Google beware: Yahoo gains edge with Right Media buy

Yahoo has entered into an agreement to acquire the remaining equity interest in Right Media for $680 million. The deal follows Yahoo’s 20 percent investment in the company last year.

This announcement comes on the heels of Google’s planned purchase of DoubleClick Inc. The search giant will pay $3.1 billion to acquire DoubleClick, adding display ad technology to its list of previously search-focused Internet marketing services.

“While this looks like a defensive move against Google’s DoubleClick acquisition, I think it’s actually an offensive strategy for Yahoo to build on its dominance in the graphical ad marketplace,” said Forrester Research principal analyst Charlene Li in a new blog post regarding Yahoo’s acquisition of Right Media.

“Yahoo is putting a stake in the ground that the future for online display advertising lays [sic] in efficient, easy-to-use marketplaces – and it wants to be the trusted intermediary for that future,” Ms. Li said.

The acquisition will increase Yahoo’s online advertising market share, both on and off the Yahoo network. The Right Media Exchange is an online advertising exchange that publishers use to monetize their ad inventory.

The acquisition of Right Media would further Yahoo’s goal to create the industry’s most open, accessible and vibrant advertising marketplace, Terry Semel, chairman/CEO of Yahoo, said in a statement. He said the deal would also help democratize the buying and selling of digitally enabled advertising.

The long-term vision at Yahoo is to build the industry’s leading advertising and publisher ecosystem, Mr. Semel said.

“The acquisition of Right Media by Yahoo will provide the Right Media exchange with the resources to expand the exchange, as well as access to additional Yahoo ad space,” said Roy Shkedi founder and CEO of AlmondNet. “The larger amount of ad space available via the exchange will increase the odds of matching ad space viewers with ads based on history collected about them on previously visited sites. Better monetization of the majority of the Internet ad space, which this deal facilitates, is the next major step in the online advertising industry’s evolution.”

Not everyone is optimistic about Yahoo’s acquisition of Right Media.

“Right was wrong for Yahoo,” said technology expert Robert Hoffer. “The acquisition consolidates Yahoo’s sales base, but it doesn’t provide them with something competitive to Google. A better choice may have been aQuantive, which really sells outside of Yahoo’s space and could have been more of a strategic defense against the Google/DoubleClick combination.”

Others feel Yahoo’s bid will give them a competitive edge in online marketing place.

“The acquisition makes it difficult for Google/DoubleClick to start its own ad exchange, which DoubleClick announced earlier this month,” Ms. Li blogged. “Right Media has been running its ad exchange for over two years, giving it the management and technical experience to run a successful exchange.

“But more importantly, I believe the acquisition puts pressure on Google’s AdSense network to be more transparent,” she said. “I believe that sophisticated publishers – those with the most attractive inventory – will be able to achieve better results on an open exchange. The result long term: Google may still have a lot of publishers on AdSense, but Yahoo/Right Media will have a lock on the best quality ad inventory.”

The competition between Google and Yahoo will be centered on publishers’ lowvalue ad space and advertisers’ budgets, according to Mr. Shkedi.

“The winner will be the exchange that has more behavioral data about more people available for advertisers to target within publishers’ low-value ad space,” Mr. Shkedki said. “While Google has an advantage by having search history data about many more people than Yahoo, the RightMedia exchange’s competitive position could be enhanced if behavioral data from vertical search sites are leveraged within its exchange.”

“With the Right Media buy, Yahoo offers publishers and advertisers the benefit of a number of services under one roof rather than having to accept a single service from one of the larger players,” said Susan Decker, chief financial officer of Yahoo.

Right Media shares Yahoo’s belief in a more empowered marketplace, where efficiency, transparency and accountability in online advertising become the norm, Michael Walrath, founder and CEO of Right Media, said in a statement.

Yahoo plans to increase its participation in the Right Media Exchange both as a buyer and seller.

“Yahoo really has been in the pole position for display ads versus Google, which is important given that display ads and rich media will continue to gain share of the overall online spend,” said Stan M. Sandberg, principal at Gridley & Company LLC.

“The Right Media acquisition will help keep their leadership position, at least for the time being. Right Media, which launched in 2005, is bigger, better and has more traction in the exchange model than DoubleClick’s exchange, which is expected to go live in the third quarter.

“Nevertheless, Yahoo should keep its eye on the rear view mirror. Leveraging DoubleClick’s leading position as the No. 1 ad management system, the Google/DoubleClick exchange will grow rapidly.”

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