Are all users page views created equal?

All page views are not created equal...and do not generate the same revenue. Hitwise tracks page views and predicts Google will surpass Yahoo some time in 2007. Danny Sullivan says Google already attracts more traffic than Yahoo.

I don't care about page views so I took a look at quarterly revenues. Google equaled Yahoo in Q2 of 2003 ($311M) and passed them for good in Q1 of 2005 with $1,275M. Last quarter Google did $2.7B and is on track to do well over $10B for the year.

Google surpassed Yahoo a long time ago because most of their traffic is on search pages, and because Google does a much better job at monetizing those pages than anyone else.

Take a look at these two charts (below) prepared by Hitwise to see why the nature of the traffic (page views) matters.

Google gets almost 80% of its page views on Search pages while Yahoo gets about 32% of its traffic from search. Yahoo gets 33% of its traffic from email pages which can not be monetized as well as search pages.

Secondly, Google just does a much better job of monetizing its page views across all its properties. I have said before the secret to Google's success is not their search algorithms, but their ad auctioning system and ad targeting algorithm.

Advertisements can be effectively targeted to search terms, but how do you target ads to email pages or consumer generated video or photos? Consumer generated content is random and unstructured. How do you target an advertisement to a  photo titled "Robin, Caelin and Devin" ? How do you target an ad to a video of your family Thanksgiving dinner or a college  frat party? This is why I have been skeptical of the value of Riya, YouTube, and MySpace. Most of the pages are junk and advertisers are not willing to pay for them.

During the Internet Bubble of 1999 - 2000 companies were valued based on the number of users or number of page views. Traditional P/E (price to earnings) valuations didn't work because they didn't have any earnings...just losses.  Some of the recent Internet acquisitions have once again used dubious valuation techniques to arrive at stupendous billion dollar valuations. See my previous post on "The top 10 worst Billion dollar acquisitions".

Could history be repeating itself? Back in 2000 it was retail stock market investors who were bidding up the prices. Today these Internet startups are not public, but their valuations are being determined by M&A people at the biggest most successful companies. Maybe they should take another look at that list of billion dollar acquisitions and ask themselves a few questions... or they might show up on the list a few years down the road.

Subscribe - To get an automatic feed of all future posts subscribe here, or to receive them via email go here and enter your email address in the box in the right column.

Comments

[ashkan karbasfrooshan]

This is something I covered here, comparing Y! and G.

http://www.watchmojo.com/web/blog/?p=607

You would not compare, say Disney with HP, yet we compare G and Y!

Enjoy

[Brian P Halligan]

Hi Don.

You are spot on about Google's secret sauce being their "ad auctioning system and ad targeting algorithm."

I have been doing some analysis of Microsoft's search, Google's search, and Yahoo's search. My opinion is that Microsoft's results are a hair better than Google's and Yahoo's results trail way behind both of them. If this is right, the switching costs from Google are incredibly low, so I think there could be some interesting ramifications. Even though Google has made the advertising market "efficient," if their search algorithm falls behind, it won't matter.

Brian.

[Don Dodge]

Brands are powerful, even in the technology world. We live and work with technology every day so we think technology rules. It is only part of the equation.

Google earned its fame by delivering a better search experience. Google earned its fortune by optimizing advertising returns for its customers.

Google's brand is now so powerful that MSN Live Search must do more than just provide better search results...they must be substantially better...all the time. All the search players are working hard to be better than Google.

Another strategy is to focus on making advertising better. I think this would be much more successful. I would focus on optimizing advertising hit rates, providing better reporting and targeting tools for advertisers, and eliminating click fraud.

These steps would attract more advertisers and win higher CPC rates. The big money in online advertising is in search engine result pages (SERP), and the way to optimize that is by eliminating click fraud and providing better targeting.

This of course assumes that you stay competitive on the consumer search side by keeping your search index up to date and keeping your search results relevant.