Web advertising gone wild

The web advertising business has gone wild. Google acquired DoubleClick and today Yahoo acquired RightMedia. Display ads are back, but with a new model; Ad exchanges with auction style pricing.

Google popularized (didn't invent) text ads instead of banner (display) ads, and Cost Per Click instead of CPM rates for (traffic) ad impressions. Text ads appealed to the "long tail" of advertisers, the thousands of small businesses who couldn't afford elaborate display ads. Google proved there was billions of dollars in small text ads from millions of small businesses. Something the newspapers already knew. And it is newspapers that are feeling the pain of Google's success.

Yahoo has long been the leader in banner display ads. Yahoo has lots of traffic and charges advertisers to get their brand in front of their users. They charge a CPM rate (Cost Per Thousand) for traffic whether or not a viewer actually clicks on an ad. It is the same brand image advertising model used in TV where no direct response is expected.

RightMedia and others are combining an ad exchange for display ads with an auction style pricing model. Perhaps the best of both worlds.

Companies like FAST and Quigo are taking it one step further. Why not let the advertisers and publishers control their own ad markets. Why pay Google or Yahoo a 20% finders fee? Tom Foremski of Silicon Valley Watcher reports

FAST said that its top 35 media customers already generate search traffic that exceeds that of Yahoo!.

The market research firm IDC estimates that 70 per cent of search queries do not come from search engines.

Instead, people are choosing to bypass search engines and are going directly to their preferred information sources, retailers, and other websites and searching there.

FAST recently completed a survey of its top 35 media customers:

Together this "FAST Media Network" is generating as much search traffic as Yahoo!, with search traffic growing more than twice as quickly.  At the current pace, searches within the "FAST Media Network" collectively will surpass Google in two years...

Google serves the "long tail" of the advertising market, the thousands of small businesses that can't afford elaborate display ads. Yahoo has long been the leader in the brand display ad business. These are the big advertisers with lots of money to spend on flashy brand image ads. With the purchase of RightMedia they are bringing the auction style pricing model to display ads.

Could Google and Yahoo both be left behind by new approaches from FAST? Will advertisers want to control their own destiny and not pay finders fees to Google and Yahoo? The advertising business is going wild..and this is just the beginning.

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Comments

[Sara]

It sure does seem like the advertising industry is smoking!!! Great Post.

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[Daniel]

Hi Don,
ad Fast Track: This can only pay of for really big sites with loads of traffic. Otherwise the 20% gain in revenues could never compensate the costs and risks involved in building and financing a own business unit.
And if you have so much traffic I am sure you also have bargaining power concerning the 20% against Google. Don`t you think so?
best
daniel