AOL, Microsoft And Yahoo Forge Ad Alliance To Rival Google

September 15, 2011 0

San Francisco — In their boldest attempt to salvage their embattled advertising businesses, AOL Inc., Microsoft Corp. and Yahoo Inc., the three major tech companies are forging an unusual alliance against a common enemy, Google, to sell ads on each other’s sites, according to advertising executives pitched on the initiative.

Under the new alliance that calls for selling ad inventory on each other’s sites, the trio aim to hang onto ad revenue that previously was lost to third-party networks, AllThingsD’s Peter Kafka reports.

The move appears as the three Internet rivals scramble to recapture their lost share in the online display-ad market as marketers shift more of their dollars to Google, which dominates the search advertising market and has increased its efforts in display advertising.

The trio may not bother whether their online ad sales partnership appears “desperate” — if it works, that is. “They have teamed together to hit Google hard,” said tech analyst Laura DiDio. “This is what they have to do to make any dent in Google. It is a good strategy.” It also is a bid to improve their rates for display advertising, which have been falling as rising Web traffic has inflated inventory.

The plan was discussed at a meeting held in Manhattan on Tuesday night between officials from the three companies and executives from the advertising industry, according to an agency executive who attended but who would speak only anonymously because the meeting was private. The news was first reported Wednesday morning on AllThingsD, the technology Web site.

Their objective is to convince big Web properties to share ad inventory and get ad holding companies to run some purchases through their sites. The anonymous source said the deal was centered on selling remnant inventory, or the lower-priced ads that typically run at the bottom of Web pages or on secondary pages. Remnant ads are generally sold by third-party networks, usually for lower prices, and feature products or services like weight-loss or teeth-whitening treatments.

AOL, Microsoft and Yahoo declined to comment on the plan.

Several advertising executives said they are eager about the plan but hesitant about the companies’ chances for pulling it off, given past failed attempts at similar partnerships. Ad executives also question whether the strategy will boost sinking ad rates.

“There are a hell of a lot of great ideas that have come and gone in this industry. Implementation often times is more important than the actual idea,” says David Moore, chief executive of 24/7 Real Media, a digital advertising company owned by WPP PLC. “Is it too little, too late?”

Moreover, the three companies agreed to sell each others’ “class 2 display” inventory, which are advertisement images that the companies cannot sell on their own and usually hand over to ad networks, All Things D reported.

For instance, if AOL had an order for a specific type of ad impression, then it might tap the left-over ad space on Yahoo’s and Microsoft’s inventories as well as its own that would be launched later this year or early 2012, the people said. Besides, the move would signal another initiative by online publishers to rely more heavily on so-called private exchange technology, which allows them to deal directly with ad agencies without having to use third-party networks.

As the alliance comes into effect, selling the space could empower the publishers to earn more revenue and gain more control over the data they collect on their users. It would also give media buyers and agencies a one-stop shop for buying advertising space on each of the three companies’ sites.

“What they are trying to recreate is the growth of private exchanges,” said David Hallerman, a principal analyst for eMarketer, a digital market research firm. The exchanges, he said, “offer a buyer accurate targeting, brand safety and good pricing for good reach.”

The three have not yet had any comment on the report. All three of issued statements to the effect that there have been some ties before and the portals are exploring “future” alliance. Microsoft acknowledged that it is open to partnerships but did not specifically confirm the ad alliance to the E-Commerce Times.

“We believe that choice, openness and competition help drive innovation in the market,” the company said in a statement provided by Emma Mahoney of Waggener Edstrom. “As such, we are always exploring ways to partner with others in the digital advertising ecosystem to offer innovative solutions that benefit advertisers and publishers. However we have nothing specific to share at this time.”

It is not clear how much inventory each of the companies will be sharing, or if it is indeed a done deal, but the companies also expect to entice other online publishers to join their partnership. And by joining together and selling for one another, they hope to reduce the need for third-party ad networks that often sell some of the less desirable ad space on their sites.

Apparently, forging alliance can seem to make sense. Google’s and Facebook’s display power has been rising steadily over the past year. Specifically, eMarketer says that Facebook’s share of U.S. online display ad dollars will rise to 17.7 percent this year, up from a 12.2 percent share in 2010. AOL, Microsoft and Yahoo are going to have to strengthen their sales forces to face the challenges. But more than that, the shift of audiences and the ad dollars that follow them appear to be part of a larger trend that portals will find more difficult to beat.

Nevertheless, the plan is set to commence by the end of this year and does not require exclusivity. Yahoo America’s head, Ross Levinsohn pitched the plan on behalf of Yahoo at the presentation. AOL CEO Tim Armstrong and Microsoft advertising COO Dave O’Hara attended, said All Things D.