatility will exist,” he added.
Advertisers on the newly combined system could see their so-called cost per click — or the price paid per click on a search advertisement by an Internet user — may soar up to 78% above what they are paying now on Microsoft’s Bing search engine.
Many advertisers currently bid for keywords on Bing or Yahoo, but not both. So when the two markets are merged, there will be more advertisers bidding for each keyword. When these auctions get bigger, prices tend to rise. Nevertheless, the Yahoo-to-Bing transition should enable brands to manage their search campaigns more efficiently as they only need to focus on two portals. According to recent comScore reports, Bing and Yahoo together account for 33.8 percent of total queries conducted.
A division of advertising giant WPP PLC, GroupM Search reported that following an initial transition period, before CPCs rates stabilizes in at a new rate, GroupM expects them to soar by a whopping 73% on average, and to remain highly volatile for a period of weeks.
As GroupM explains, “When the Search Alliance goes live, the market will be thrown out of stability as advertisers from Yahoo are transitioned into the Bing traffic stream.”
Historically, according to GroupM, this sort of disturbance leads to market volatility and short term price spikes. The outcome of all this is that it is going to be a very rough month for advertisers. They would not know what to expect to pay for clicks, and, for those that are not already advertising in both places, they would not know what clicks from the new, combined audience are worth to them.
Yahoo and Microsoft are merging their search engine services in an attempt to take lead over market leader Google Inc. The companies announced in August that they had combined “organic” search results, and are planning to have their paid search-advertising results merged in time for the holiday season. GroupM said it is publishing the study results to give advertisers “advanced preparation” for the consequences of the deal between Yahoo and Microsoft.
A Microsoft representative declined to comment. A Yahoo spokeswoman did not respond to a request for comment.
Here is the report:
Financial Implications of the Yahoo and Microsoft Search Alliance