Pricing Launch Drives Improvements in Yahoo CPA

On September 9, Yahoo launched a new dynamic pricing program which allows advertisers to drive improvements in return on investment. Dynamic pricing is a way in which Yahoo is adjusting bid prices, or click charges, for paid search based on an assessment being made of the traffic coming from various sources within the Yahoo distribution network.  According to Yahoo, they look at “click quality” – ideally from the Yahoo web analytics properties (they purchased IndexTools a year ago – link), or from CTR rates.  Discounts for click charges are being applied for “lower performing traffic” and premiums for click charges are being applied for “higher performing traffic.”

We asked, “is Dynamic Pricing working for Yahoo?”  We found that the answer is “yes.”

• We looked at CPC, CTR, and CPA from the 4 weeks before the launch of Dynamic Pricing, and compared them to the same data from the 4 weeks after the launch.
• We compared relative CPC, CTR, and CPA for Yahoo and Google across our high tech customer base.
• We looked at “global” results, though there was little difference in result between US and all countries.

These are the results:

• Click through rate – the CTRs for Yahoo are up 46%, while they are up 5% on Google during same time period.
• Cost per Click – the CPC on Yahoo fell by 29% during this time, while they are down 10% on Google.  This is part of the long term trend toward lower CPCs we have noted in our Global Search Spending summary that started Q32008.
• Cost per Acquisition – this is the most important metric.  CPA on Yahoo is down 11% since the launch of Dynamic Pricing, while Google is flat.

Dynamic Pricing is not a concept supported by Bing – so the question is whether this will be carried over to the network or not when the search algorithm is “Bing powered.”   Dynamic Pricing will provide some level of improved ROI on Yahoo, which may skew some spend to the network in the future.  With CPCs down 29% and CPA down 11%, advertisers should be allocating money to the network until the affordable converting inventory is exhausted and the ROI improvements begin to degrade.

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