Yahoo’s Quality-Based Pricing, Friend or Foe?

Yahoo! recently launched a new feature to their Panama search marketing advertising system. Quality-based pricing, which rolled out in early June, is automatically applied to all Yahoo! PPC campaigns operating on the content match and sponsored search networks. It’s most likely Yahoo’s answer to Google’s “Smart Pricing” which was introduced into their content network in April 2004.

According to YahooPete (a frequent poster to SearchEngineWatch Forums and Yahoo employee) advertisers will potentially receive discounts on clicks depending on the quality of the websites providing the traffic. “Quality” is calculated based on conversion rates and other measurements of the partner’s ability to deliver more interested and valuable customers to advertisers from particular distribution partner sites.

Since this new feature launched, that same SearchEngineWatch Forum saw a lively debate ensue, with one poster’s concern being that Yahoo! could not effectively answer to the potential issue of publishers’ trying to increase their “quality” by inflicting fraudulent conversions. A Yahoo! blog post asserts that CPCs for clicks from high-quality traffic sites will not go up and advertisers will not pay more than their max bid. And yet the question still remains, who will monitor the publishers, amongst whom the dishonest may try to increase their Yahoo quality through fraudulent conversions.

In addition, posters took issue with the fact that QBP takes another level of control away from the advertiser and puts it in the hands of YSM and the publishers. The advertiser is not privy to the conversion metrics being used to determine if a publisher is of higher or lower quality, they do not see the data that shows which clicks convert from which publisher, in fact they won’t even know when a click has been discounted or where it came from.

Since YSM currently does not allow you to opt-out of certain publishers sites (they say there’s a plan in the works later in 2007) the gist of it is that advertisers will need to watch their campaign’s ROI and costs very carefully for the next few months in order to understand the real “costs” and “discounts” of the QBP.

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