We had the chance to have dinner with someone from Yahoo! Search Marketing (Y!SM) recently, and he shared that Y!SM will be changing over to a more Google-like PPC model in Q3 of this year.

It seems that Yahoos goal is to make its PPC program work similar to that of Google AdWords. While our contact at Yahoo! was unsure how complex the ad-serving algorithm would be, he was hoping it would not be as “black box” (read: confusing) as the AdWords algorithm.

To larger advertisers, this can appear a bit disappointing. Traditionally, Yahoo! Search Marketing has worked well for larger advertisers by running off a straight cost-per-click (CPC) ranking model. This type of model gives larger advertisers the advantage, since the more you can spend, the better you will rank. It also gives you better control over your positioning, ad spend, and branding effect based on positioning.

On the other hand, Googles complex AdWords ranking algorithm takes into account primarily click-through-rate (CTR) and cost-per-click (CPC). Historical factors related to CPC and CTR may also play a role in ad ranking at Google. This complex nature favors affiliates, since the playing field is leveled a bit with the CTR metric. With the AdWords model, skill and talent play into the equation, not just big money.

So, the Q3 move by Y!SM to work more like Google should be a favorable one for affiliates, right?

Actually, maybe not.

From our discussions with the Yahoo employee, it seems Yahoo has no plans to become any more affiliate-friendly than they already are. Currently, it is difficult to open a Y!SM account as an affiliate, since many of the Yahoo editors will decline your account for being an affiliate. In general, you must have a pretty robust, content-rich site to get accepted by Y!SM (although sometimes you can slip under the radar).

The surprising thing is that Yahoo! does not realize that one of Googles significant advantages in the PPC market is its affiliate-friendly nature. Affiliates bid on so many terms they fill create a long list of advertisers for the larger keywords. This ensures that if someone types anything into Google, there will be an advertiser there with an ad.

By keep affiliates out of the mix at Y!SM, Yahoo! is missing out on a significant revenue stream. While Yahoo! may argue that affiliates reduce relevancy, I think most savvy affiliates can add as much or more value to a users experience as a corporate site.

For these reasons, we encouraged the Yahoo! employee to bring this idea back at Yahoo!, and let them know that if they want to make money like Google, they will have to start treating affiliates with the respect they deserve.

Hopefully someone over there will get it. It means big money for Yahoo!—and if there is anything Yahoo! understands, its money.

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