Since they previously migrated all Yahoo algorithmic search results to Bing, the transition is now complete in these countries. The migration has been underway since February.

Next up for the transition comes Germany, Austria and Switzerland. Yahoo and Microsoft will start working with partners to make the change this month. The companies have typically offered migration assistant software, to help smaller Yahoo Search Marketing advertisers make the switch with as little pain as possible.

Previously, the Search Alliance migrated advertisers in North America and India.

The migration of advertisers follows the transition of all algorithmic results worldwide, on desktop and mobile, in 2011.

As part of the transition, search advertisers that are still on Yahoo’s platform in those countries will need to migrate to adCenter because Yahoo Search Marketing accounts will shift to read-only status. But, in a blog post today about the pending change, Microsoft suggests monitoring both accounts during the transition:

As Yahoo! ad serving moves to adCenter, and your clicks and impressions in that account begin to increase, you’ll see a corresponding decrease in clicks and impressions in your Yahoo! Search Marketing account. It is thus important to continue managing your campaigns across both platforms throughout this transition phase, in order to avoid missing out on any potential clicks.

The transition is expected to begin “as early as” January April 18th and be complete by the end of the month. [Ed. note: Apologies for the typo there on the month!]

Microsoft says the transition is coming later this year to Germany, Austria and Switzerland.

The re-introduction of Yahoo RAIS, mentioned by both Portent and Rimm-Kaufman Group, appears to be Microsoft’s answer to Google’s sitelinks extensions and product listing ads. It came out of pilot in October and is currently being offered to premium advertisers for their brand and navigational terms.

RAIS offers five different types of layouts. Two consist of an image, a favicon, deeplinks and a text entry box. The next two include a video thumbnail which expands and plays a video on click, a favicon, deeplinks and a text entry box. The text entry box can be customized and used to search the advertiser’s website — a user could enter a zip code and be taken to a page for the nearest location, for example. The fifth layout is aimed at pharmaceutical advertisers and complies with Food and Drug Administration guidelines, including all the required information.

The RAIS keywords are subject to approval, so advertisers must work with their account managers on that part of the process. Once the terms are approved, the account is enabled for RAIS features. Ad creation for RAIS must occur in the adCenter Web UI, as it’s currently not supported in the API or desktop client. When advertisers create a new ad group for RAIS, creating a Rich Ad may be selected as an option.

So far, Microsoft says CPC prices tend to be similar to text ads, while click-through rates are higher, because the advertiser controls a good portion of the real estate.

In addition to the RAIS functionality, Microsoft has now tweaked how it handles negative keywords. Now, negative keywords at the campaign and ad group level will now be combined to filter traffic together. In the past, negative keywords at the ad group level would over-ride those at the campaign level.

Finally, Microsoft is now rolling out a feature that lets advertisers use unique landing page URLs for each keyword match type that they’re bidding on.

The new feature will be available beginning this week within the adCenter UI and the adCenter desktop application. Advertisers will get an email at least a week before the functionality is rolled out to their accounts, and during the time their accounts are being enabled, they may not be able to make updates for up to 12 hours.

The Location Extensions allow local business advertisers on Bing and Yahoo! search results to display their addresses and phone numbers within the ads, similar to the Location Extensions in Google AdWords.

The interface for adding location extension information is pretty straightforward:

The Location Extensions are clearly part of the adCenter team’s intention to achieve feature parity with Google AdWords soon, as Eric Enge mentioned last month. One feature that differentiates Microsoft’s product a little from Google’s is the “Business icon” which only appears in association with the ads that are displayed on Yahoo!.

I spoke to the adCenter product managers (Shamit Patel, Peter Yang, Erin Zefkeles and Corinne Woodward) this week about the new features and they revealed a number of interesting details. The Location Extensions are unabashedly geared to make it easy for Google AdWords advertisers to copy ad campaigns into adCenter. Businesses such as nationwide department stores can upload up to one thousand locations at a time and associate them with an ad campaign.

I asked the team if they were concerned about whether the inclusion of additional information in the ads might detract from clickthrough interactions and reduce Microsoft’s revenues (since consumers could potentially just call phone numbers displayed and/or visit the store address in-person), and they stated that initial research indicated that would not be the case — display of the local information makes the ads appear more relevant to searchers, increasing clicks and overall engagement.

While the ads can be expected to increase calls and foot traffic to storefronts, they also increase CTR in testing. For anyone familiar with local online marketing, these findings are unsurprising and make it clear that there is likely to be some pent-up demand for location extensions for PPC ads appearing in Bing and Yahoo!.

A few other details:

• Microsoft doesn’t offer their own phone call tracking service, although advertisers are welcome to provision the ads using trackable numbers.
• Unlike Google’s Location Extensions, Microsoft doesn’t require the business listing to be drawn from Bing Business Portal. (From my perspective, this is actually a good thing, since Google’s requirement that location data be drawn from Google Places is less flexible and more restrictive.)
• Bing Business Portal profile pages can be set up as landing pages for these ads, if desired.
• Location Extensions currently will not show up on Bing/Yahoo syndicated search partner sites as of yet, but the adCenter team is evaluating other properties where the feature may appear sometime down the line.

The location extensions are a great addition for local search marketers, and will likely be advantageous for local companies to integrate as soon as possible, since they would likely result in more qualified clicks and store visits.

Shamit Patel reports that Microsoft intends to accelerate the rollout of more features, so I would expect more announcements from the adCenter team in the near future.

Mittlerweile benutzen fast 10 Millionen Nutzer in Deutschland regelmäßig Bing, das sind 20 Prozent der aktiven Internetnutzer hierzulande.

According to several third-party sources, Bing’s market share is smaller than the 20 percent figure cited above. For example, the following is StatCounter’s search engine data for Germany:

Source: StatCounter

NetMarketshare generally agrees, showing Bing’s PC search share at just over 2 percent.

The combined Bing-Yahoo “search alliance” share in the US is about 30 percent. However the search alliance has considerably less reach in Europe. While the organic-results merger was completed last year, Microsoft adCenter is just now rolling out in Europe.

Related Entries

• Search Alliance Begins First AdCenter Testing In Europe
• December “Explicit” Search Numbers: Bing Now Ahead Of Yahoo
• Report: Google Controls 44 Percent Of Global Online Advertising
• Bing, Yahoo Now Neck & Neck In US Search Market Share

The first testing for the roll-out will commence mid-January and may involve up to 10% of Yahoo’s traffic in these geographies. Microsoft suggests advertisers closely monitor campaigns and be prepared to increase budgets if they’re more than 80% depleted. Testing and adjustments will continue until the companies are ready for a full roll-out, which is expected to be in the second quarter.

North American advertisers and publishers were transitioned to adCenter in 2010 and a new combined search marketplace was launched in India last September. In November, Microsoft said it was ready to begin expanding to Europe.

The algorithmic change — having Bing organic results serving on Yahoo properties — was accomplished (except for in Korea) last year.

Microsoft said, the “European roll out is scheduled to begin with the UK, Ireland and France in the second quarter of 2012.”

Yahoo and Microsoft have already transitioned the search ad technology in the U.S. and Canada, as well as some other regions. But the transition scheduled slowed as revenue figures did not meet estimates and advertiser expectations were poor.

Yahoo and Microsoft has completed the organic transition less than a month ago. The only migration left is the organic Korea region and much of the paid search and publisher transition.

To stay up to date on the UK transition, watch searchalliance.com/uk for updates.

Related Stories:

• Yahoo Completes Global Organic Transition To Bing (Except Korea)
• Yahoo Asia & More European Properties Transitioned To Bing Powered Results
• Yahoo UK & Others Switching To Bing Organic Results August 3rd
• Yahoo Begins Testing Bing Powered Results This Month
• Yahoo Search Advertisers Can Now Begin To Migrate Accounts To Microsoft adCenter
• Yahoo-Microsoft Organic Transition Happening, Site Explorer, Search Monkey Holding For Now
• What’s New With Bing & Yahoo Search Alliance
• Official: Yahoo’s Results Now Come From Bing

Revenue excluding traffic acquisition costs (“revenue ex-TAC”) was $1,076 million for the second quarter of 2011, a 5 percent decrease from the second quarter of 2010, primarily due to the revenue share related to the Search Agreement with Microsoft . . . GAAP revenue was $1,229 million for the second quarter of 2011, a 23 percent decrease from the second quarter of 2010, primarily due to the required change in revenue presentation related to the Search Agreement and the associated revenue share with Microsoft.

This was the sixth successive quarter in which search revenues had declined. However Bartz cited incremental progress and improvements in search performance, as well as coordination with Microsoft on addressing “technical limitations” or gaps in adCenter that prevent the full monetization of search queries.

Here’s some of what Bartz said about “revenue per search” on the earnings call yesterday:

As we discussed last quarter, RPS is below the expectations we have for the alliance due to technical limitations in Microsoft’s adCenter platform. The alliance has worked aggressively to implement a plan to address these issues. Working together, Microsoft and Yahoo! have uncovered and addressed several platform gaps and inefficiencies in the adCenter marketplace. With a lot of collaborative work and planning, Microsoft systematically launched many new capabilities throughout Q2, including improvements to campaign budgeting features and click prediction models.

These launches are improving the monetization of paid search results and lifting RPS on both Yahoo! O&O and Affiliate sites . . . We’re really pleased with our improvement. Additional initiatives to improve the adCenter platform have been identified, and hence, are scheduled to launch throughout the year . . .

Display advertising, Yahoo’s core strength, was also mixed or soft. Display revenues increased outside the US but were flat in the US market. This was blamed largely on structural and personnel changes in the sales organization, which Bartz now says are stabilizing.

Competitive pressure on Yahoo is increasing, which is not good news for the company’s display business. According to a forecast released last month by eMarketer, Google will challenge Yahoo’s position in US display next year.

Currently Facebook serves more display impressions than any other site in the US market. Facebook will control 19.4 percent of US display revenues to Google’s 12.3 percent and Yahoo’s 12.5 percent in 2012, according to eMarketer.

For the past few years Yahoo has been in what feels like a perpetual transition — in one way or another. Some of this is understandable but board members and investors will ultimately run out of patience, especially when Google earlier in the week posted a $9 billion quarter.

Yahoo has always suffered by comparison to Google’s revenue growth and performance.

Bartz was confronted by unhappy shareholders at Yahoo’s June investor day. And there have been numerous rumors in the past several months that a new CEO search was being considered by the board. It seems increasingly clear that Bartz needs a solid win relatively soon — Yahoo is supposedly in talks, among others, to buy Hulu — to salvage her position.

The move is another small step away from search for Yahoo, begun in earnest when the company announced its alliance with Microsoft in July of 2009. (Danny Sullivan even wrote a eulogy for Yahoo search at that time.)

Though Yahoo’s sales team still handles premium search marketers — likely many who are also customers of its display business — Microsoft now owns the interface, adCenter, through which many search marketers buy on Yahoo. In fact, most of the content on the Search Marketing Blog in recent months, when there has been any, has been oriented toward helping folks transition their accounts and campaigns over to adCenter. With that mission accomplished, the blog is going dark.

[The decline was] primarily due to the required change in revenue presentation related to the Search Agreement and the associated revenue share with Microsoft. For transitioned markets (U.S. and Canada), Yahoo! now reports revenue associated with the Search Agreement on a net (after TAC) basis rather than a gross basis. Excluding the impact of these two items and the impact of the divestitures of Zimbra and HotJobs, broadband deferred revenue amortization, and certain fee rate reductions, revenue for the first quarter of 2011 decreased 8 percent compared to the first quarter of 2010.

Display revenue increased 10 percent but overall search revenue was down 19 percent (or more depending on the accounting methods used):

• Display revenue ex-TAC increased 10 percent to $471 million, compared to $427 million for the first quarter of 2010.
• GAAP display revenue increased 6 percent to $523 million, compared to $491 million for the first quarter of 2010.
• Search revenue ex-TAC was $357 million, a 19 percent decrease compared to $440 million for the first quarter of 2010.
• GAAP search revenue was $455 million, a 46 percent decrease compared to $841 million for the first quarter of 2010.

Here’s what Yahoo said specifically about “Search Alliance Costs and Reimbursements”:

Yahoo!’s results for the first quarter of 2011 reflect $56 million in search operating cost reimbursements and $11 million in transition cost reimbursements from Microsoft under the Search Agreement, which amounts are equal to the search operating costs and the transition costs incurred by Yahoo! in the first quarter. Search operating cost reimbursements are expected to continue to decline as Yahoo! fully transitions all markets to Microsoft’s search platform and the underlying expenses are removed from our cost structure. Our business outlook for total expenses reflects these anticipated savings. The net impact of the transition costs and transition cost reimbursements were neutral to total operating expenses in the first quarter, as expected.

Here are some of the earnings slides:

The search deal with Microsoft may have saved some costs for Yahoo but it has yet to bear fruit as promised when the search alliance was formed. Yahoo has some bright spots in display but otherwise it seems a company very much stuck in neutral.

Postscript From Danny Sullivan:

I generally don’t dive deep into our earning calls coverage, but the news of Yahoo having a drop of search revenues certain caught my ears. So, I’ve gone through the earning slides myself. A few questions and observations.

NOTE: You can read the section below, but I’ve also turned this into a more organized stand-alone article: The Yahoo Search Revenue Disaster.

“Contextual” Queries Don’t Earn?

First, there’s this metrics chart:

That’s all pretty rosy sounding. Search-related pageviews are reported as up over the past two quarters, first a 6% rise for the fourth quarter of 2010 compared to the same quarter in 2009, then a 3% rise for the same year-to-year comparison for the first quarter of 2011.

Search queries are also said as being up — double-digit rises, even.

So what gives with all these views going up but search revenues being down? I’d bet that the “contextual” searches that Yahoo has manufactured to generate pageviews that look good on paper aren’t doing the same for revenues.

The pageview figures are Yahoo’s own. The search queries come from comScore. But these are “core search” queries from comScore, not “explicit core search” queries that comScore also provides — and which exclude some of Yahoo’s manufactured searches, things such as where going through a slideshow in Yahoo News generates a new “search” on each click.

The articles below provide more information about this:

• Time To End The Bull Search Engine Share Figures?
• Q&A: comScore’s New “Core Search” & “Explicit Core Search” Figures

Search Revenues Down

Next, look back at that “Revenue ex-TAC by Source” chart above. I’ve pulled out just the search revenue-related figures to make a new chart from that, below:

The bars show the total amount of search revenue earned in each quarter, excluding any payments Yahoo owed partners in relation to generating this revenue. These payments are called “traffic acquisition costs” or TAC, in short.

The percentages above each bar show how much revenue dropped in that quarter versus the same quarter for the previous year. It’s all bad news. Yahoo tries to paint the last two quarters as merely “headwinds” caused by new payments it makes to Microsoft in relation to outsourcing its search services. Microsoft gets 12% of Yahoo’s search-related revenues.

Part of this seems correct. Last quarter, Yahoo says that it paid Microsoft $36 million off the net search revenues it earned. IE, in Q1 2011, Yahoo earned net search revenues of $357 million, but this was less the 12% it owned Microsoft on search revenue earnings. Before those were taken, it had earned (apparently) $393 million.

Hang on to that figure $393 million figure. I’ll be coming back to it. Yahoo didn’t report what Microsoft got for Q4 2010, but given the drop, it seems likely similar.

The problem with the drops is that Yahoo’s deal was supposed to let Yahoo keep earning as much — if not more — than ever before despite Microsoft’s skimming off the top. That’s how Yahoo pitched the deal. It would allow Yahoo to keep earning plenty on search, because Yahoo argued that search technology itself was just a “chip” that it could plug-in.

By borrowing Microsoft’s “Bing chip,” Yahoo would lose tons of cost involved with making that chip but still enjoy plenty of revenue. These figures paint a picture of that not being the case. The opposite, actually — thanks in part to the Microsoft-Yahoo deal, Yahoo’s earning less off search than ever before.

Microsoft Payments Aren’t TAC Payments

Keep in mind this important point. Microsoft gets 12% of search revenues after TAC has been deducted, not before. Yahoo’s earnings talk about reporting revenues on a new “post-TAC” or “net” basis. That gives the impression that Microsoft’s cut is somehow new, slicing further into revenues.

Well, it is new. But it’s not a TAC cost — payments that Yahoo makes to various distribution partners. Instead, it’s a payment that Yahoo makes over and beyond those other payments.

That leads to another chart I’ve made from the Yahoo earnings deck:

This is how much Yahoo has paid in traffic acquisition costs related to search. In other words, in the first quarter of 2010, Yahoo made $841 million in search revenues but paid $401 out to various partners in relation to deals to generate those revenues. That’s what the first bar shows, the $401 paid out, which was 48% of everything it earned. That’s what the percentage shows.

Something big happened in the last quarter. Yahoo’s search-related TAC massively dropped. What this was isn’t clear. I’m checking on it. It suggests that Yahoo has lost a major distribution partner (or two) that, despite costing a lot, was sending traffic that monetized very well.

Microsoft & Guaranteed Revenue

Under the terms of the deal, Yahoo is guaranteed a certain amount of revenue by Microsoft from when the deal starts. How much? I’m checking to see if I can get any solid figures. This is from what we originally reported on Yahoo-Microsoft deal, when it was announced back in July 2009:

Yahoo is guaranteed to receive payments for the first 18 months of the deal to match a “baseline” of what it was earning before the deal starts, we were told. How far back does the baseline go? We couldn’t get details on that.

The payments are even more important to know now because they might be masking even bigger drops with Yahoo is having with search revenues. Clearly, something type of “rebate” is happening already. Consider these figures from the most recent quarter:

1. Net search revenue, post Microsoft = $357 million
2. Payments to Microsoft = $36 million
3. Net search revenue, before Microsoft = $393 million

OK, (1) is the figure that Yahoo gave for net search revenues. As for (2), this is how much Yahoo said it paid Microsoft on net revenues, an amount that was deducted before the $357 million shown. As the Yahoo slide deck says:

YOY Growth in Search revenue ex-TAC $ and Total revenue ex-TAC were negatively impacted in Q1’11 by $36M and $63M in headwinds, respectively.

Got it? That’s Yahoo saying it earned $357 million and that the “headwinds” of paying $36 million helped produce that low $357 million amount. The $36 million came off the top, producing that final figure.

That’s where (3) comes in, the net search revenue that was paid before Microsoft. And that leads to these figures:

1. Net search revenue, before Microsoft = $393 million
2. 12% of net search revenue owned to Microsoft = $47 million
3. Amount actually paid to Microsoft = $36 million
4. Unaccounted for = $11 million

Why didn’t Yahoo pay Microsoft $47 million, rather than $36 million? I think the $11 million is a form of a rebate — that Microsoft promised that Yahoo would earn a certain amount, and if it fell short, it would deduct from what it was owed.

I did the same thing for Q4 2010 and found an $18 million gap. Yahoo paid Microsoft $32 million, but should have paid $50 million.

Here’s what I think is happening, after playing with a bunch of numbers and scenarios.

I believe Microsoft promised Yahoo that it would earn in any quarter about 92.5% of what it earned for that same quarter the year before. If it didn’t, then Microsoft would pretend that Yahoo earned that much and rebate an amount from its own share.

Here’s my figuring:

• Q4 2009 net search revenues = $473 million
• 92.5% of Q4 2009 as Q4 2010 baseline = $438 million
• Q4 2010 net search revenue, pre-Microsoft payment = $420 million
• Difference = $18 million
• 12% of Q4 baseline owed to Microsoft = $50 million
• Actually paid to Microsoft = 32 million
• Difference = $18 million

See? Microsoft guaranteed that Yahoo would earn at least 92% in Q4 2010 of whatever it earned in Q4 2009 — that that Microsoft would get 12% of that figure, or $50 million. But if Yahoo fell short, Microsoft would deduct whatever the difference was from that share. Yahoo fell short by $18 million, so that $18 million came out of the $50 million Microsoft would have earned.

Here it is again for the most recent quarter:

• Q1 201o net search revenues = $440 million
• 92.5% of Q1 2010 as Q1 2011 baseline = $407 million
• Q1 2011 net search revenue, pre-Microsoft payment = $393 million
• Difference = $14 million
• 12% of Q1 baseline owed to Microsoft = $50 million
• Actually paid to Microsoft = 36 million
• Difference = $14 million

Alternatively, it might be that Microsoft guaranteed that Yahoo would earn at least enough in net search revenues to pay Microsoft $50 million per quarter — and that if it didn’t, Microsoft would pay Yahoo any difference. That sure makes the calculations easier.

Yahoo looks to get four more months of this type of guarantee for four more quarters, reports AllThingsD.

Blame Microsoft, Says Yahoo

A final puzzling part for me revolves around the blame game that Yahoo’s doing. Why are its search revenues down? Aside from what it now has to pay Microsoft, it says that Microsoft’s ads aren’t working. From the Wall Street Journal live blogging:

The first quarter was “a mixed bag” for search. The good news, Ms. Bartz says, is that many of Yahoo’s most important advertisers are seeing much higher return on investment and thus spending more. But she takes Microsoft to task for technology problems. “It will take Microsoft longer to achieve the goals” that the companies have, she said, saying revenue per search should be back up where it used to be by the end of the year….

So there’s a weird situation in this deal with Microsoft: Some advertisers are apparently benefiting a lot from the new service, which seems to contradict the news that something is wrong with the technology. Microsoft’s ad tool “doesn’t have a good handle on” how to serve new ad buyers, Ms. Bartz says. So existing advertisers do well in the new system, but “many of the new advertisers can’t even get their campaigns in,” Ms. Bartz says.

OK, but the Microsoft ads went on Yahoo’s site back in October. Yahoo talks about the deal being in full effect from October. We know the Microsoft ads themselves started at the end of October. So why wasn’t Q3 2010 so down? Why did at least two months in that quarter work out just fine, then all the months after that have been trouble-ridden?

Well, I’m checking with Yahoo about this and some related questions. I’ll report back on what I learn.

Postscript: See our follow-up story, The Yahoo Search Revenue Disaster.