Collapse Yahoo talks leaves advertisers with less leverage

By: AP
By: AP

NEW YORK (AP) -- The collapse of Microsoft Corp.'s pursuit of Yahoo Inc. is leaving advertisers pining for other ways to reach mass audiences on the Web and to counteract Google Inc.'s dominance of the online ad market.

Advertisers can still distribute ads across smaller Web sites through networks that all major Internet companies run, but such an approach doesn't have the same appeal as reaching Yahoo's massive audience all in one place, something that would have been even more compelling once Microsoft's Web sites were thrown in, too.

That's because advertisers can't negotiate premium placements and coordinate promotions across the network the same way they can with a single site.

Reaching large audiences has remained an elusive goal online, and the combined monthly reach of 127 million between Yahoo and Microsoft was an enticing prospect, something Elias Plishner of Universal McCann called "Super Bowl-level exposure."

Google, despite its high brand visibility and dominance in the search business, is a relative newcomer to display advertising such as banner ads, and it is just getting into the business with its $3.2 billion acquisition of DoubleClick Inc., closed March 11.

A combination of Microsoft and Yahoo could have re-energized the display advertising business on portals by offering not only the larger combined audiences but also Microsoft's strong technology and ad-serving capabilities, Plishner said.

Without a powerful new portal to suck up advertising dollars, online advertising power could continue to shift to the hot areas of the moment, such as mobile phones and social-networking sites like Facebook.

And while Google's dominance of the search marketplace may be insurmountable at this point, providing an alternative outlet for advertisers could have given them more negotiating power, said Martin Sorrell, CEO of WPP Group PLC, a major global advertising conglomerate.

"If you had a stronger No. 2, you'd have a more competitive choice against Google," Sorrell said. "If the two less powerful units got together ... it would provide a much more powerful alternative."

The Internet provides advertisers with many appealing advantages over traditional media, such as knowing how effective a certain ad was by counting up how many people clicked on it and then bought something. Trying to figure out the comparable effectiveness of TV or radio ads is largely guesswork.

U.S. online advertising revenues exceeded $21 billion for the first time in 2007, and Web sites large and small have been fiercely going after a share as the Internet is poised to take even more dollars away from print and broadcast.

Despite the fears of Google's dominance, there's some advantage to keeping Microsoft and Yahoo separate: Preserving competition between them in display advertising could help encourage innovation and keep prices low.

"It keeps the market place competitive," said Daniel Taylor, senior analyst at Yankee Group, a Boston-based research firm. "There isn't the same kind of market dominance in display as there is in search."

There's plenty of disruption and change going on already in the online advertising world without the threat of a new colossus coming on the scene that would again change everything, Taylor said.

"We have this pressure lifted off of us," Taylor said. "We can go back to addressing our growing pains rather than worrying about the price that Microsoft would pay for Yahoo."

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