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April 19, 2005

Yahoo! versus Google revenue streams

By Charlene Li

Yahoo! posted its Q1 2005 results today, with top line revenues of $821 million (which excludes traffic acquisition costs). I just finished my online ad projections and have been looking at the revenue streams of players like Yahoo! and Google very closely. Several financial analysts have projected that half of Yahoo!'s revenues come from search, and another 30% comes from the sale of banner ads.

The inevitable comparisons to Google come up -- Yahoo! doesn't have the search traffic and publisher network that Google has, and so lags in search revenues. But what I like about Yahoo!'s strategy is the robust nature of it. It can tap into multiple revenue streams -- especially emerging branding dollars that come with video and rich media ads. In contrast, Google is a one-trick pony (albeit, it's a very nice looking pony!)

This brings up the possibility of Google starting to tap into all of those burgeoning branding dollars. Google has relationships with over 200,000 advertisers and thousands of Web publishers taking text ads. How hard would it be for them to start taking and placing banner ads through AdSense? I expect that Google will enter the banner ad network market within the next year and a key question will be how they will ensure the quality of that network for advertisers. It should be interesting to see how quickly the Google pony learns new tricks.

Update: Thanks to Brad for pointing out some convoluted wording on my part. AdSense for Content does allow graphical ads as an alternative to text ads in its contextual listings. But these ads are still paid for on a CPC basis, where purely branding activity (aka no clickthrough action) is penalized. What I'm invisioning is Google starting a purely branded advertsing network, based on CPM. I know it runs counter to what they have been all about, but if you buy into the what's happening on the major portals, I bet smaller sites would be interested in tapping into that display advertising as well. The trick: using Google's contextual keyword matching engine to effectively target the right ads to the right page.


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Joe Lazarus

Google is already in the banner ad business with their Image Ad product...


Brad Hill

Charlene, I'm perplexed by your entry. Google introduced banner ads in AdSense nearly a year ago:


We haven't seen many banners throughout the content network, true enough, probably because of the double barrier to their introduction. Advertisers must create the banners (their creative is geared to text), and AdSense publishers must accept banners (their site design is geared to text). So AdSense banners have not been widely accepted, but they are allowed.

Kay Stoner

I've been thinking a lot about the differences between Yahoo and Google, lately, as we hear more and more intriguing news about who Yahoo's bought lately. It seems to me that comparisons between the two companies may be valid at face value, but in nature, I believe the approach of each company is fundamentally different. Yahoo's seems to be proprietary, whilst Google is more open-source-like.

It strikes me that Yahoo's success is built on appropriating technologies and IP and doing the sensible thing with them, which is a noble and valuable pursuit, and certainly makes the bottom line more resilient.

However, Google strikes me as being successful not because of what it knows, but who it knows -- i.e., its ability to tap into all the content and functionality available on the WWW, and give people quick and easy access to it. They don't have to tend the whole shop, so to speak, they just have to be able to find other people who are tending their own respective shops.

I think of Google's model as more of a service model, than the product model of Yahoo. And while Yahoo has more direct control over its specific properties (and continues to acquire more), I think there's real strength in not having to carry the overhead of maintenance and continued evolution/exploitation of technologies, but rather point to individual "pods" of clever, creative groups who can and do.

So, whilst Yahoo=fabu at this point in time, I predict that the mounting internal mass of acquisitions will ultimately prove too cumbersome to exploit in a nimble (and web-like) manner. Google may quite possibly win out, dollar-wise, because it lets the other websites and technology providers of the world do their thing, whilst they concentrate on just finding a great way to connect people with them.

mike ho

I believe Google *had* a CPM ad model, but retired it in 2003 in favor of CPC. Are you saying that they should complicate their product with similar-looking ads with different pricing models?

Charlene Li

That's right, Google used to sell banner ads around its search listings. What I'm proposing is something complete different -- truly CPM-based, banner ads on sites in their publisher network, AdSense. They already have AdSense for Search (traditional keyword paid search, CPC ads around search results on publishers' sites); AdSense for Content (text listings -- or graphical ads -- contextually placed, also CPC based). I'm proposing, for lack of a better name, "AdSense for Branding", which would be CPM-based banner ads that appear only on publishers' sites, not on Google.com. That would allow Google to tap into the $4 billion display ad business, which it can't reach today with its products.

Andrew Shotland

I heard that Google is looking for ad sales people who have experience selling to Hollywood. Since I don't believe that NBC is interested in buying pay-per-click ads for their next sitcom I would think that your notion of a pure CPM network is well-founded. I'd love to be in on the "how do we optimize CPM v Click" meetings.


Google is really beginning to sink in terms of quality.



Where did you hear that they were approching people from hollywood?

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