Search Combining with Online Advertising

Firms offering large scale search capabilities were on the prowl for online advertisers earlier in the year as Google acquired Double Click, Yahoo! purchased Right Media, Microsoft bought AdECN, and AOL acquired Tacoda. At press time, all of these deals were expected to close by the end of the summer.

"I think what the trend indicates is that companies with portals are looking for key search components," says John Blossom, president of content industry consultancy Shore Communications, Inc. "They’re trying to get their ads in front of the content that audiences care the most about. It’s a matter of trying to come up with revenues beyond what they can earn from their own content."

That’s not to say each acquisition was one search company following the lead of another, according to Blossom. "Each company may have its own goals. Yahoo! is still focused on providing value for brand advertising, which is much of Google’s strength."

Yahoo! already owned 20 percent of Right Media, a stake it purchased in October of 2006. By acquiring the remaining 80 percent, Yahoo! gained full ownership of the underlying technology that allowed it to launch its SmartAd program in early July, which enables marketers to present targeted online display ads in real time. SmartAds combines Yahoo!'s consumer insights and rich media capabilities with the serving technology to convert marketers creative campaign elements and offerings into targeted and relevant display ads.

Microsoft’s purchase of AdECN was the company’s third purchase of a digital advertising firm in two months. Microsoft acquired mobile advertising provider Screentronic, then purchased aQuantive for $6 billion, a deal that closed in mid-August. AdECN is the company’s final element in its digital advertising portfolio, Microsoft reported at the time of the acquisition. Upon completion of the aQuantive deal, Microsoft boasted of its plans to become one of the top two firms in terms of online advertising, meaning it would have to leapfrog at least one of the top two (Google and Yahoo!).

"The Microsoft acquisition is particularly interesting," Blossom says. "AdECN is modeled after stock exchanges used in financial securities markets, requiring matching sellers' inventories against offers from advertisers, dealing only with existing ad networks as its members." This enables excess advertising demand from one ad network to flow over to another network. Each network would receive a portion of the ad fee that matches the percentage of buyer’s advertising on the network for the brokered transaction.

AdECN’s revenue takes a small processing fee for each transaction as well as upfront membership fees.

At the time of the acquisition, AOL said it planned to use TACODA's technology to extend AOL’s target market to advertisers and publishers while also extending the reach of its third-party display network. "Advertisers are recognizing that ad networks will place their ads where they do the most good," Blossom says, likening online ad networks to traditional advertising agencies that would work to place ads in targeted print, radio, and television outlets. The traditional media have fallen sharply in terms of audience, so advertisers are moving larger portions of their advertising dollars online. But they still want ads delivered to a targeted audience rather than large, mass online readerships.

"Micromarkets are becoming increasingly important," says Blossom, who expects marketing to evolve to include more behavioral and incentive-based advertising based on a person’s click patterns and other online usage--allowing marketing messages to be tailored to specific user behaviors and interests online.