AOL And Yahoo: Ready To Blow It Again!

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Hey look, AOL and Yahoo could blow it again!One reason Google executives don’t expect its ad exchange to grow into a very big business relative to its search business — they project net revenues of $300 million to $500 million five years out — is that the company doesn’t expect to own 80% of the market like it does in search advertising.

Internally, Google expects the market to be divided between at least three large ad exchanges — Google’s, Yahoo’s, and Microsoft’s. AOL, which already has a huge reach through, could enter the picture too.

But so far, two of those potential rivals, AOL and Yahoo, seem to be intent on letting Google grabbing the lion’s share of another advertising market.

We’ve heard rumours that Yahoo is shopping Right Media, the ad exchange it paid $680 million for in 2007.

Yahoo EVP Hilary Schneider didn’t exactly put those rumours to rest when she kept talking about “the idea of interconnecting exchanges” at Yahoo’s big press event on Tuesday.

She said, “We think it’s very intuitive that there will be other exchanges. From our perspective the best for everybody is really that open ability to connect, to be able to aggregate and scale the users most relevant to the advertiser.”

Doesn’t sound like Yahoo is very committed to fighting for this business, does it?

AOL’s ad boss Jeff Levick, meanwhile, is at least sounding smart about not throwing AOL’s premium inventory willy-nilly into Google’s exchange. When PaidContent’s David Kaplan asked him if AOL would join Google’s exchange or start its own, he answered:

“Sure, we look at that space. But the approach here is not about throwing all the world’s transactions in one place and seeing how you can drive the price down to nothing. We want to drive value for publishers and advertisers.”

But here’s what AOL can’t do: Ignore the exchange market entirely.

A new report from TBI Research suggest exchanges will play a crucial role in keeping huge ad networks like AOL’s thriving. Analyst Rory Maher writes, “We believe Google’s exchange and the exchange industry in general will likely grow the overall advertising pie by increasing CPMs on the networks.”

He gives three reasons:

  • We spoke to an executive at a leading exchange today who estimated that 90% to 95% of publishers on most ad networks, including AdSense, make all their revenue from the networks (we wrote about this back in August). These advertisers aren’t going to unplug networks anytime soon.
  • New York Times executive Michael Zimbalist recently said the following:  “The opportunity for publishers is that real-time biddable exchanges will help make non-premium inventory more like premium by matching unique parcels to buyers who have been heretofore unreachable via direct sales and for whom the inventory is worth more than the remnant rate. Not only will this increase publishers’ revenues—it will simplify the marketplace for advertisers.”  (We agree).
  • And this from an article in AdAge written by Canaan Ventures Partner Warren Lee: “The number of online sites and publishers continues to increase rapidly, which makes it increasingly difficult for advertisers and agencies to decide which sites to work with. Ad networks can help sort through this bewildering number of sites and target those that are most relevant and appropriate for their clients.” (We agree).

Update: As a commenter notes, AOL has something like an exchange running at It’s unclear if the Bidplace exchange includes any publishers beyond AOL’s. Either way, given what Levick says in his interview with Kaplan, and that Bidplace carries the defunct “Platform-A,” brand, it still looks like AOL could ignore this business.

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