As everyone knows, Microsoft and Yahoo! announced a deal yesterday where Microsoft’s Bing will become the new Yahoo! search engine and Yahoo! will sell ads against those search results on its site.  How will this impact display?  There’s a lot to this deal and it’s covered deeply all over the web (just Google it, oh, the irony).  But given that both Microsoft and Yahoo are display leaders, there’s likely to be an impact on display, or, at least, display/search convergence.

Let’s review how partners’ display business might be impacted by this deal.

Yahoo

Apt - In the short term there will not be much of an impact. Unless resources get quickly moved away from APT, but I expect the opposite, if any change, given the freeing up of Yahoo Search Tech and resources.  In the long term, it would be nice to think that APT could be expanded to include search.  How powerful would one platform that accessed the largest Display property, the entire RightMedia Exchange (it will someday be absorbed into APT) and the second largest search platform (with 30% market share). Unfortunately, since the rumors are that while Yahoo sales will sell premium search for Bing, Microsoft AdCenter will still be the self-service tool, consolidation into APT seems like a long shot.  Or is it?

RMX - the Right Media advertising exchange doesn’t interact with search much right now anyway, except for inclusion in the Display Extension product.  RMX’ long term destiny is as a part of APT.  The major impact may be that Y! can allocate more technical resources to display now that search tech is shifted to Microsoft.  Maybe RMX can get some love again from Yahoo Tech.

Display Products – I talked about Yahoo’s more innovative products last week.  SmartAds, which leverages search data, could really be helped here by the increased search volume from which to collect data.  However, the integration with Bing could either take awhile (likely) or be impossible (maybe).  Additionally, as Henry Blodget says, MSFT display will likely want to leverage this data as well – which creates both strategic and implementation issues.  The Display Extension product seems to be related to SmartAds, so impact would be similar.
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Today we turn from AOL to Yahoo.  Another troubled portal at the center of this display and search convergence I’ve been talking about.  Today Yahoo released Q2 earnings – not a great story from an investor or employee perspective but very exciting for display innovation.

Here are some highlights from the call (thanks to Seeking Alpha for releasing the transcript)

• Non-guaranteed growth – CFO Tim Morse – “Non-guaranteed display revenue continued to grow strongly which partially offset the year-over-year decline on the guaranteed side.”  Great news for convergence fans.  A big part of non-guaranteed for YHOO comes through RMX, this indicates that smart buyers are aggressively investing in the space and shifting away from the old-fashioned guaranteed buys.
• Display Innovation - CEO Bartz talked about two exciting innovations
  • Smart Ads – which allows for behavioral and search retargeting on display (there it is again, Display and Search convergence).  Note – checking out the Smart Ads page, I really like how they’ve tried to bring out the value of display – bringing out awareness, engagement and response all together. Needs to go further, though, to really help buyers understand how to manage display (eg, post-view measurement and attribution; post-view search activity, etc)
  • My Display Ads – a pilot partnership with AdReady to allow self-service ad creation.
• Long tail advertisers - with MyDisplayAds and deal with AT&T to sell Yahoo locally.  Between the newspaper consortium and AT&T will “have a local sales force 13,000 reps strong”.  That’s a lot of feet on the street!  Interesting that, unlike AOL, Yahoo is playing both the self-service AND the salesforce angles here – which is smarter than just hoping small businesses will buy display on their own (which I believe is a few years away).
• APT reset – APT is now “part of the process of making buying (on Yahoo) easier”   This may be a negative for people who dreamed of APT taking over the world, but it’s more realistic and for display convergence, it’s fine, this is exactly what is needed, an easier way to buy guaranteed inventory on the largest media property on the web.

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Thank God for Tim Armstrong. If you believe the hypothesis that Display is converging with Search, what could be a better test than to take one of Google’s starting nine and place him in the great underutilized display asset that is AOL? Nobody can ever say that Armstrong doesn’t get search. And while it gets a ton of grief, it’s hard to say that a platform with 90% reach in the US isn’t a great asset. And to make it really interesting, Armstrong is given a company that ceded search years ago despite having the largest captive audience on the web and one which, even to this day, shows no hint that an understanding of how to sell in a granular, search-like fashion exists in its DNA (although Bidplace is starting to show promise). It goes without saying that this blog will have a lot to say about AOL now and in the future.

So here we are. This is a big week for Armstrong and AOL. The first 100 days are over, he’s starting to talk about where he wants to go, and Friday he gets in front of the whole crew to lay out his plan. Armstrong says his goal is to become the market leader in display advertising. Is a leadership position in display even possible and can AOL get there? And, if so, how?

If by leadership position he means something similar to Google’s leadership in search, this is a pipe dream. Google has 65% of total searches based on the most recent Comscore rankings. Display is a bit more fragmented. Ideally we would measure this by share of all display impressions or revenue, but that data does not exist or is at least not publicly available. AOL leads in terms of Monthly Unique Visitors with ~175 million in May 2009 but Yahoo is right behind with 169MM and Google with 163MM. Another way to lead search is to take over the ad server market, but that is also pretty fragmented with Google’s Dart leading but not far ahead of Atlas and OpenAdstream (and AOL’s Adtech in 4th about 1/3 the size of AOL). Finally, the structure of the industry with several leaders competing, all having their own exclusive owned & operated inventory, and consumers having very disaggregated browsing habits makes a truly dominant position hard to imagine.

If it is apparent that a Google-like domination of display is not possible, what would “the leader in display” look like? While the same market share may not be possible, a real leader would actually have many of the same qualities as Google does in search:

1. Most revenue – It would be hard to call yourself the leader if you did not have the most revenue in the space.
2. First option for buyers – buyers have to think of you first when they think of buying display advertising.
3. Technological leader – the leader has to have the best and most advanced technology.
4. Innovation – the leader needs to be continually pushing the envelope and constantly evaluating and copying or absorbing promisting externally developed technologies.
5. Copycats – the leader needs a track record of competitors copying what it does and continually trying to catch up (think Microsoft and Google)

It’s safe to say that AOL is considerably behind in all of these qualities. Read the rest of this entry »

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