The online advertising market will likely run more efficiently following the decision by Yahoo! Inc. to acquire online advertising company, Right Media Inc., said an observer.
And that will mean organizations in this sector conducting business online could be in for a smoother ride.
New York-based Right Media operates the Right Media Exchange (RMX), a marketplace that enables advertisers, publishers, and ad networks to trade digital media.
Publishers can sell inventory, and advertisers buy it cheap and get a broader reach into the market than they otherwise would, says Karsten Weide, program director for digital media and entertainment at Framingham, Mass.-based analyst firm IDC.
“Plus, auction systems are good for establishing the true market value of commodities – and that’s what is going to happen here,” said Weide.
For e-businesses, the good news is such consolidations in the online ad space should speed up the advent of better online auction systems, said Carmi Levy, senior research analyst at London, Ont.-based Info-Tech Research Group.
“Now, that’s starting to give way to well-defined companies, systems and processes that are making it easier for regular companies to start taking advantage of these services,” Levy said.
In addition, the online ad process should become clearer for businesses wanting to advertise in this medium.
He said in the “old media” environment, if you wanted to advertise, you knew who to call – you’d call the TV station, newspaper or radio station – and that was pretty much it. “In online, it hasn’t been so clear until now.”
According to Weide, although there may be fewer bumps on the online auction road ahead, don’t expect the acquisition to make too big a dent in the Internet ad space.
He said for now, the effect will be fairly limited as online auctions will generally attract fairly low-value inventory that publishers can’t get rid of otherwise.
“If you’re Lenovo, and want to sell PCs online, this is not one of the places you get advertising inventory that’s going to be very effective for you,” said Weide.
Yahoo! already owned a 20 per cent stake in Right Media since October before it announced, last week, it would buy the rest of the company for $680 million.
Terry Semel, Yahoo! Chairman and CEO explained why during a telephone press conference.
The acquisition, he said, aligns with the company’s long-term vision to build the “industry’s leading advertising and publishing ecosystem both on and off Yahoo! Network.” He said this would transform how online advertisers connect to and deal with their customers.
The partnership with Yahoo! is not an outcome, but a milestone for Right Media, said Michael Walrath, CEO and founder of Right Media. “Exchange members stand to benefit greatly from this deal. We’ll be able to increase the pace of innovation of our Exchange products and services.”
The acquisition places Yahoo! on equal footing with rival Google Inc. after it bought DoubleClick Inc. in April, said Weide. DoubleClick offers a marketplace for online ads, and “Yahoo! has that too now.”
There is a definite trend towards consolidation in this space, said Levy, as the major players are beefing up their arsenal.
He notes that while Yahoo! may deny the purchase of Right Media is in direct response to Google’s recent acquisition of DoubleClick, “it’s clear that in the online advertising space, bigger is better.”
One of the strengths of RMX is the transparency it offersall parties, said Paula Gignac, president of Interactive Advertising Bureau of Canada (IAB), a not-for-profit association representing interactive advertisers, agencies, and publishers.
“For clients and advertisers, the ability to pick and choose in a fully knowledgeable manner where you’re going to run your ads on a vast network is a real plus,” said Gignac. IAB member firm, Google, will likely respond to Yahoo!’s recent move in the online ad market, she said. “They’re the ad network right now that hasn’t been providing that kind of transparency. They’re going to probably make a response to this that’s going to be really good for the industry as well.”
IAB announced that online advertising revenues surged to an unprecedented $1.01 billion for 2006 – an 80 per cent boost from the previous year. Gignac predicts spending will increase an additional 32 per cent in 2007 to $1.4 billion. Companies would be wise to get educated on how the online ad space fits into the overall marketing strategy, she said, especially given it’s a direct response medium, as well as a form of branding.
“The important thing is for people to understand how quickly this market can change. And those that can anticipate it or react to it very quickly are going to be the ones that benefit.”
She said display advertising will get a big boost in the next year-and-a-half, as we see video ads and video content being increasingly incorporated into Web sites.