In its todays edition The Wall Street Journal published an articles about Yahoo’s startegy to better compete its rivals. According to the news paper the web portal stocks up on academics to overtake Google’s dominancy on the internet market.
Yahoo’s stock fell 22%, its largest-ever one-day drop, when the company said last month that a revamp would be delayed. The web portal has one of the biggest user bases in the world but it does not fully benefit from “hot phenomena” such as online video and social networking, a service offered by sites such as MySpace.
Yahoo’s goal now aims to record what consumers do online and to study how changes to its web services affect users’ behavior.
Internet businesses in the past have largely lacked the systems and focus to mine data for research, but now they’re viewing it as a key competitive pursuit. The WSJ says that for economists, web operations are data-rich fantasy lands where they can observe in real-time the behavior of millions of consumers in varied marketplaces far more effectively than ever before.
Yahoo believes research might help it with other Internet services whose design, and success, are currently determined by intangible factors.
One of the tools that helps company’s research team is Yahoo Answers, a service users post questions, to which other users respond. Under that system they receive points for answering questions, and get more points for answering questions that are well received. The top-ranked answerers are featured on a leaderboard and the ensuing competition has improved the service’s quality.
The portal is constantly improving the rules for points. For example it sets penalties for people asking profane or abusive questions.
One of the biggest challenges for Yahoo researchers however is to find ways to improve its ad-auction system, in which advertisers bid to have their ads shown to users who search for relevant keywords, such as “Web Hosting Chicago.” The advertiser pays each time when someone clicks on the ads.
WSJ explains that Yahoo’s advertising system gives the most prominent placement to the advertiser that bids the most per click. By contrast, Google weighs additional factors, such as the frequency with which consumers click on each ad, to determine the order the ads are displayed.
Google’s approach generates more revenue per search, since the most popular ads for any query appear more prominently. Compared with Yahoo, Google brings 45% more revenue on average for each search query it handles, according to New York’s research firm Majestic Research Corp.
Yahoo executives concede the structure of its search-ad system has cost the company hundreds of millions of dollars in revenue.