May 19, 2007

Online Ad industry consolidation

So, what's up with all the acquisitions of online ad networks within the past 30 days?
  • Google purchased DoubleClick for $3.1B on 4/13/2007 (on revenues of $150M).
  • Yahoo purchased the remaining interest in RightMedia for $680M on 4/29/2007 (on revenues of $70M) They had purchased a 20% stake back in Oct 2006.
  • Microsoft acquired European mobile ad network ScreenTonic on 5/3/2007.
  • Microsoft acquired aQuantive for $6.1B on 5/18/2007 (on revenue of $442M).
  • AOL acquires major interest in Adtech AG on 5/16/2007.
  • AOL acquires mobile ad network Third Screen Media on 5/17/2007.
  • WPP Group acquired 24/7 RealMedia for $650M on 5/17/2007.

A few billion here, a few billion there, pretty soon you're talking real money.

What's happening is different for each player, but the overall trend is the same - expanding beyond paid listings into creative branding. Paid search was $6.7B last year and brand advertising was $3.3B. This interest in brand advertising may be a reaction to the expectation that television - which is mostly branding style ads - is moving online.

In Google's case, they are buying a company that has been successful with creative ads, essentially banner ads. Banner ads are the most common choice for branding rather than being used for actionable ad listings. They also inherit distribution agreements for AOL and MySpace, and more distribution capacity helps draw advertisers into Google to bid for placement.

Microsoft hasn't done well in any online ad segment - listings or branding - and with their acquisition they will be more involved with holistic ad campaigns and deep in the creative arena of advertising. The includes the ad agencies that do the actual construction of creative ads and create very innovative branding experiences like custom website which are blurring the lines between interaction and advertising. There may be some future tie-in with 'rich internet applications' and Silverlight. I may be wrong, but I don't see aQuantive providing additional distribution capacity - 'inventory' as the ad industry calls it. They of course claim it 'extends their platform'. Everything's a platform to Microsoft. Maybe they should simply try providing value instead.

The hope is that the contextual and behavioral profiling that is done for ad listings will be applied to better target brand advertisements. A requirement for this to work is for the ad network to know a lot about their audience - something that a single site cannot accomplish. Effective audience profiling is orthogonal to Web sites - orthogonal to the Web's organization. However, by looking at the architecture and technologies of the Web you can see the areas where this multi-site capability can exist :
  • clients such as rich internet applications, browsers and browser extensions like toolbars
  • intermediaries such as the proxies that ISPs like Comcast operate
  • compound resource structure of current Web documents. Since each resource can be retrieved from different domains, information can leak between domains.
Look for control or partnerships in these areas in the future.

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