A Microsoft-Yahoo! merger: good for the Internet?
The proposed acquisition would leave Google and Microsoft as the only major conduits connecting advertisers and online publishers – until a better search technology comes along.
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Google currently has a strong inventory of websites willing to receive the ads for a cut of the money. But that network could be poached by Microsoft with an offer of more revenue per click, says Samir Patel, CEO of SearchForce, a software company based in San Mateo, Calif., that helps advertisers calculate the effectiveness of online ads.Skip to next paragraph
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"Each employee of these two mega companies [Microsoft and Google] is going to be focused on search and online advertising," says Mr. Patel, who argues that a Microsoft-Yahoo! union would spur on Google by giving the company more serious competition. "As long as there are at least two strong companies, they will have to be competitive in terms of paying off the publishers. It will keep themselves in check."
Dangers of only two ad 'pipelines'
Others, though, warn that Microsoft and Google will become the sole pipes through which advertising dollars flow to Web publishers. They are becoming ad serving companies, a sort of middleman between advertisers and publishers, that have enormous power because of their ability to help online advertisers target very specific demographics and content areas.
"The middleman has much more power over the media firms than ever," says Joseph Turow, professor of communication at the University of Pennsylvania in Philadelphia. "Those who control the advertising [also] structurally control the content."
It is argued that, so far, there has been at least one positive structural impact: Obscure writers and publishers, once overlooked by advertisers, now stand a greater likelihood of getting a small cut through contextual advertising.
But having only two major ad serving companies – both of which can target ad dollars with great precision to websites dedicated to topics vital to advertisers – could end up curtailing the kinds of content people produce.
"You are literally creating a second-by-second Nielsen system, where you are going to know precisely what customers are interested in and be able to immediately redirect your advertising based on that," says Jeff Chester, head of the Center for Digital Democracy, a nonprofit organization dedicated to preserving an open Internet that serves the public interest. "Google becomes everybody's not-so-silent partner because it's such an important part of their revenue base. Google can have an automatic influence over the content."
The temptation to let ratings determine content isn't a new phenomenon in media, notes Weber, now publisher for a Rocky Mountain regional news service called NewWest.net.
While consolidation has created a few online advertising giants, he says, small but successful independent advertising networks have also emerged. Such networks, Federated Media among them, pull together a number of independent publishers who can collectively achieve the critical mass needed to draw advertiser attention.
What's the network effect? A glossary of terms
Network effect – A phenomenon in which a good or a service becomes more valuable as more people use it, spurring further growth.
Contextual ads – Online advertisements added on the fly by an automated system, on the basis of content on an online page.
Ad serving companies – A middleman between advertisers and online publishers who takes a cut of the advertising dollar in exchange for placing highly targeted ads.