Me-Too In The Pay-Per-Click War Won't Work

It’s really stimulating to watch how the Search Engine War among the three majors (Google, Microsoft and Yahoo!) is developing. Poor Old Bill acknowledges that he didn’t appreciate how big Search would become. So Google ran with the ball when there really weren’t too many other players on the field. They got it so right that the only credible opponent decided to run with them rather than tackle them. So for a time, Yahoo! was using the Google search results.

Suddenly Microsoft has woken up to the potential of Search. They threw a great deal of money and resources at the problem. The Microsoft search robots were crawling as fast and as furiously as those of Google. So now that Microsoft Search has moved out of beta as of February 1st, its performance is certainly giving Google a run for its money.

Surprisingly Microsoft didn’t come out with their own way to monetarize Search immediately. It’s only this week that we hear about their own version of Search advertising. In some ways, we’re seeing each of the three majors trying to emulate what the others are doing. Me-Too seems to be the order of the day.

Unfortunately there’s a big stumbling block for Microsoft in the Pay-per-Click sector of the Search market place. You’ll find it referred to in a Forbes article, Microsoft Aims For More Paid Search Ads. So why exactly can’t this be a good clean combat among these fine companies. Well the reason is what’s called Intellectual Property.

Overture came up with the idea of an auction on the sponsored listing positions. Searchers looking at a Search Engine Report page are more likely to click on an ad that is nearer the top. So potential advertisers may well seek to outbid each other to get that top sponsored position. It’s a win-win situation for the bidders and the Search Engines. Google thought it was such a good idea that they copied it. However in so doing they were infringing on the Overture patent, or so it was alleged. Whether or not they were, they chose to give Yahoo!, the owner of Overture, a large amount of compensation in the form of shares.

So now how can Microsoft aim to match this. They could try to buy the right to use it from Yahoo!, but it is unlikely they could negotiate a meeting of the minds on this. The alternative is to go with a fixed price per click for sponsored listings. Although Microsoft likely has a loyal audience that can only be reached via Microsoft, there are limits on what an advertiser would want to pay for this channel. So Microsoft loses all the up-side potential for highly competitive terms if it stays with a fixed price per click. There are more complicated ways of setting different fixed prices but this may inhibit advertisers. All in all, it’s a problem Microsoft doesn’t need in its attempts to go toe-to-toe with the others.

Tip of the hat to Andrew Goodman for his post, Not So Fast, Butterfly, that spotted the Forbes article.

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