Yahoo Local's New Flat-Rate Advertising Model

Michael Arrington reported on Techcrunch today the launch of Yahoo's new Local Featured Listing platform that allows businesses to purchase advertising on relevant yellow pages-like category pages for a flat monthly fee varying by category.

Given the effectiveness of pay per click advertising models, including Yahoo's own Y! Search Marketing service, it's surprising to see Yahoo go with a flat-fee advertising model for this new service.

Flat fees, even if variable by category are inefficient compared to PPC. They overcharge for some categories, and severely undercharge for others. Both lead to less revenue for Yahoo since they're better off getting something than nothing on the low-side and should maximize their revenues on the high-side.

Apparently, this was modeled off of print yellow pages where ads are sold on a flat fee basis rather than pay per click. While it makes some sense to use similar advertising models from a sales perspective, it's very limiting from a revenue perspective if there is any competition for the ad space.

Arrington reports on Yahoo's pricing model:

"I'm confused as to the exact pricing. The blog announcement (linked to above) states that ads can be purchased for ?��Ǩ?�a flat, monthly rate starting at $29.95/month, depending on the business category and location?��Ǩ��, whereas the linked rate card states that pricing ranges from $15-$300 per month based on ad location, business category and geography. Either way, this compares very favorably to offline yellow page advertising options, and will be attractive to advertisers."

What's confusing to me is figuring out how one determines whether the pricing is attractive or not. How many people are using Yahoo Local compared to yellow pages in any given market? My guess is the yellow pages likely has a larger market share today than this sub-section of Yahoo search, and the value of advertising will vary with how often people go to the web to find services related to that category. Is a Yahoo Local ad for a plumber worth the same in Boston as it is in Burlington? Shouldn't the market determine that?

The strangest part about this offering to me is the first-come first-serve basis reportedly used by the service. Correct me if I'm wrong, but I simply don't see what correlation exists between a company's adoption of Yahoo Local advertising and their relevancy for a given service from a consumer's perspective. Competition breeds relevancy, and pay per click ad rankings is a much better form of relevancy rankings than first-come first-serve.

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