On July 29, 2009, Yahoo! and Microsoft announced that “Yahoo! will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers.” They also announced that “Self-serve advertising for both companies will be fulfilled by Microsoft’s AdCenter platform, and prices for all search ads will continue to be set by AdCenter’s automated auction process” This led me, and others, to buck the tide of negativity around the deal, and Yahoo!’s role in particular, and suggest that this division of markets was strategic for both companies, and Yahoo!’s control of premium search advertising on Bing might just turn out be to the bigger windfall. More on this in a second.
On August 10, 2009, Publicis Groupe SA announced that it had agreed to acquire Razorfish from Microsoft for about $530 million in cash and stock.
(Razorfish, in case you haven’t been following, is a top interactive agency that Microsoft picked up as part of its acquisition of aQuantive in 2007 that gave it the Atlas family of ad servers and an online ad network. Razorfish is doing some of the best work in the business and they will be an asset to Publicis’ VivaKi “digital holding company” which includes Digitas and Performics (recently acquired from Google) and many other leading agencies, putting Publicis at the front of the pack of ad holding companies (WPP, Omnicom, Interpublic, Havas, and Dentsu) racing to incorporate digital services as a centerpiece of their offerings.)
But also included in the deal, according to Publicis CEO Maurice Lévy, was “a five-year media-buying relationship. In return for buying a certain amount of display and search advertising on Microsoft properties, Publicis will receive better ad rates.” (see WSJ coverage).
What’s wrong with this picture?
Razorfish clients include Ford, Best Buy, McDonald’s, and Microsoft, and Publicis as a whole represents many more “premium” brands. Clearly, Microsoft can’t sell search advertising to these advertisers and still claim that Yahoo! is “exclusively” empowered to sell to this market without some clarification of terms. Microsoft declined requests for such clarification, but a Microsoft spokesperson was quoted in Forbes as saying, “the Yahoo! and Microsoft proposal had not yet been approved as an official partnership, and that he was ‘fairly certain’ that no deal would have been struck with Publicis if it ran counter to the Yahoo! partnership.”
Retaining the ability to sell premium search is, in my view, essential for Yahoo!’s future, for two reasons.
First, as Yahoo! and Google have both repeated frequently, the future of online advertising is “Search-Display Convergence,” which means both that search data will become an increasingly essential component of targeting display ads, and search ads themselves will come to resemble display ads in graphical and interactive richness. “Premium” advertisers, in particular, will want integrated campaigns that combine the targeting of search with the branding capabilities of display (and video, which is increasingly being incorporated into display).
Second, the next wave of growth in online advertising will have to be on the premium side. The new market that Google discovered of SMB advertisers buying keywords on self-service auction sites has shown phenomenal growth, but by now most of the customers who could benefit from this form of marketing are already involved. From here, it will be a technology-driven battle for market share which Microsoft is eager to wage (and Google, with Caffeine, appears equally up for).
On the other hand, among premium advertisers, the shift of media spending from traditional channels to online is still at an early stage, especially among CPG manufacturers which continue to spend many times more on TV and print but are compelled to follow consumers who have shifted their time to online activities far faster than the they’ve shifted their budgets. These buyers are looking for a partner on the media side that can provide massive reach and handle integrated, rich campaigns that are free from the perils they see in social media and user-generated content and sketchy long-tail pages that result from buying traffic blindly on networks. That need defines a potentially lucrative role for Yahoo!.
But not if their partner Microsoft is competing with them for this market by offering bulk discounts to major media buyers. Which is why I think the Microsoft-Yahoo alliance plans just got more complicated.