The “epic battle” begins

The following is from our Media 2.0 Newsletter this week.

History will view the offer by Microsoft to acquire Yahoo as a seminal moment — a turning point — in the evolution of the Web and the web economy. It marks the closing of one era and the opening of another, and it’s a classic case study of old economics versus new. We need to study carefully the reaction to the deal, because it, too, is divided into camps — those who view things through the eyes of the mass, including Wall Street and Madison Avenue, and those who view things through the eyes of the dismantling of mass, including Silicon Valley and the venture capitalists.

Because the question is whose is the prophetic voice? If you read media industry trades and the Wall St. Journal, make sure you also read TechMeme, Venture Beat, CNet and especially the blogosphere.

Michael Arrington, via ZooomrMichael Arrington, founder of TechCrunch and one of the most influential observers of new media and technology, notes that the merger/takeover is more and more likely with each passing day. Yahoo wants another bid from somebody, but the current debt market makes such a rescue unlikely. Yahoo will take their time, but economic conditions and shareholder demands makes it appear that Microsoft will eventually own Yahoo.

But Arrington writes that this whole thing is evidence of something much bigger, and Steve and I certainly agree:

Whatever happens, the salad days for Yahoo are long gone. 2008 will be the year Yahoo ceased to be one of the big independent Internet heavyweights. They’ll almost certainly become an operating subsidiary of Microsoft, or Google’s whipping boy. And if by some chance the government puts a stop to either deal, they’ll have a short reprieve before facing similar decisions next year or the year after. The world is an unforgiving place. Yahoo is cute, cuddly and likable, but they did not execute the way Google did. And because of that they are quickly turning into collateral damage in an epic war that is really just beginning between Microsoft and Google.

While that “epic war” will be interesting to watch, there’s a lesson for all media companies in how Google has executed while Yahoo has not. As Jeff Jarvis relentlessly observes, Yahoo is the last old media company, “for it operates on the old-media model: It owns or controls content, markets to bring audience in, then bombards us with ads until we leave. Contrast that with Google, which comes to us with its ads and content and tools, all of which I can distribute on my blog. Yahoo, like media before it, is centralized. Google is distributed.”

It is vital that we understand the difference, for Jarvis is spot-on, and local media companies who choose the Yahoo path will ultimately find themselves in Yahoo’s current conundrum. The opportunity exists for local media to seize the Google mission locally — to organize the community’s information and make it easily accessible and useful.

That’s different than driving eyeballs here and there in an attempt to control mass.   Link>


MicrohooBehind all the posturing and big numbers of Microsoft’s unsolicited bid for Yahoo is an attempt by Microsoft to dominate online ad serving in the same way it dominates the desktops of the world’s computers. Microsoft is a software company and they rightly recognize that whoever operates the online advertising ecosystem (the software) that serves and tracks ads is going to be the dominant tech company of the generation. This is the ultimate prize of the deal, and it ought to concern all of us in local media, unless we’re happy with just being content companies forever.

A Wall St. Journal article Sunday noted that Microsoft has gained desktop dominance by providing the operating software that nearly everyone uses, and its bid for Yahoo is “an attempt to replicate that same kind of broad influence over the Web by supplying the underlying software for placing ads online.”

In the interview, Mr. Ballmer (Microsoft CEO Steve Ballmer) noted that an ad platform is possibly even more strategic than an operating system such as Windows, because it is a system that conveys information about ad pricing and is actually used to collect money for ads.

“So the very strong market position that the market leader has is even more interesting, I think, for all industry participants,” Mr. Ballmer said.

Mr. Ballmer predicted that such advertising engines will evolve in other ways that the greater scale of a combination with Yahoo can help. He said that he expected online ads will be sold through automated Internet auctions.

On the surface, this seems like a good thing. Not a week goes by that we don’t hear someone from this world (a.k.a. “Madison Avenue”) complaining about the lack of an ecosystem similar to what exists offline. We hear that the money flood will come when such an entity exists, and that we’ll only see dribs and drabs between now and then. This kind of infrastructure favors the guy with the deepest pockets, because you can influence just about anything with the right number of GRPs. This is the essence of mass marketing, the “head” in Chris Anderson’s “Long Tail.”

But would this really be a good thing for local media companies?

If you’re the local newspaper, and somebody wishes to buy print, they must come to you and run their ads via your infrastructure. If you’re a TV station, you’re battling for the biggest piece of the money set aside for TV. Those ads will run via your infrastructure. If an agency wants to create a multi-media deal, they can do a little print here, a little TV there, sprinkle in some radio and outdoor, and basically saturate the market. It’s highly efficient and uses the ad infrastructures of each media partner, partners who keep all of the money provided by the contract. In this system, each controls the inventory, price, performance and billing.

The Web, however, is a different animal. Online, a website — anybody’s website — is just a pixel on a page. All are equal. Some may have more pages that others, and some may have higher traffic than others, but structurally, they’re all just a pixel on a page. Hence, the ad ecosystem will service millions of sites in the years to come, and achieving scale for our individual properties becomes more and more problematic. The Web doesn’t belong to media companies; everybody’s a media company on the Web, and that includes many advertisers. Hence, an attempt by the same ad agency to saturate the market doesn’t need to depend on the inventory of the current media company players. An ad impression is an ad impression; the software doesn’t give a ripple chip where that page resides, only that it delivers the proper demos or targets.

If we’re running the ad network, that’s a good thing. If, however, we’re just a node on that network, not only do we have to work harder to justify the spend with us, we’re likely going to be splitting the revenue with a 3rd party now — the network itself. Even the inventory we sell ourselves for our own websites will likely reside on the Microsoft-run ecosystem, and that means a revenue share of some sort downstream.

At a time when traditional media revenues are declining, the real danger is that we’ll end up mostly as content companies — stuck on the most expensive end of the new media value chain,

To repeat a theme you’ve read here before, we must be the controller of the ad infrastructure, even if it means sharing it with the other traditional media companies in town. Then, if Microsoft wants to serve ads in our markets, they have to work through us.   Link>

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