Several agency executives reached Friday welcomed the prospect of a combined Microsoft-Yahoo to better challenge Google in search while serving as a virtual one-stop-shop for display advertising online. But some also questioned whether the two tech giants could easily mesh their ad platforms and corporate cultures.
No one doubts that the proposed Microsoft-Yahoo deal would deliver huge reach to marketers, with more than 1 billion combined unique monthly visitors worldwide and more than 15% of U.S. Internet visits between the companies' sites, according to Hitwise. It would also create a vast pool of brand advertising, representing a quarter of the U.S. online display ad market, according to comScore.
"From a display ad standpoint, this is an awesome combination, especially since Google is still learning how to do display (advertising)," said David Smith, CEO of digital agency Mediasmith. One question the deal raises, he noted, is whether Microsoft would maintain Yahoo and MSN as separate properties or fold them into a single platform. "How can Microsoft as a company rationalize two portals?" he said.
So far, Microsoft hasn't said how it would handle that issue. But if it came down to choosing one, Smith said Yahoo would probably take the lead as the more established brand and the Web's No. 1 destination. "They have time to make MSN more successful and they've done a good job with it, but Yahoo is the bigger brand," Smith said.
Others suggested that Microsoft-Yahoo would benefit by maintaining MSN and Yahoo as separate brands and cross-selling inventory across their respective properties from e-mail to games to video. "My guess is that they'll offer a lot of cross-channel opportunities, like buying sports sections, across a combined network," said Dave Coffey, director of media services at interactive agency Sapient. "I think you'll see more vertical types of buys across both of their properties."
Through its $6 billion acquisition of aQuantive last year, Microsoft bolstered its ability to manage integrated campaigns on behalf of advertisers via platforms such as Atlas AdManager, DrivePM, MSNDR and Microsoft adCenter, as well as in-game and mobile ads, and the agency arm Avenue A|Razorfish.
In addition to the sheer volume of traffic, the potential for targeting ads would be that much deeper with the vast trove of user data across Microsoft's and Yahoo's Web properties. "At some point, all these tens of millions of people have to go into buckets to whom they would serve a certain message at a certain time," Coffey said.
Yahoo's 2007 acquisition of behavioral targeting firm Blue Lithium is already paying dividends in increased ROI on display advertising, according to the company. Of course, it would have to ramp up capability to handle the influx of behavioral data from Microsoft sites.
Media buyers also like the idea of Microsoft and Yahoo together giving Google more of a battle in search. A merger would give the companies roughly a 30% share of the search market. "In our experience, both Microsoft and Yahoo perform better in search than Google--they just don't have the scale to deliver enough volume," Smith said.
Edward Montes, executive vice president and managing director of North America at Media Contacts, the interactive arm of Havas' MPG, agreed. "It would be great to have a stronger competitor to Google," he said "To push them both from an innovation and overall market perspective so Google has less of a natural monopoly than they do currently."
Agency executives aren't completely enamored of a Microsoft-Yahoo marriage, however. Google-busting aside, Montes raised questions regarding whether Microsoft would maintain Yahoo's Right Media ad exchange as an open marketplace, given the company's history of favoring closed, proprietary platforms. "It would be very bad if they took the openness of the Right Media model and did away with it," said Montes, who formerly served as director of special projects for Yahoo's media, entertainment, information, and finance groups.
Yahoo bought Right Media last year mainly as a platform for funneling unsold ad inventory. But Montes said the auction-based exchange has gained broader acceptance and now also handles premium inventory.
Microsoft acquired its own ad exchange last year, AdECN. Reconciling the two systems would be one of the technical hurdles faced in merging operations with Yahoo.
Montes' concerns about Right Media under Microsoft point to broader questions about the potential culture clash between the software giant and Yahoo. "There were times Microsoft wasn't even sure it wanted to be in the advertising business," Coffey said. Yahoo, by contrast, has long positioned itself as a media business and fostered tighter relations with Madison Avenue.
Microsoft signaled a new direction with the aQuantive acquisition last year, followed by CEO Steve Ballmer's pronouncement that a quarter of the company's revenue would come from digital advertising in the next few years. Buying Yahoo would obviously bring Microsoft closer to that goal.
Even so, skepticism remains about whether combining the two tech behemoths is the best way for either to take on Google. "Their biggest downfall is not being nimble enough and the combination would only make me worry that would be exacerbated by bureaucracy and integration needs versus the need to move fast and make decisions," said Scott Symonds, executive media director at AKQA.