• by Dave Morgan , Featured Contributor, June 2, 2006

So, how about last week's deals between Yahoo and eBay and Google and Dell? Yahoo has become the exclusive seller of graphical ads on eBay, and Google will be the default search toolbar on most computers shipped by Dell. Big stuff. Seems to me like the Digital Divide just got a whole lot bigger.

The Digital Divide? Usually when people talk about the Digital Divide, they're referring to the inequitable degrees of Internet access among those of differing socioeconomic classes. The one I'm referring to here is a lot less fundamental in its impact on humanity, but is still certainly worth our attention. I'm referring to the disparity in the distribution of online advertising spend among the large search and portal companies and the independent, vertical, and small Web sites and blogs (disclosure: my company operates an ad network of independent and small sites).

I was in the audience earlier this year at the Online Publishers Association's Global Summit in London. At that conference, there was a discussion of research conducted by the OPA and Jeff Rayport of the Monitor Group that estimated that 88 percent of gross online ad spend in the US in 2005 went to or through just four Web properties--Google, Yahoo, MSN, and AOL.

Wow! 88 percent of gross spend going to just four companies? Collectively, they publish less than 40 percent of the ad-supported U.S. Web page views. That's a lot of concentration of ad spend. What about sites ranked 5 through 5,000, or through 50,000, for that matter? What about the notion that the Web was going to democratize media?

Is this concentration bad? Certainly many are uncomfortable with the fact that so few companies control so much of the online ad marketplace, and ultimately control which content and companies are funded with advertising and which are not. However, even given that, the concentration isn't all bad for many online publishers, particularly the smallest sites. Here's why:

Ad revenue redistribution. A significant portion of the online ad revenue generated by these companies is redistributed among networks of smaller sites. Google has its AdSense program. Yahoo has its Yahoo Publisher Network program. AOL has its Advertising.com network.

Market expansion. The Big Four have taken significant steps to level the advertising field, using self-service tools and auction-based pricing that give small and medium-sized businesses access to affordable, effective online advertising. Now, any size business can buy qualified leads at approximately the same quality and price as large, Fortune 500 advertisers (with the exception that some search providers charge word-bid minimums that tend to favor the largest spenders).

That's not the way it works in traditional media. Television, newspapers, and national magazines are largely inaccessible to small advertisers. Not only are ad production costs high for those media, but their pricing structures give enormous per-unit discounts to large advertisers, making it virtually impossible to make small media buys cost-effectively.

Competition. As the Big Four's' ad network offerings become more competitive with each other, the terms, leverage and revenue splits for the independent and smaller publishers will almost certainly improve.

Of course, leaving content funding decisions in the hands of a small circle of companies is a legitimate concern that will require close scrutiny, since the Big Four actually create a small percentage of the content that is on their sites or within their networks (of course, Time Warner is a bit of an exception here, since it operates a number of proprietary content sites in addition to its AOL offerings).

However you come out on whether this concentration is good or bad, one thing is for certain: we will see a lot more of it. The competition among the Big Four is intensifying, driving them more and more to create partnerships with other publishers and ecommerce companies to gain more scale and more market power than the next guy.