Yahoo! buys Right Media, a smart move to defend its online ad leadership
by Charlene Li
Yahoo! announced that it would buy the remaining 80% of Right Media that it doesn’t already own for $650 million today. (NYTimes.com, WSJ.com and GigaOm also have coverage).
I was briefed about this late Sunday evening by Todd Teresi, Sr. VP of Display Marketplaces at Yahoo!. Todd’s title should give you a hint about why Yahoo! purchased Right Media. Right Media owns an ad exchange, which is different from an ad network. Ad networks typically aggregate ad inventory from publishers and resells it to advertisers. In contrast, an ad exchange is a marketplace where publishers and advertisers can find and execute advertising transactions, similar to what happens on a stock exchange. Ad networks could turn out to be one of the largest users of ad exchanges.
This follows on the heels of Yahoo! crafting a deal with eBay to sell eBay’s graphical ads, and a growing newspaper consortium which allows Yahoo! to sell display, search, and classified ads on 264 newspapers. With Right Media’s ad exchange, Yahoo! now has the ability to turbo-charge this "open and transparent" (Yahoo!’s words) marketplace for display ads. Yahoo! brings with it relationships with over 400,000 display advertisers and 6 billion daily display ad impressions — Todd said that Yahoo! has been testing selling non-guaranteed ad inventory on Right Media and would move forward with putting most of that inventory up on the exchange. I’m sure that inventory from eBay and the newspaper consortium will follow as well, joining Right Media’s other 200 publishers already on the exchange.
What this means
1) Smart move by Yahoo!. While this looks like a defensive move against Google’s Doubleclick acquisition, as I note above, this expansion has been in the works for the past year. Depending on your perspective, I think it’s actually an offensive strategy for Yahoo! to build on its dominance in the graphical ad marketplace. Yahoo! is putting a stake in the ground that the future for online display advertising lays in efficient, easy-to-use marketplaces — and it wants to be the trusted intermediary for that future.
So here’s the scenario of how this will play out. A publisher uses Google/Doubleclick’s ad server to show the ads that the publisher sells on Yahoo/Right Media’s ad exchange. Voila – both Google and Yahoo! have a relationship with the publisher. But look who has the relationship with the advertiser — Yahoo!.
Now let’s take a look at the advertiser side. An advertiser uses the Yahoo!/Right Media exchange to find and buy the ad inventory from multiple publishers, then uses Google/Doubleclick’s ad server to deliver the ads across those sites. Both companies have visibility into the transaction, but only Yahoo! stands in the middle.
In both scenarios, Yahoo! stands in the middle as the broker between both publisher and advertiser — Google runs the risk of being only the delivery mechanism. Nice end run on the part of Yahoo!
2) Puts pressure on Google. The acquisition makes it difficult for Google/Doubleclick to start its own ad exchange, which Doubleclick announced earlier this month. Right Media has been running its ad exchange for over two years, giving it the management and technical experience to run a successful exchange.
But more importantly, I believe the acquisition puts pressure on Google’s AdSense network to be more transparent. AdSense publishers make available inventory each month to AdSense and trust the system to optimize the revenue per impression. Each month, the publisher receives a check with no idea what the revenue generated or the revenue split was. The only option a publisher has is to test AdSense against competing ad networks to maximize the value of that pool of inventory. In contrast, an ad exchange like Right Media allows publishers to see what each and every impression generates in terms of revenue.
As long as Google AdSense continues to deliver better overall results than Right Media, it will be dodge calls to open the black box. But I believe that sophisticated publishers — those with the most attractive inventory — will be able to achieve better results on an open exchange. The result long term: Google may still have a lot of publishers on AdSense, but Yahoo!/Right Media will have a lock on the best quality ad inventory.
3) Advertisers and publishers need to change the way they buy and ads. Today’s display ad buying process is a convoluted, inefficient process: check sites for inventory that matches the target audience; check the rate card; put all inventory into a spreadsheet and run the numbers on which sites make sense; make the buy at multiple sites, all with their own ad ordering system. Yuck!
An ad exchange makes a great deal of sense in comparison — one place with all of the information, and an auction to ensure efficient pricing. Publishers won’t have to fume about creating a rate card — they just make their inventory available. Advertisers won’t have to compare rate cards — they just name the price they are willing to pay.
Ad exchanges like AdAuction.com have failed in the past, but as this CNET article points out, the main reason is that there wasn’t enough advertisers and publishers involved to make it work. Yahoo!’s participation in fell swoop ensures that it will have the momentum to get started. The key driver for success will be for Yahoo! to convince other publishers to participate as well, and that Yahoo! won’t benefit excessively from its participation as the 800 pound gorilla in the exchange.
So my question to marketers and publishers is if you are willing to try ad exchanges — and in particular, the Right Media ad exchange — and what your concerns are. We’d love to hear your feedback.
Tags: Yahoo, Right Media, charleneli, Forrester Research