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Yahoos Rich Media Search Ads Seen Providing Needed Boost


Yahoo Inc.'s (YHOO) new rich media search ads could give the struggling Internet giant a much-needed boost in its bruising battle with rival Google Inc. (GOOG), advertising industry executives said.

On Thursday, Yahoo introduced hybrid ads that integrate images and video in paid search advertisements, which typically show only text and links. The company said its new product, dubbed Rich Ads in Search, meld the branding of banner advertisements with the performance-based nature of search.

Yahoo's new ads could give the company a chance to regain some of the ground it has lost to Google in recent years, said Kathy Sharpe, chief executive of digital marketing agency Sharpe Partners. The new ads should enable Yahoo to take advantage of its sales force and leverage its background in display advertising, she said.

"What this says is: 'We're alive - and we're figuring it out,'" Sharpe said. "As long as they don't overprice it, they could now be a legitimate force in search."

Yahoo's new ad format comes as the Internet portal struggles to revive itself after ceding leadership in Web advertising, an industry in which it was a pioneer.

Earlier this year, founder Jerry Yang stepped aside as chief executive to make way for Carol Bartz, a long-time Silicon Valley executive. The company, which was the object of an unsolicited takeover attempt by Microsoft Corp. (MSFT) last year, has also been cutting jobs as it downsizes to weather what is widely seen as the worst downturn in generations.

Yahoo shares, which are off 60% from their 52-week high, fell about 2% to $11.98 Thursday. Shares in competitor Google were down almost 3% at $342.64 amid a decline in the broader market.

Yahoo has held its ground in the display advertising market, as it sells boxes and banner ads on its hugely popular Web pages. But it has fallen further behind in search advertising, which has emerged as a key market because text ads provide marketers with direct and measurable results.

Yahoo's paid search market share has eroded from 13.8% in 2004 to 10.5% this year, while Google's share has more than doubled from 32.8% to 67.7% over the same period, according to the research firm eMarketer.

Karin Blake, senior search manager at the ad agency Razorfish, which has tested Yahoo's new ads since January, said the new ads would likely enable advertisers to connect with consumers in innovative ways. She said advertisers in the pilot program, which include soft-drink maker Pepsi, insurance provider Esurance and pet food producer Pedigree, saw their click-through rates go up by 5% to 10% compared to regular text ads.

Yahoo said click-through rates were up by as much as 25% in some instances.

"It's definitely a step in the right direction for Yahoo," said Blake.

Adoption of the new products will likely hinge on pricing, an issue that Yahoo has yet to clarify.

Tim Mayer, one of the Yahoo executives who was involved in designing the new products, said the company was still trying to decide how to price rich media search ads. Advertisers in the pilot program pay a flat monthly fee in addition to their monthly search advertising budget, but that may change as the program expands. Mayer said Yahoo was undecided about whether rich media search ad fees would be set by the company or set through an auction, the standard pricing mechanism for text ads.

"We're still working on understanding the value to advertisers," he said. "We're still deciding how this should be priced."

Blake said clients in the pilot program saw their search costs go up significantly. But she said higher click-through and conversion rates - the number of times people click on the ads and respond to them - more than made up for the increase in cost.

Google and Microsoft are widely believed to be developing similar rich media search ads, but neither of them have the display advertising experience of Yahoo. Yahoo also has a well-respected ad team that can help sell and explain the new ad format to clients.

Another key question was whether Yahoo could in fact roll out its rich media search ads by the end of the year, as planned. The company has been notoriously slow in rolling out market-ready products on time.

"The success of this (ad format) depends on whether this is scalable," Blake said.

Mayer acknowledged that Yahoo's rich media search ad project remains a work in progress. He said Yahoo started testing the ads more than nine months ago, and in the fourth quarter initiated a limited pilot project with five to 10 advertisers. Mayer said Yahoo was now looking to expand the program ahead of a full rollout later this year.

While Yahoo aims to develop technology that lets advertisers create and place their own rich media search ads, Mayer said company sales staff is currently working directly with advertisers and agencies to develop the new ads.

"It's more of a manual process until we get the self-serve infrastructure in place," he said.



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