Major Internet hubs see lesser influence Major Internet hubs see lesser influence

Major Internet hubs see lesser influence

By ANICK JESDANUN, AP Internet WriterSun Oct 7, 2007 1:48 PM ET

The recent rush by major Internet portals to buy advertising
companies and extend their sales networks is a sign that the business
of being a one-stop shop for information and entertainment isn’t what
it used to be.

Gone are the days of emphasizing ways to attract and keep visitors —
the way television networks long have operated — by creating
destinations with anything people might need for work, leisure or
companionship.

Instead, those companies are now more aggressively trying to follow
Web surfers elsewhere — and bring lucrative advertising to them.

As people increasingly turn to blogs, social-networking sites and
other sources of user-generated media, Google Inc., Yahoo Inc.,
Microsoft Corp. and Time Warner Inc.’s AOL have spent more than $10
billion collectively this year to acquire companies and technologies
that help extend their online advertising networks.

So instead of relying solely on being portals for consumers, the
major companies are creating one-stop shops for advertisers, who are
increasingly wanting to buy ads centrally and place them where the
eyeballs are. The networks take care of feeding the ads to smaller
sites.

declining_portals.jpg

"We’re not interested in building yesterday’s portal," said Ron
Grant, AOL’s president and chief operating officer. "Consumers are
finding what they are looking for is coming from more and more
fragmented places. We need a way for advertisers to take advantage of
that fragmentation."

That shift is important for the major Internet businesses to grab a
substantial share of the marketing dollars expected to flow at the
expense of television and print.

For consumers, the development means greater freedom and a further
erosion of artificial walls designed to keep visitors from leaving
sites.

According to comScore Media Metrix, the U.S. audience for the four
major Internet brands grew over the past year. But the total time spent
at Yahoo and AOL dropped about 10 percent, while Microsoft’s
MSN-Windows Live services saw an 8 percent decline.

In other words, these sites are attracting more people but are
keeping them for shorter durations as users find what they need
elsewhere.

Google was the exception, with a 57 percent jump in total time
spent, but even the company recognizes that "no individual property
will have all those products and services" a user might want, said Tim
Armstrong, Google’s head of North American ad sales.

"The Internet is basically being built and scaling (faster) than any
one property on the Internet is," Armstrong said. "Companies in the
Internet space are changing their business models to have models which
are consumer driven, not property driven."

That’s not to say the major Internet destinations are ceding their own properties.

In a few cases, the large companies have bought wildly popular
sites. Google spent about $1.76 billion last November to absorb the
leading video-sharing site, YouTube. It also owns the blogging service
Blogger, while Yahoo has the photo-sharing site Flickr.

They are also innovating. AOL revamped its video search site in
August, while Yahoo retooled its core search engine this month to try
to make it more engaging and lure back those who had defected to Google.

"Everyone still wants to be your home page. They are always going to
battle for that," said Nick Nyhan, chief executive of market research
firm Dynamic Logic. "But they have to think beyond that. Consumers
aren’t going to just take your stuff."

Google, Yahoo and AOL still make most of their ad money from sites
they own and operate (Microsoft did not break down figures in its
regulatory filings). Google and Yahoo even reported relative growth
there in the second quarter.

Ad networks set the stage for the future and help the large Internet
companies ensure they will have enough inventory to sell in the years
ahead.

Ford Motor Co. can, for instance, come to Google and buy ads
that run not only there but also at The New York Times’ Web site and
thousands of others within Google’s AdSense network. Ford wouldn’t have
to deal with all those sites individually; third-party sites wouldn’t
have to expand their sales team.

Meanwhile, Google gets a cut of ad revenues — without spending a dime developing those specialty sites.

Although this concept isn’t new, what is changing is the scale.

In agreeing to acquire DoubleClick Inc. for $3.1 billion, Google
is looking for better ways to deliver multimedia display ads to
supplement the small, text-based ads the company already does well.

The still-pending acquisition also extends Google’s reach
beyond AdSense to all the outside sites for which DoubleClick now
distributes advertising.

Likewise, in buying Tacoda Inc., AOL not only gets Tacoda’s
technology for targeting ads, but also extends its reach to NBC
Universal, Scripps Networks and the Times (sites can join multiple ad
networks). AOL also has a network through its 2004 acquisition of
Advertising.com and separately bought companies this year serving
international markets and wireless devices.

Yahoo, meanwhile, paid about $650 million for the 80 percent of
Right Media Inc. it did not already own and agreed to buy BlueLithium
Inc. for $300 million. Microsoft bought aQuantive Inc. for $6 billion.

"It’s not that networks are going to supplant these mass-market
sites, but they will have less influence as networks have more," said
David Hallerman, a senior analyst at the research group eMarketer,
which projects U.S. online advertising spending at $44 billion in 2011,
more than double the $17 billion last year.

The shift didn’t happen overnight. Many factors are involved,
including online hangouts like Facebook and News Corp.’s MySpace
commanding more of a user’s time over the past few years. Web sites big
and small are making features available, through tools called widgets,
for viewing directly at those sites.

Of course, the major brands would still prefer visitors going
to them directly, as they wouldn’t have to share ad revenues with
another site.

But as audiences disperse, advertisers have become reluctant to concentrate their spending at a traditional portal.

Besides standardization, efficiency and diversity, advertisers
get better targeting with networks. Say you are trying to reach Seattle
natives with a propensity to fly to the remote Arctic island of
Svalbard. On a portal you might find 10. On a network 100 times larger,
you’d find 1,000 without changing your campaign.

There are drawbacks, though.

U.S. and European regulators are reviewing Google’s proposed
acquisition of DoubleClick. Critics complain Google would have too much
control over online advertising and personal information collected on
users.

And despite the efficiencies, consolidation could hamper
flexibility, said Jason Turner, vice president for interactive at
advertising agency Ignited.

"When there were four television networks, you were beholden to
those four, (who could say), `Here are the rules. This is what it’s
going to cost and if you don’t like it you’re not going to get on TV,’"
Turner said.

Nonetheless, ad networks are here to stay.

"Advertisers are going to need to start to use the Internet the
way people always use the Internet, spreading out in hot pursuit of the
things they need and want," said Jarvis Coffin, chief executive of
Burst Media Corp., an independent ad network. "It’s much easier to fish
where the fish are."

Leave a Reply