The Big Just Got Bigger in Online Advertising

NEW YORK Acquisitions last week by Yahoo and Microsoft are part of a wave of consolidations that industry insiders expect will eventually result in a handful of massive ad operating systems.

The Internet giants, along with Google and other contenders, see an opportunity to get out in front of an expected flood of brand ad budgets online by offering one-stop systems to manage search, display, video and other campaign formats. These systems would fulfill a role similar to that of TV networks in the early days of broadcast, aggregating audiences that are spread across the Web, mobile and other channels.

“There’s a bias toward big right now,” said David Kenny, CEO of Digitas, part of Publicis Groupe. “As large companies move to [Internet] brand advertising, video, mobile and social networking, scale matters.”

As it stands now, the complexity that results from separate tracking, billing and serving systems makes running large-scale campaigns online an enormous headache, both inefficient and hard to effectively target, according to media buyers. But the scope of the networks now being formed could remedy that.

“You’re getting data from lots of systems that make it hard to consolidate,” said Julian Zilberbrand, associate director of digital operations at Publicis’ MediaVest. With the new systems, “advertisers would be able to get unduplicated data [across campaigns].”

Such ad systems are already in the works, as evidenced by moves last week. Yahoo paid $680 million for the 80 percent of ad exchange Right Media it didn’t own, and inked a deal to sell display and graphical ads for Comcast’s Web portal. Microsoft, meanwhile, also improved its network capabilities, buying mobile ad server and network ScreenTonic. It plans to combine the mobile network with its adCenter platform to eventually run ads on the Web, in video games, on mobile phones and through Internet protocol TV.

“We have a vision of a next-generation advertising platform,” said Joe Doran, general manager of Microsoft’s digital advertising solutions unit. “We think of this as one broad platform for all digital media.”

Google has moved aggressively to expand its foothold in search and direct-response text links into a wide-ranging platform, with its $3.1 billion addition of DoubleClick giving it entrée into serving and measuring display and video ads. DoubleClick has plans for a Right Media-like advertising exchange .

Other players are likely to join with ad systems of their own. AOL has the kernel of an ad system thanks to its network that places ads on thousands of Web sites, its own popular Web portal and a deal with Google that allows it to sell its own search ads. The company is also reportedly in talks with Third Screen Media, a mobile ad network. Industry insiders predict News Corp. has the makings of a system thanks to MySpace. Other candidates include IAC, owner of and other Web properties.

While the ad systems in the works are bringing more efficient buying to bulk inventory, they also are expected to lead to better targeting by using the accumulated data they collect. With DoubleClick, which is the leading technology used to run Internet ad campaigns, Google would have mountains of information to improve ad quality, although the company will need to be careful in using the information to sell ads. Yahoo executives likewise stressed it would keep Right Media’s exchange separate. Microsoft’s adCenter will integrate data across the platform.

Right Media CEO Michael Walrath said he anticipates several variations of ad systems developing. The key defining feature, he believes, will be how much control they give advertisers to know where their ads are running and publishers to know what others are bidding for space on their sites.

“Like with [computer] operating systems, there’s likely to be tension between open systems and closed systems,” said Walrath. “A lot of the big systems we see today are closed. Our commitment is to remain open.”

The promise of the systems is not just making it cheaper to deliver ads online, but also targeting them better. Google said users would benefit from its DoubleClick acquisition by receiving more relevant ads. Walrath said advertising exchanges would end up leading to better ads simply by increasing the pool of ads.

An immediate payoff of both the Google-DoubleClick and Yahoo-Right Media combinations, said Bryan Wiener, president of 360i, a search-focused digital agency, would be the ability to manage search and display ads together—a critical need as it becomes clear that the two affect one another.

“Search and display are fundamentally integrated,” he said. “From a buying and optimization standpoint, you should be able to buy them together.”

In such an environment, the challenge for agencies will be to reorient their own structures. From the media-buying perspective, that means being more nimble and analytic, said Paran Johar, director of digital marketing at Interpublic Group’s MRM Worldwide. “Agencies will have to change their model from a buy-sell perspective to be much more dynamic as opposed to long upfront cycles,” he said.

Even how agencies think of creating digital assets will need to be more automated and flexible, Kenny said. Digitas last week spun out Prodigious, a digital production firm, which will be used by Publicis and other agencies to create digital assets cheaply in overseas markets like India, China and Eastern Europe.

“The question if you’re an ad agency is, ‘How do you use these big systems?'” he said. “That’s the next level of competition. It’s going to be very important that people have technology and operating skills to differentiate themselves.”

As Internet media companies bulk up, more acquisitions are likely, both on a small scale like ScreenTonic and a larger one like DoubleClick, predicted Seth Alpert, managing director of AdMedia Partners, a New York investment advisory firm. “Scale really does matter,” he said. “What comes with scale is knowledge and that knowledge is a significant advantage in the marketplace.”