Yesterday Yahoo! announced upcoming usage fees for its BOSS API. The announcement has caused quite a stir on the official discussion group and elsewhere. As the founder of a new search engine that uses BOSS, this news clearly effects me. Here are my initial thoughts on the matter...
- It's likely good for me (Duck Duck Go). General search engines should end up monetizing at $10+ CPM. At a cost of about $1 CPM, I'd most likely make more profit in this scheme than in a revenue share, which would probably be >10%.
- It does feel like bait and switch. Yahoo! says it isn't because they said monetization was always coming at some point. And that's true. However, the expectation from anyone I've ever talked to about it (and mine) was that it would be a revenue share.
That's not a coincidence. The BOSS terms previously disallowed any third party ads. And whenever anyone asked about it, Yahoo! said its ads are currently being tested on some sites, and are coming soon. My guess is they did try to test it with some sites and either got caught up in cross-group bureaucracy rolling it out or it didn't monetize as well as they had initially hoped (or both...).
- It's likely not good for a lot of services. Developers can get screwed here on both the cost and revenue side. I use BOSS as an add-on of sorts, and so I generally fall into the cheapest queries in their system. But others using BOSS are doing things like grabbing the first 1000 results (or 10 results using 10 parallel queries) and then deciding which are the best x to show. Innovative ideas like these cost a lot more in their scheme and may easily push these services' costs above the break even point.
On the revenue side, general search may monetize relatively well, but plenty of other things don't. Facebook gets something like $0.20 CPM. Not everyone using BOSS is building traditional-looking search engines...
- It's short-sighted. The second sentence on the BOSS Web site is still "The goal of BOSS is simple: to foster innovation in the search industry." This new scheme is contrary to that goal. Truly innovative search ideas may take a long time to figure out monetization that works. And in the mean time their costs may be significantly higher than their revenue in the proposed scheme.
Fundamentally, as pointed out on the discussion group, this pricing may be completely disconnected from how a particular site makes money, e.g. (from the linked message):
- Yahoo should make money on BOSS. I don't think anyone is really disputing this goal. Making money on BOSS would be great for the developers, guaranteeing its longevity and quality of service.
- Yahoo should offer revenue sharing as an alternative. Yahoo should offer developers a choice of how they want to pay for BOSS, either this usage pricing or a revenue share from serving Yahoo! ads.
- Yahoo should offer both options to all developers. People are talking about grandfathering in current BOSS developers (to what exactly, I'm not completely sure but I suppose it is rev share). I think that would be great, but I think they should offer the rev share alternative to all developers if the true goal is innovation. This will let truly innovative services (with questionable initial monetization) get started. If the developers see fit, they could then switch to the usage pricing.
- Revenue sharing could be great for Yahoo's overall CPM. As I said in #1, revenue might make more money in many cases anyway. But beyond that there is potentially a more important network effect at play. The proposed Yahoo/Google deal (that fell through) exposed Yahoo's lower CPM rates. Part of the problem here is they don't have enough advertiser competition on their network, which is a symptom of not enough ads.
Yahoo claims BOSS is serving 10M queries a day, and growing steadily. That's a lot of potential ads, which should improve Yahoo's overall CPM over time. That effect alone, could end up making up whatever differential Yahoo currently sees between the two pricing schemes.
- Marginal costs are certainly way below the proposed prices. Yes, Yahoo should make money. And yes, their differential pricing does make sense in the context that those queries they are charging more for do probably cost them more to serve up. But I'd guess that the marginal cost of serving those API calls are orders of magnitude less than the proposed pricing. Think about all caching they can do...
- Microsoft, where are you? I've been asking this question in a lot of contexts for years (here's one). There is a great opportunity for Microsoft (and Ask for that matter) to jump in here at a much lower price point given the marginal costs.