BloGiza

The Online Advertising Chowdown

With all the recent focus on new media and the future of television, it seems that the real story as far as Internet exits (at least for the first half of  2007) is online advertising. Over the last month or so, we've seen a real feeding frenzy in the sector. Almost all the big Internet players --Google, Microsoft, Yahoo, AOL -- have rushed to snap up online advertising agencies.

Thus, just when you think Goog's $3.1B acquisition of Doubleclick was a biggie, along comes the $6B Microsoft/aQuantive deal (at an 80% premium, no less). Not to mention a raft of smaller but still very substantial exits (WPP/24/7Real Media, Yahoo/Right Media) in both online and mobile advertising.

From the Internet-oriented VC perspective this brings up two thoughts:

1. Just a year or two ago, DoubleClick and its ilk were seen as boring Web 1.0 companies (albeit lucrative ones). And yet, despite the hoo-ha over Web 2.0 and online video, these subsectors haven't shown anywhere near the potential for mega-exits that we are now seeing with online advertising. Perhaps I should say "the potential for mega-exits yet," since I am a hopeful fellow. Still, it goes to show that while hype has its place in our biz, there is still no substitute for the old-school basics like revenues and a logical business model.
2. This does, however, bring up the obvious caveat: are these companies actually worth the money Goog & co. are willing to pour into them, or are we talking about another Internet bubble? IMHO these companies are worth the price tag, even though the aQuantive deal seems excessive. We are, after all, talking about the companies which drive most of the revenues on the Internet. Until the Web comes up with better business models, online advertising will continue to be a most lucrative field. And will likely get more lucrative as the big Internet players start using the mountains of information they have about us and our browsing and shopping habits to start targeting better and better ads at us.

Flickr ascendant

Yahoo! has announced that it will close Yahoo! Photos in favor of Flickr. On the one hand, the move looks a bit funny considering that Y!P has consistently been a much more trafficked site than Flickr. On the other hand, Yahoo! Photos' traffic has been flat while Flickr's has been growing steadily. Plus, in the wake of Yahoo!'s persistent struggles it makes sense to consolidate properties and not run two competing photo-sharing sites.

All of which makes the news not entirely unexpected.

Still, this raises (at least in my eyes) a couple of issues that I hope Yahoo! has thought through:

1. The interface thing - I love Flickr, but I think it has one of the most problematic interfaces out there. After more than two years of using the service (and having paid up as a member twice now) I still find myself hesitating and being forced to read the help material when trying to do relatively simple tasks. Yahoo! Photos made things a lot more simple. Which leads me to wonder how my non-computer savvy mother-in-law who might have been able to handle Y!P's interface will get along with Flickr's.
   
   Granted Flickr has been improving things over time, but IMHO it's still not quite ready for prime time and I wonder what effect this will have on old-time Y!P users.
    
2. Flickr's snob factor - Flickr managed to acquire the mind share that it has in part because it is positioned as a quality photo site. As some people have pointed out, Flikr's message (think of the "Interestingness" feature) creates a kind of subtle pressure only to upload your best photos. Compare and contrast with the message you get from sites like Photobucket. Yahoo! Photos leans more in the direction of the latter than the former, so again it will be interesting to see how Y!P users adapt and how longtime Flickr users will react to the waves of hillbillies who are now moving into their neighborhood, as it were.
    
3. New services - If Yahoo! wants the new Flickr to really take off it will need to enhance a couple of features, especially photo printing. Yahoo! Photos was pretty good with this, Flickr not so much. Also, IMHO they need to improve features for regulating access to photo albums.

A Man, a Plan, a Canal...

It's now been two months since Yahoo! unveiled their new search marketing program, the one known as Panama and something like two weeks since they started rolling the thing out. After having Google eat its lunch for the past couple of years with everything related to textual and search advertising, Yahoo! hopes that Panama will be a worthy competitor to Goog's Adwords in the text advertising space.

The new program bases its ad rankings not only on the money bid for the specific keyword(s) but also takes into account the potential click-through rate for the ad. The idea being that the new system will maximize ad revenues per ad.

I've been waiting to see how the rollout will affect Yahoo's fortunes. I have a soft spot in my heart for the perennial #2 of the Internet world. The big question is whether Panama will be enough to turn Yahoo's stock around, especially compared with Google. (Business Week seems to think no, Arrington hopes yes).

I subscribe to the school of thought that Panama will be good for everyone. More choices should mean more advertising dollars will migrate online.

Has anyone out there started using the new system? Any comments to share?