Yahoo, Microsoft and AOL Won't Beat Google With More of the Same Old Thing

Last Updated Sep 15, 2011 3:02 PM EDT

Microsoft (MSFT), Yahoo (YHOO), and AOL have had it with Google (GOOG). First the company dominated search advertising. But then Google became number 1 in U.S. display (i.e., banner) ads -- one of Yahoo's few remaining strengths.

Microsoft, Yahoo, and AOL decided that if they couldn't beat Google, they could at least gang up on it. They now plan a troika of ad space sales swaps. If one of them has leftover inventory, the others can sell it rather than drop it into the hands of ad networks. Just one problem: this is essentially more of the same thing that they have been doing for years, selling the same ad space the same way. Why should it start suddenly working now?

Google takes the lead -- everywhere
While search marketing is still king, display ads will rapidly become a more important part of the overall online-advertising revenue mix, according to Forrester Research, as the graph below shows (click to enlarge):

Although Microsoft has made headway in search. Google still dominates it. The real opportunity for Microsoft, Yahoo, and AOL -- they know and talk about it -- is in display ads. Unfortunately for the triumvirate, the sales trend heads the wrong way, with Google and Facebook in the ascendancy, as you can see in this Wall Street Journal graph of eMarketer data:

About face
They need to turn the trend around if they want to keep Google and Yahoo from increasing their lead in this area. But the strategy of this plan seems screwy:

The idea, according to people who attended the meeting: Microsoft, Yahoo and AOL have agreed to sell each other's "Class 2 display" inventory -- graphic ads the companies can't sell on their own and would normally hand over to ad networks.The theory is that if, say, AOL has a big order for a certain kind of ad impressions, it will fill it with its own inventory as well as with what's available from Microsoft and Yahoo.
They will share revenue and, supposedly, do better than if they relied on a third-party ad network. But there are some significant problems.

The first is that all three see stagnant or worse ad revenue. Marketers are going to Google and Facebook. Putting Microsoft, Yahoo, and AOL together means selling the same things that aren't selling well enough now. That does nothing to get the advertisers to see them as the place to go.

Next, presumably ad salespeople get paid most for selling their own employers ads. Guess how much attention they'll spend on those of another company, where they'll get a smaller commission as a result?

This doesn't seem like a winning strategy so much as a worried attempt to stave off continued shrinking of ad revenue. It's bailing water at best.


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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.