Jupiter Clients React to Potential Microsoft-Yahoo Merger

Microsoft's passing around a memo from platforms & services chief Kevin Johnson to its employees about its proposed merger with Yahoo. In it, it reiterates what it perceives as the benefits of the merger, with a particular focus on the goodness for the industry:

    First, the industry needs a more compelling alternative in search and online advertising. I have personally met with top executives of the major media companies, and I know there is a desire for more competition in search and online advertising...
    ...For advertisers and publishers, scale economics would allow us to deliver more value to this customer base. By combining search and non-search advertising inventory on a single ad platform, yield is also improved. The other benefits and opportunities may include improving return on investment and decreasing the cost and complexity of running multiple campaigns. We also believe in an extensible ad platform. From my discussions with top advertising agency executives, they share this belief and want to play a key role in extending this ad platform for incremental value to advertisers.

We did a quick survey of about 50 Jupiter clients -- a fairly even mix of publishers, marketers, and service providers -- and they pretty much agree. There's a modest positive tilt to the responses, with a few caveats.

- 50% thought it would make buying and optimizing search marketing easier, while only a quarter thought it would make it harder.

- The split was closer, but still positive, on remnant inventory (39% to 25%) and on premium display (33% to 21%).

- Less than a third of the respondents were concerned that a merger would result in decreased traffic quality for any of the three ad types. Jupiter search analyst Evan Andrews points out this either means they're seeing the glass half full, or that they haven't yet thought through the implications of merging the two search buckets, which taken individually to-date have not delivered the quality or ROI that Google advertisers (and publishers) have enjoyed.

- And there was concern that prices would go up in premium display (50% were concerned), remnant display (42%), and search (54%).

I'm not convinced that -- outside of a few content categories like personal finance, portal home pages, and, maybe, auto -- a merger of Microsoft and Yahoo properties would create a large enough concentration to tilt competitive pricing its way. Still, there's no question there would be increased concentration overall.

Jupiter estimates that the $20 billion 2007 US online ad business broke down like this:

Google - 31% (up impressively from 25% in 2006)
Yahoo - 14% (down a bit)
and Microsoft and AOL flattish at 8% apiece. MSN actually outgrew the other two portals, but couldn't keep up with Google. (These figures are what the companies keep, that is "ex-TAC" or minus the money they pay out to their network partners. That's another several billion dollars passing through their machinery.)

And finally, because we do this for a living, I have to gripe about numbers. Microsoft's Johnson throws out a figure of $80 billion for online advertising in 2010. Even if that's worldwide, and even if he's counting mobile, that number's too big, and smells of Wall Street calculators. We don't forecast markets outside the US and Western Europe yet, but the markets we do project will generate about $48 billion in 2010 online (if I'm converting euros properly) and another few billion dollars in mobile. There's no way Asia-Pacific and Latin America will amount to $30 billion that fast.

Jupiter podcast first take on the potential merger
US online advertising forecast
W. Europe online ad forecast
US mobile marketing forecast
W. Europe mobile advertising forecast
Or check out Quantify for a quick way to digest the numbers.