Bronte Media

Is banner advertising back? Did Google pay too much? Does it matter that Microsoft didn’t win?

To me the most interesting question was why Google decided to plunk down such a significant amount of money chasing a low margin market and content on being a second class citizen in the media value chain.

The law of online advertising is that if you own the consumer you get 80% of the advertising and if you sell the advertising you get the remaining 20%. If you are an important publisher like AOL and ASK you can get even more than the 80%. Google makes nearly all of its money through consumers searching on Google.com.

The footnote to that is if you don’t own the advertiser relationship or the consumer relationship and rather simply offer a technology service that greases the relationship between them, you get an ever decreasing percentage of the pie as online advertising gains scale. And not only that, you have to find increasing ways to differentiate yourself because if you stand still, like any technology company, you’ll soon become irrelevant.

Basic ad serving is a commodity. Most behavioral players give it away in order to have their behavioral algorithms trained. Or give it away so that their advertisers have a way of being run on the publisher.

The newest twist to online ad serving is to give it away to allow every publisher to have advertisers bid upon their inventory and create a more efficient marketplace (works when advertisers measure spending off a direct response basis and less so when the aim is branding).

Almost any piece of the online advertising industry is a good business when compared to the wider media landscape. That’s because the online advertising as a whole is growing.

But that won’t last forever. I loved the Youtube acquisition. Google basically gets a truckload of proprietary traffic that they can figure out how to monetize over time. I love the AOL investment. AOL has proven that you don’t even need to work out how to grow monetization: there is a long list of suitors who will do it for you and give you most of the gains.

I don’t like the Doubleclick acquisition, just as I didn’t like the dMarc acquisition and anything to do with trying to monetize Television (unless they start their own TV channels).

Google’s incremental effort seems to be majorly geared toward being an ‘advertising operating system’ or pseudo-marketplace. But they’re not so much marketplaces as collectives of advertisers and publishers. And most importantly, there is a third variable: audiences. Because audiences tend to flock to a small subset of publishers, the publishers have all the power and marketplaces don’t get eBay like margins and economics. They get 20% and even less for the larger players.

Don’t get me wrong. Doubleclick is a healthy growing business. It was a healthy growing business in 2005 when public shareholders were stupid enough to sell it to private equity firms for $1.1 billion.

There was a reason shareholders fell out of love with the stock and to me that hasn’t changed. I would never think to say this, but if I was GOOG shareholder I’d much rather money being spent acquiring MySpace or Facebook.