Advertisers beware: when Microsoft finally begins powering all Yahoo searches next month, the cost of clicks will go through the roof, and the market for search ads will be extremely volatile for weeks, according to a report from ad holding company GroupM.
Over the long term, GroupM expects the search merger to drive up cost-per-clicks (CPCs) by about 13% for non-branded keywords over the current going rates on Bing.
Many advertisers currently bid for keywords on Bing or Yahoo, but not both. So when the two markets are combined, there will be more advertisers bidding for each keyword. When these auctions get bigger, prices tend to rise.
Worse, the transition is unlikely to happen smoothly. Before CPCs settle in at a new rate, GroupM expects them to soar by a whopping 73% on average, and to remain highly volatile for a period of weeks.
As GroupM explains, “When the Search Alliance goes live, the market will be thrown out of equilibrium as advertisers from Yahoo are transitioned into the Bing traffic stream.”
The existing markets for Yahoo and Bing ads have been around for a long time, and are fairly stable. When the two markets merge, advertisers will be bidding against a whole new set of competitors. No one will know what to expect from the new auctions.
Historically, GroupM says, this sort of upheaval leads to market volatility and short term price spikes.
The upshot of all this is that it’s going to be a very rough month for advertisers. They won’t know what to expect to pay for clicks, and, for those that aren’t already advertising in both places, they won’t know what clicks from the new, combined audience are worth to them.
Via AdAge, here’s the report: