GroupM Search predict increase in cost-per-click with Yahoo and Microsoft

21 September, 2010


ST LOUIS — Advertisers could see a cost-per-click (CPC) increase up to 78 percent above current Bing CPCs as a surge of competitors move to one platform with the Yahoo and Microsoft Search Alliance transition, a study completed by GroupM Search revealed.

Based on the impact two industry milestones had on advertisers – Yahoo’s introduction in 2007 of Panama and Microsoft’s transition in 2009 from MSN Live to Bing, GroupM Search projects a three-week period of volatility post-transition before costs begin to settle. At the campaign level, advertisers can expect an average increase of 64 percent over current Bing CPCs for unbranded keywords and 78 percent for branded keywords during this time. Once the marketplace settles, CPCs on Bing will rest at 13 to 23 percent above current Bing CPCs for unbranded and branded keywords, respectively.

“Any time you interject change into the auction you invite pricing pressure,” said Chris Copeland, chief executive officer of GroupM Search. “In this case, we see historical evidence that suggests regardless of the bid tools and the preparation, a period of short-term volatility will exist.”

The study was completed by GroupM Search’s Predictive Insights unit, a team comprised of econometric statisticians and mathematicians with expertise cultivated in the area of search marketing. GroupM Search looked at current and historical paid search campaign data to estimate cost implications and how long it will take advertisers to return to equilibrium after this shock to the market. The study included campaign data of 12 market-leading clients who have maintained a steady presence on both Yahoo and Microsoft’s search networks dating back to 2007.

The insights from this study are important for advertisers because it allows advanced preparation for what to expect from this transition.

“If three-week volatility and CPC increases can be countered through better understanding of competitive sets, sophistication of those advertisers and what strategies they use today, then this research will have served our client base well,” said Copeland. One of the most important insights from the study is the understanding of the number of advertisers with paid search campaigns unique to Yahoo that potentially will now be running on the Microsoft adCenter platform. Within the search marketing campaigns analyzed, on average only 27 percent of the advertisers’ competition for branded and unbranded keywords were running on both Yahoo and Bing.

GroupM Search projects that advertisers unique to Yahoo moving to adCenter could lead to a 74-percent increase in competition levels on Bing than exist at present. This increased competition will be the greatest factor for the amplification in paid search costs, the study revealed. In a pay-per-click auction system, such as paid search, the number of competitors matters greatly in the final price of the item because each competitor vies for its desired position.

SEARCH ALLIANCE IMPLICATIONS STUDY – ADD ONE

“The industry has long known the variances of performance between Yahoo and Bing. What we found and what we believe has the biggest material impact for advertisers are the vastly different competitive sets between the two,” said Copeland. “When you put such a large set of new advertisers of varying sophistication into the mix, you are going to see a less stable CPC marketplace.” On the heels of the Yahoo and Microsoft Search Alliance transition, however, comes the peak of the holiday season when paid search sees its greatest surge in advertisers and CPCs. With this unique timing, the marketplace could experience bidding variables it hasn’t seen before and it could be early 2011 before everything settles and the “new CPC” is realized. Copeland added, “It is essential for all parties to get this right and we support the decision to go forward ahead of the 2010 holiday season. However, this predicted fluctuation, combined with holiday bidding strategies, means it could be three to four months before the new normal is set.”

An abstract detailing the study can be downloaded from the GroupM Search Blog, SearchFuel.

About GroupM Search
GroupM Search is the search marketing specialist division of GroupM, the media buying and planning arm of WPP responsible for more than 1/3 of the world’s media buying. GroupM Search provides industry-leading search marketing strategies, technology development, research, staffing and training to GroupM communications planning agencies, including: Maxus, MediaCom, MEC and MindShare, as well as the direct-to-client search marketing agencies Outrider, Catalyst Online and Quisma. More than 700 search marketing strategists comprise GroupM Search’s global network spanning 40 countries. In 2008, GroupM Search was named the 2008 Search Marketing Agency of the Year by OMMA Magazine and MediaPost. Global search marketing perspective from experts across GroupM Search can be found on the industry blog, SearchFuel. groupmnext.com

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