A Boost to Big Advertisers, Maybe Not to Smaller Ones
Saturday, February 2, 2008
Microsoft's bid for Yahoo could provide more choice for big online advertisers living in a Google-centric universe but could hurt small- and mid-sized Internet publishers by taking away one of their options for selling ads on their Web sites.
Despite their size, Microsoft and Yahoo have been unable on their own to make a substantial dent in Google's dominance of both search-based advertising and online display advertising, such as banners and video.
"You have the number two and number three in search ganging up to look for ways to compete with the big guy, Google," said Chris X. Moloney, chief marketing officer for Scottrade, the online broker that is one of the biggest ad buyers on the Internet. His company spent $10 million on Web advertising in November, according to TNS Media Intelligence, which tracks Internet ad spending.
"I think it creates a more formidable competitor to Google, but it remains to be seen how this will play out," Moloney said.
Scottrade regularly runs ads on Microsoft's MSN Money and on Yahoo Finance. Moloney said Scottrade's ad traffic could benefit from a merger that combines Microsoft's editorial content and Yahoo's volume of users, often the highest on the Web.
It is a sentiment shared by Nick Utton, chief marketing officer of E-Trade Financial, the Internet's biggest ad buyer in November, with $16 million spent, according to TNS.
"Specifically for us, it's very exciting, given that Yahoo Finance is a leading portal in the financial services space," Utton said. "Clearly, it's far too early to say how it might impact pricing and offerings, but I'm optimistic that the value of integration will play itself out in pricing models as well."
Verizon's various divisions are also big online ad buyers, having spent a combined $17 million in November, according to TNS. Verizon spokesman Eric Rabe said a Microsoft-Yahoo merger would benefit his company "if it results in another strong player and it's more choice for advertisers."
For Stephen Semprevivo, president of LowerMyBills.com, another top Web advertiser, how the proposed merger plays out will determine whether it helps his company.
"If you look at the two companies together, if they apply a significant amount of resources to how they operate going forward and to their products, then that's fantastic," he said. "The advertiser wins."
But for small- and mid-sized Web publishers that use companies such as Yahoo to sell advertising on their sites, a consolidation could drive up rates, said James Bilefield, chief executive of OpenAds, which helps Web publishers sell ads on their sites.
Smaller Web publishers rely on big companies to help them sell ad space. After a merger, they would have one fewer option, Bilefield said. "They want to be able to mix and match different choices to get the best revenue per page," he said.
The Web's top advertisers are not venerated corporate names. According to TNS, top online ad spenders cluster in the technology and financial services sectors. Retail giants Best Buy and Target barely crack TNS's Top 20, and the list includes only one vintage advertiser: Chevrolet.
Compared with that of other sectors, Internet advertising still makes up a relatively small piece of the advertising pie. For instance, in 2006, Internet ad spending was $18.6 billion, according to the Internet Advertising Bureau (IAB), an industry trade group. By comparison, direct mail, the biggest piece of ad spending, accounted for $57 billion that year.
Online is, however, the fastest growing of all advertising sectors. In the first half of 2007, spending was $9.9 billion, up 26 percent from the first half of 2006, according to the IAB, citing its most recent half-year figures.
Yahoo has also extended its advertising reach into old media, launching a consortium more than two years ago with a number of newspapers, which now exceeds 200 members. The newspapers place Yahoo's search engine on their Web sites, and Yahoo acts as a one-stop broker for advertisers seeking newspaper space around the country. Microsoft's bid for Yahoo may have already expanded the consortium.
"This merger makes both companies stronger," said Scott Flanders, chief executive of Freedom Communications, which owns the Orange County Register in Southern California and more than 70 other papers. "Freedom will likely join the newspaper consortium with this combination in prospect."