If you know the history of paid search you can better understand and formulate strategies to deal with the ever-evolving world of sponsored search listings on the web. While Internet search engines began popping up in the mid-1990s, paid search didn't really get going until later that decade. So let's start there.
The Early Days In the early days there was Goto.com (NASDAQ: GOTO). Goto was the first successful attempt at a pay for placement search engine. They were incubated by Idealabs and launched officially in February of 1998.
Early on, Goto.com's biggest problem was that while it had advertisers willing to pay for clicks on a bid-per-click basis, they had very low search volume, and thus were unable to generate enough revenue.
Soon Goto hit upon the idea of partnering with mainstream search engines to display Goto.com brand sponsored listings in search results, usually across the top, and down the side of regular search results. Mainstream search engines would provide the traffic, Goto.com would provide the paid search listings, and they would split the revenue. This strategy worked so well for Goto.com that they decided to re-invent their entire strategy around partnerships with search engines, as opposed to building their own search market share. With that, they changed their name to Overture.com (NASDAQ: OVER).
At its peak around 2001, Overture's search partners included Yahoo, MSN, AOL, Alta Vista, Ask, and dozens of other well-known search engines. Their overall reach approached 85 percent visibility at the top of searches done online. Remember that back then, Google's total market share was less than 10 percent, a far cry from the more than 50 percent it controls today.
Overture and Google Overture aggressively courted Google (NASDAQ: GOOG) to get them to display Overture Listings on Google search results. Google, however, had other plans. In early 2000, Google rolled out a paid search system that was based not on cost-per-click bidding, but rather on CPM bidding (Cost-Per-Mil, which means Cost per 1,000 ad displays, or impressions). Google had decided not to play with Overture, but to build its own paid search engine instead.
Google abandoned their CPM bidding engine after about six months in favor of a CPC (cost-per-click) bidding model. Significantly, its bidding model was much more sophisticated than Overture's. More on that later.
Google went public in the spring of 2004. Until they went public and offered their stock for public purchase, they were a privately held company, so nobody really knew how much money they were or weren't making. Analysts speculated that with Google's ever increasing market share and ever more attractive CPC bid-ranked paid search engine, it was growing formidable. Eventually, AOL stopped using Overture and switched to Google-sponsored listings. Many smaller engines did the same. Analysts believed that Google was becoming a very serious player in paid search, but no one knew for sure until Google went public.
Yahoo and Overture Yahoo (NASDAQ: YAHOO) realized that it had to own and control its own paid search engine. It had two choices: build one or buy one. It took the "buy" route by purchasing what was then the largest paid search network, Overture. Overture was eager to be acquired, because it needed more resources in order to compete with Google. Yahoo had those resources. Yahoo acquired Overture in 2003, for $1.7 billion, and re-branded Overture to "Yahoo Search Marketing".
Google Goes Public In spring of 2004, Google became a publicly traded company, which meant it had to file quarterly reports with the Securities and Exchange Commission, publicly disclosing all their financial details, including how much revenue they were generating from their paid search network.
Legend has it that Google's first quarterly report landed on the boardroom table at Yahoo like a nuclear bomb. To Yahoo's amazement, Google was generating THREE TIMES more revenue PER SEARCH than Yahoo was. Set aside market share for a moment, that's a different issue. A single search at Google generated three times the revenue that Yahoo generated for that same search.
Linear Bid Systems vs. Quality Score Bid Systems How was Google able to generate so much money per search on average compared to everyone else? It turns out that Google had built a much more sophisticated bidding system than Overture had.
Overture's Linear Bid System - In a linear bid system like Overture's, the advertiser controls the position of his or her search listing with the bid. The advertiser has total control over search position. By bidding the highest, the advertiser was absolutely guaranteed the top position in search results.
Google's Quality Score System - Google understood that not all listings in search results get clicked on regularly. In other words, it was possible to have a really bad listing that got few clicks but still controlled the top spots in search results. Indeed, it was common to have numerous bad ads in the top spots. This led to fewer 'high revenue clicks', and cost the search engine in unrealized revenue. Google realized it needed to develop a system that rewarded the great ads that got clicked on the most, because they would help Google monetize their search results better.
Google's quality score-based system wasn't just a little better, it was three times better at generating revenue from a search, and nobody knew it for years, except Google.
MSN and Yahoo Microsoft saw the writing on the wall and decided it could never join their new arch-rival Google and display Google listings at MSN (Microsoft's site), but on the other hand, neither could they suffer with the lower revenue flow from Overture/Yahoo listings. MSN/Microsoft immediately started building a system of its own, emulating Google's approach, which they launched in early 2006, officially leaving Yahoo's paid search. By early 2006, Yahoo had lost all its big search partners but by itself was still plenty big.
Yahoo Re-Tools Within a few months of Google's numbers being made public, Terry Semel, long time CEO and Chair of Yahoo announced that Yahoo was scrapping its old linear bid engine in favor of a quality-score-based system like Google's. After many lengthy delays, Yahoo launched their own quality score engine in October of 2006. The last of the old linear bid-based accounts were migrated to the new quality score engine in February of 2007.
- Very few online article submission websites have an option of future entering of the directories, but it could be a good play. Most