Microsoft-Yahoo collaboration hits a snag; Microsoft adCenter shortcomings cited

Summary:During Yahoo's Q1 FY2011 earnings call with analysts, CEO Carol Bartz said that technical issues with Microsoft's adCenter platform were largely to blame for a shortfall in revenue that was expected from the Microsoft-Yahoo search alliance.

During Yahoo's Q1 FY2011 earnings call with analysts, CEO Carol Bartz said that technical issues with Microsoft's adCenter platform were largely to blame for a shortfall in revenue that was expected from the Microsoft-Yahoo search alliance.

Yahoo has moved its advertisers from its own Panama ad platform to Microsoft's adCenter as part of the deal with Microsoft. Because of the problems, Yahoo is "holding off on transitioning more page search markets this year" while Microsoft fixes adCenter in the U.S.

Bartz said the problems have included everything from "prediction of what an ad campaign for new advertiser's going to be versus one that's been on there," to "budgets-smoothing" and "relevance" concerns.

Bartz said the adCenter problems are resulting in lower-than-expected returns per search (RPS).

From a transcript of Bartz's remarks during the April 19 Yahoo call:

"adCenter isn’t yet producing the RPS we hoped for and are confident as possible. Advertisers are seeing strong ROI (return on investment), but technical limitations in the current adCenter platform mean the click volumes just isn't there yet. We had expected RPS to be neutral by midyear, it's now evident that it will take Microsoft longer to achieve that goal. We expect that to happen by year-end. In the meantime, the RPS guaranty helps protect our revenue and our view of the long-term potential of the marketplace remains unchanged.

"We are working very close with Microsoft on this. They understand the issues and they're hard at work on systems architecture, science models and better features and functions in adCenter. They have an aggressive roadmap to bring those to the marketplace."

The Microhoo deal, if you need a refresher, was cemented between the two companies, following Microsoft's aborted attempt to buy Yahoo in 2009. Terms of the ten-year alliance included:

  • Microsoft licensing Yahoo’s core search technologies
  • Bing becoming the “exclusive algorithmic search and paid search platform for Yahoo sites’
  • Yahoo becoming the worldwide ad sales force for both companies
  • Self-serve and search advertising being built on Microsoft’s adCenter platform

In 2010, Microsoft and Yahoo execs said the transition from Yahoo's Panama ad platform to Microsoft's adCenter was on schedule, and that advertisers would be fully moved to Microsoft's platform before the holiday 2010 period. Bartz said on yesterday's call that the adCenter migration issues weren't able to be detected until the Panama-adCenter integration was in place.

But it looks like the adCenter platform didn't provide some of the capabilities Yahoo advertisers were expecting. The Wall Street Journal explained the problem as limitations in adCenter "limiting the number times users click on search ads on Yahoo's pages."

I asked Microsoft about Bartz's statements yesterday and received the following from a Microsoft spokesperson:

"We are working very closely with Yahoo on bridging the RPS gap, and have an aggressive roadmap of enhancements designed to improve three key areas: monetization, relevance and advertiser-facing tools. We continue to see progress and are encouraged by the positive results we’ve seen in advertiser ROI, query share and click-through metrics. Recent reports by third-parties point to this positive momentum (Efficient Frontiers and Marin). Each search platform has unique capabilities; we are working closely with some advertisers and channels to help them adapt to adCenter’s evolving platform and marketplace. Additionally, in the past six months, we have successfully migrated tens of thousands of advertisers and their campaigns into the combined Yahoo!/Bing marketplace in the U.S., which was a massive combined effort.

"We remain optimistic about the long-term potential of the combined search marketplace and are working collaboratively with Yahoo to identify real-time insights and create optimizations strategies for our customers and partners."

Microsoft officials are not willing to comment about any specific updates or timing of those updates to the adCenter platform beyond what's in the statement above, the spokesperson said when I asked. Microsoft is releasing regular, seemingly quarterly, enhancements to the adCenter platform.

Related reading:

Yahoo's first quarter: Still looking for revenue growth

Yahoo moving farther away from search with more original content

Topics: Collaboration, Banking, Microsoft, Social Enterprise

About

Mary Jo Foley has covered the tech industry for 30 years for a variety of publications, including ZDNet, eWeek and Baseline. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008). She also is the cohost of the "Windows Weekly" podcast on the TWiT network. Got a tip? Se... Full Bio

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