Since Yahoo launched their beta advertising program most publishers have reported better earnings. While the clickthrough rate has been lower, the payment per click has often been substantially higher.

It appears that one of the largest factors to this is smart-pricing. Jensense has a very good post about this today.

Google has been calling people who have switched from Adsense over to YPN. A phone call from one representative revealed some previously unknown details about Google’s smart pricing. Allegedly poor converting ads on one site can lead to an overall drop in payments throughout your entire Adsense account.

There is another side to this. Already many Adwords advertisers avoid the content network (Adsense) because of low converting ads. Are advertisers who actually pay attention to their conversions going to want to pay even more on Yahoo Publishing Network? So far, the answer seems to be yes.

In the short-term online advertising growth is going to continue at a record pace. However, long-term more and more advertisers are going to be paying very close attention to their conversion rates. Unlike television, radio, and print media, tracking the performance of online advertising is far easier.

I suspect that Yahoo will also implement something simular to Google’s smart pricing if they haven’t already. Without smart pricing, or buying ads from individual sites, traffic quality affects all the sites on a network as a whole. If an advertiser’s traffic is converting — he’ll pay more for it. If its not, he may lower his bid. That means that a big site sending low-quality traffic could drive down the revenue of a smaller high-quality traffic website.

Smart pricing is just a tool. Yahoo may have an advantage over Adsense right now, but I doubt that it will last.

However, if Google really does use smart-pricing over an entire account rather than single websites this could split the contextual advertising market right down the middle.

Here is why:

The other day I was reading a thread on a webmaster board. A web site owner had sold his site to another person. That buyer had paid the first half of the agreed price. He wanted to put his Adsense code on the site first to confirm the earnings before paying the rest (smart move.) The buyer claimed that he was earning half of what the original owner said the site earned daily. The original owner called him a lier and is now trying to sell the website to someone else. What if they were both telling the truth?

In order to accurately value a website there has to be some kind of level playing field for the earnings. If earning drop simply by changing accounts, thats a serious issue!

As a publisher, I am going to be testing Yahoo’s ads on each and everyone of my websites. Any site that performs better over a 7-day period, I’m going to keep with Yahoo. Any site that remains the same, or is higher I will keep with Google.

I suspect most other publishers will be doing the same.

If Google is doing wierd things with its Adsense earnings algorithms, such is lumping all of the sites in an account into one pile, Yahoo will clearly have a very big advantage. Yahoo may not be able to get current Adsense users to convert all of their websites over to YPN but they will certainly be able to switch at least a portion of those sites over.