Yahoo has grown up as a portal company. They learned early on that by being sticky, by having a web presence that forced users to stay on their site, they could find ways to profit from their page views. This has led Yahoo astray though. Not only has Yahoo given up overall profits in search of ever expending user acquisition, they have allowed their search product to fall behind.
Google, Yahoo’s chief competitor, has mastered the art of monetization, namely through contextual advertising. Contextual advertising is when small piece of programming code is inserted into web pages which actually interprets the text and serves advertising based on keywords. Google’s offering, Adsense and Adwords, produces 99% of the company’s profits. This advertising network is built into both their search and branded sites. Web publishers are also growing to adopt Google’s version of website advertising to gain monetization for their own traffic.
Yahoo has adopted this model of contextual advertising that has been so profitable for Google, but have yet to refine it enough to make a serious impact on the market. The program is still in beta (the internet’s way of saying under construction) and has not made any headway at attracting new publishers or advertisers.
The primary disconnect in the Yahoo model has been the lack of precision, because their search algorithm needs to be updated. The advertising network fails to interpret that an article is written about cars, and serves ads about entrepreneurs. Money is only made if a user clicks on the advertisements. This is an interesting dilemma.
On the positive side, Yahoo has a brilliant banner serving system. Since Yahoo still sees itself as portal, it still leverages Yahoo Money, Cars, Email, etc. Each of those sites has products or services that provide value to the user. A user shopping for cars is later targeted with the banner ads reflecting the cars that they were viewing online.