Checking the Weather in Panama

As noted elsewhere (see “The Somewhat-More-Visible Search Engines”, March 28 2007), both Yahoo! and Google have announced initiatives this months that they say will give advertisers a better view of the true scope of click fraud on their networks. In Yahoo!’s case, that enhanced visibility may be all the more important because early returns suggest that the new Panama search marketing platform is a hit and might have a positive impact on company ad revenues.

After all, when you’ve got an ad product that seems to be cleared for takeoff, you want to fill all the potholes on the runway.

A number of search marketing agencies and divisions have been issuing early reports about the results their clients are seeing under the new Panama system. And while some of those results are mixed, there seems to be enough good news there that Yahoo! can stop worrying about major missteps in the rollout and start worrying about bolstering advertiser confidence in search marketing generally.

Yahoo! began migrating advertiser clients to a new bidding interface in Q4 2006 and, once that job was done in early February 2007, turned on the new auction platform for pay-per-click ads on its network. That new system incorporates a quality ranking for search ads, so that those that receive higher clickthroughs may pay substantially less for their keywords.

Marketing professionals didn’t waste much time before taking the temperature of the new arrival. Avenue A / Razorfish, the interactive marketing division of aQuantive Inc., published research in late February that found that for a group of 33 of its advertiser clients, search impressions on Yahoo!’s Panama platform had gone up an average of 5% in the first 10 days of Panama’s operation. Click rates were up an average 10% in the same period, while costs per click declined an average of 6%.

Conversion rates were down by an average 5%, and cost per acquisition (CPA)—the cost of achieving a conversion, however the advertiser might define that—rose about 6% on average. Those terminal metrics showed a lot more volatility on the specific client level, Avenue A reported: Six clients studied saw conversion rates drop by 20% or more, while four others saw conversion rates increase by 25% or more. Similarly, one client studied reported CPAs more than double their pre-Panama figures, while another experienced a 26% reduction in CPA and a 15% increase in acquisitions.

“We don’t really make too much of the 5% average decrease in conversion rates noted in this preliminary study,” says Matt Greitzer, national search lead for Avenue A / Razorfish. “If we saw a 5% decrease in conversion rates week over week in a given campaign, that’s the difference between a 3% conversion rate and one of 2.85%. It’s hardly cause for concern. As advertisers and as we ourselves get more familiar with the Panama system, we’re going to see those numbers go back up.”

The increased click rates Avenue A noted on Panama jibed with early findings from comScore Networks. That study, based on the behavior of 1 million Internet users tracked by comScore, found that clicks on sponsored search ads on Yahoo! sites rose 5% during the week after the Panama rollout and were up 9% during the second week after the launch. Clicks on sponsored links also made up a slightly larger proportion of the total clicks on Yahoo! sites during those first two weeks.

While the Avenue A study didn’t break cost per click (CPC) data for branded versus unbranded keywords, the agency found that branded terms generally showed a sharper CPC drop than the unbranded ones—as much as 10% to 30% in some cases. Meanwhile CPCs on unbranded terms held steady or increased.

“We have seen our clients’ branded terms benefit from the launch of Panama,” Greitzer says. “The higher click rates on branded advertisers’ own branded terms are driving up click rates, and therefore driving down CPCs. Because large brand advertisers drive a substantial amount of search volume on their own brand names, they’re reaping the benefit of that branding.”

That branding benefit is one finding of another early look at Panama performance, this one from search marketing agency SearchIgnite and venture firm RBC Capital Markets. Using research from 7.5 billion ad impressions and 85 million clicks on campaigns from 500 marketers starting in Q4 2006 and running through Feb. 24 2007, the study found that big-brand marketers received the greatest benefit from the introduction of Yahoo! Quality Index on Panama.

Specifically, SearchIgnite and RBC found that Fortune 500 advertisers with strong brands saw clickthrough rates increase to an average of 4.4%, from a pre-Panama 2.3%. They also benefited from a decline in CPC, both on branded terms (down to an average 16 cents from 21 cents before the rollout) and even on non-branded terms (down to an average $1.10, versus a $1.37 average in Q4 2006). That compares to an average increase in CPCs that SearchIgnite noted across all advertisers, to 59 cents from 56 cents before Panama.

Those big brands also got the benefit of improved Quality Index scores on non-branded terms. Those improved scores moved their non-branded ads up to an average page position of 3.7, from 6.2 before the full Panama launch.

“Brand marketers are clearly best positioned to benefit from these [Panama] improvements, particularly due to the Quality Index, allowing them to leverage their brand equity as well as their offline marketing investments,” SearchIgnite president Roger Barnette said in a release. In other words, people searching Yahoo! on generic, non-branded terms tended to click on ads with brand names they recognized, giving those ads a Quality Index boost.

Many observers say this apparent advantage to strong brand advertisers will even out as smaller marketers with weaker brand recognition learn to optimize for Panama and thus bring up their own Quality Index scores.

Of course, at such an early stage and with many marketers trying different strategies to see what works best for them on the new platform, different agencies are quite likely to see very different results. At St. Petersburg FL-based SendTec, marketing and strategy director Tim Daly reports that in the first month after the new system was put in place at Yahoo!, total ad impressions for his clients were down almost 60% and total clicks declined almost 43%.

On the other hand, both clickthrough rates and conversion rates were up about 25% for SendTec clients on Panama, Daly says. Costs per click rose 25% as well.

“Our media costs were down, our CPAs remained steady, and overall we’ve actually seen a growth in conversion rates for our clients, despite the volume downturn,” he says. “In theory, Yahoo!’s goal to create a more relevant experience for consumers that would lead to a better return on investment actually did happen. But our CPCs actually went up as advertisers began to see improved performance and were willing to pay higher prices.”

All these agencies stress that their findings are preliminary and cite a need to continue monitoring clients’ Panama performance to determine the best strategies for working the platform.

Yahoo! itself may be able to enjoy the fruits of its Panamanian adventure a bit earlier than anticipated. A report this week from American Technology Research suggested that Panama’s success and the resulting increased spending by advertisers might start contributing to Yahoo!’s bottom line as early as Q2 2007. Yahoo! has previously maintained that the company’s earnings wouldn’t begin experiencing a “Panama effect” until the second half of the year.

And Yahoo! CEO Terry Semel, speaking at a media conference in mid-March, said the company would have “some very exciting numbers” to share about the Panama platform in its first-quarter 2007 earnings report. Whether those numbers relate to ad revenue or performance metrics, he didn’t specify.