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"The market today is so obsessed with search advertising, people aren’t getting the bigger picture."

When I heard that at Yahoo last Friday from Usama Fayyad, chief data officer, I was tempted to diagnose a case of sour grapes. With Project Panama still delayed, Yahoo has shown no sign of being able to catch up with Google in search monetisation. But Fayyad has a point.

For a start, search’s share of overall online advertising may soon plateau. A forecast from Merrill Lynch on Monday suggests search will continue to be the hottest area in the US next year, growing by 27 per cent compared to 20 per cent growth in online branded advertising. After that, though, it will level off at 43 per cent of the overall market.

The Web can provide far richer experiences than a simplistic search box - whether it’s the subject-specific sites run by portals like Yahoo or the more malleable Web pages stemming from the Web 2.0 wave of technology. Often, those contexts are shaped by personal information supplied by the user. So why aren’t these richer and more personalised interactive experiences the hottest forum for online advertising?

There’s no lack of data available to hone and target these messages: Fayyad says Yahoo collects 12 terabytes of basic usage data a day. Rather, the problem is one of "market readiness - of the advertiser to grok it, and our side to understand how to package it in simple ways."

One small example of the sort of gains that might come from a more sophisticated understanding of online behaviour: Yahoo’s press release today claiming that internet users who have seen an online display ad are more likley to conduct a search, and then nearly 250 per cent more likely to click on a search ad from the same company.

Of course, Yahoo still needs to fix the basic things first. Until it shows some signs of improvement in search, Wall Street isn’t likely to give it the benefit of the doubt on the rest.

Richard Waters, San Francisco

December 5th, 2006 in Internet | Permalink