Internet Marketing Will Be Fun With Yahoo and Microsoft One

Posted by Salem Global on Feb 1, 2008

AOL would be dwarfed by a combined Microsoft/Yahoo, but the deal could prompt search giant Google to make a bid for the company.

Microsoft Corp.’s unsolicited $44.6 billion offer to buy Yahoo Inc. could spell trouble for AOL, but some believe it could also lead to an offer for the online company from search giant Google.

“This puts a lot of things into play,” says Shar VanBoSkirk, senior analyst at Forrester Research.

If the deal is approved, AOL will be dwarfed by a combined Microsoft/Yahoo. Last year, AOL and Microsoft each generated about $1.4 billion in online advertising revenue, sharing the position as the third largest online ad provider in the United States, according to research firm eMarketer. Currently, AOL and MSN have about 6% of the online ad market. Post merger Microsoft/Yahoo would control 22% of the market, trailing Google with 29%, but far outpacing AOL. AOL declined to comment.

“The combined Microsoft/Yahoo will give AOL some strong competition,” said David Hallerman, a senior analyst at eMarketer. “Advertisers want more targeted ad distribution.”

AOL, Yahoo and Microsoft all compete for display or banner advertising dollars. AOL doesn’t compete against the others in search advertising because Google powers those functions on AOL.

Last year, Google acquired DoubleClick Inc. for $3.1 billion to compete against Yahoo, which leads in display advertising. Some analysts say Google may be interested in further beefing up that line of business by acquiring AOL.

Ever since 2006, AOL has been repositioning itself as an online advertising company instead of an online subscription services firm. The move has some questioning whether Time Warner should spin off the unit or sell it. As part of its strategy, AOL relocated its corporate headquarters to Manhattan and acquired five online ad companies in 2007, including two Manhattan-based companies: Quigo, a contextual ad firm and direct Google rival, and Tacoda, a behavioral ad firm.

In September, AOL announced the creation of a new online advertising network dubbed Platform A to house all of its acquired companies as well as its Advertising.com ad network. Through Platform A, AOL sells advertisers targeted ad space on its Web sites and network of third-party sites.

“AOL isn’t totally out of the game,” said Ms. VanBoSkirk. “There is enough business to go around.” Online advertising is expected to reach $28 billion this year and $42 billion in 2011.