I've always said that AdSense publishers should keep an eye on AdWords, the product that is the source of their revenue. As other blogs have been mentioning, Yahoo! is significantly revamping its own pay-per-click advertising program in order to better compete with Google. You can read more about it from this news story. I want to focus in on the biggest change in how ads are served. To quote the news article:
A new ranking formula, to be adopted later this year, will also take into account the “click-through rate” of an advert, along with a number of other secret factors, said Mr Cadogan – an approach that echoes the one followed by Google.
What's ironic is that Yahoo! actually holds the fundamental ad serving patent that Google itself uses for displaying ads on its own search results pages. (Google had to license the patent, paying Yahoo! a whack of stock in the process before its IPO.) I refer to Claim 60 in the patent:
60. The method of claim 59, wherein the estimated cost is calculated as a product of the bid amount of the search listing and a projected number of times the search listing is selected in the specified time period.
Google's algorithm modifies this claim to include feedback values. In particular, the clickthrough rate (CTR) of an ad is factored into the equation. The more an ad is clicked, the more boost it gets in its rankings. Conversely, the less an ad is clicked, the fewer times it is shown, even if it has a higher bid than all the others. Until now, Yahoo!'s ad list could easily be dominated by brute force — advertisers willing to pay top dollar for the top spots. You might think this is better for Yahoo!, but it's not, because Yahoo! only gets paid when ads are clicked. Which do you think Yahoo! would rather see: an ad paying $50 per click with no clicks, or an ad paying $0.50 per click with 100 clicks?
With Yahoo! moving to emulate Google's adaptation of its own patent, I wonder if the ordering of the Yahoo! Publisher Network (YPN) ads will also be affected. If they are, it will probably lead to better overall payouts for YPN publishers as ad CTRs are factored into the selection algorithm, not just payout values. This could be a big win for YPN publishers.
Eric Giguere is the contextual advertising expert who wrote Make Easy Money with Google and Uncommon AdSense. You can read this blog by mail if it's more convenient for you, just send a blank email to memwg-blog@aweber.com to subscribe.