Alberto Saavedra 2.0

Last Sunday I was reading Eric Schmidt’s interview and it was the first time I did not see a explicit mention about search when he was describing Google. As John Battelle precisely understood from Google’s CEO answer, their business goal is to be the foundation for advertising and commerce on the web and DoubleClick’s acquisition price paid in cash ($3.1 billion) is a strong signal of what Google is going to do to maintain leadership in the online advertising market.

Two years ago Microsoft decided to build their own advertising network to provide display, search and content ads. adCenter has been launching its official operations progressively: France & Singapore (September 2005), US (May 2006), UK (August 2006) and Canada (February 2007); a contextual advertising pilot: ContentAds and introducing some breakthroughs in their adCenter Labs. While the system is maturing Microsoft needs to gain market presence; Google’s dominance in US search traffic with 64.13% of market share played some role in the decision to create the Search and Ad Platform group which could had some influence in Microsoft’s interest in acquiring DoubleClick.

DoubleClick is one of the leaders in display advertising serving. Last year revenues’ estimates are between $100 million - according to the Wall Street Journal - and $300 million - according to the New York Times - which are in tune with the $383 million reported by ValueClick’s Media division and $122.4 million reported by aQuantive’s Digital Marketing unit. DoubleClick just launched an advertising exchange service to connect top-tier advertisers and agencies with leading online publishers which raises the company’s value but $3.1 billion is too much.

Google has its own display advertising network but this one is not as resistant as Adwords/Adsense auction-based to competitive attacks, so when Microsoft’s interest in DoubleClick to gain market position was known, Google had to bid to protect its momentum. The initial asking price of $2 billion was already high so it looks like both giants really fought this one; the firm Hellman & Friedman is the big winner of this acquisition.

I am not sure if Google can declare this a win, they secured their leader position for now, gained access to data of a interesting marketplace and some patents but they may had never acquired DoubleClick if it wasn’t because of Microsoft’s intentions, at least not at the final price accorded. For Microsoft it was a loss, but this was also the case even if they would have outbid Google so they choose the minor loss.

This is just the beginning, Google is the czar of a $16.8 billion online advertising market, but Microsoft, Google, Yahoo and others are getting ready to compete for the worldwide $500 billion advertising market. Text content search and advertising is where the competition has been occurring but for audio/video content the market is still wide open. Companies like Nexidia and its phonetic based search for video advertising and search, technologies for image recognition like Google’s Neven Vision, Microsoft’s gender detection, Riya’s visual search and for video recognition like Audible Magic will generate new ways to accurately target advertising therefore providing added value - instead of annoyance - when displayed.

Labels: online advertising

# posted by Beto : 1:55 AM  0 comments

The World Wide Web transformed the media industry; before its arrival, you had to use one of the traditional mass media services to get exposure but with the Web any individual can get a comparable audience with his/her website. The low-barrier to entry led to a proliferation of websites and in this scenario, the number of visits (traffic) became the success metric.

Advertising has been paying the bills for traditional media and banner advertising did the same for the web before the dot-com burst, it was the tool that businesses used to promote and brand their sites and companies like DoubleClick - through ad serving using the eyeballs model (CPM) - were mentioned by web entrepreneurs as the tactic to generate cash flow, something similar of what happens nowadays with Google AdSense.

In the web, advertisers have the metrics to evaluate their spending and banner ads were not being effective in generating traffic, so ad providers try to force exposure - following the tactics of traditional advertising model - using pop-ups; this move backfired because the most used web browsers incorporated pop-up blockers functionality in the application or via toolbars listening to users’ request who were being annoyed by the banner ads. This example of consumers rising power in the web is also impacting traditional media, advertisers are feeling that TV ads had become less effective and technologies like DVRs and iTV are beginning to impact the way TV advertising works.

What has shown effectiveness in the Web is the pay-per-click model introduced by Bill Gross, which is the success factor for the top public company in Computer Services industry. Google reported revenues of $2.23 billion generated by online advertising in the first quarter of 2006, with 41% of their total revenues coming from their AdSense partner network and 58% being generated by users who click ads in Google-owned sites. Yahoo, the second in market cap, reported revenues of $1.38 billion generated by their marketing services division in their financial results for first quarter.

The IAB reports that Internet Advertising revenues grow 30% in 2005 in the US and search spending has a 33.5% growth compared to 2004. With these healthy results from the leaders in paid search advertising, the projected increase in search marketing spending may fall short but they still do not show that the optimistic prediction made by Mark Kvamme in a keynote on Ad:Tech San Francisco this week - indicating that Internet Advertising will reach $35 billion in 2008 - is going to happen.

There is enough market for more players so the unusual spending projected by Microsoft for 2007 to support the software+services strategy and the upcoming announcements in next week’s MSN Summit related to their advertising program AdCenter combined with the Primetime exposure Ask is getting to gain attention could drive up even more online advertising market share numbers in US advertising, currently at 4.7 percent.

Web globalization is also validated with the figures reported, Google’s outside of the US revenues represent 42% of total and Yahoo’s international revenues are 30%; given that USA Internet users are only 18.3% of more than 1 Billion users worldwide and the growth of online advertising spending in Western Europe - with a 3.1% market share in media ad spending - and other regions, the future of the global online advertising industry looks promising, specially if you consider that local online advertising is just getting awareness.

Media economics were based on linear replication, but with current technologies easing the duplication of material there is no control on the generation of copies; while other business models get more mature the fact that Chris Dobson told Mark Evans in the Sympatico/MSN Digital Ad summit that online will be an ad world, not a subscription one is an indication that online advertising is recognized as the preferred monetization strategy in the Web nowadays.

Labels: online advertising

# posted by Beto : 1:34 AM  0 comments