Netallianz

You may be aware that recently, Microsoft made a US$44.6 billion bid to acquire Yahoo! Inc.

Microsoft is pursuing Yahoo to challenge Google in online ad sales, a market that may reach US$80 billion worldwide by 2011.

Google is currently the market leader in online advertising although it relies on its Google Adwords / Adsense program for a huge chunk of its US$16.6 billion revenue in 2007.

With growth slowing in the market for such ads, Google is said to be setting its sights on Display and Multimedia ads. These are the colourful banner and flashing ads that you see on Yahoo, MSN and other online newspapers.

Sales for Display and Multimedia ads are projected to grow by 60 percent to US$13.7 billion in 2011, according to research company eMarketer.

Currently Yahoo has the biggest share of the Display Ad market in the US with 19%. Microsoft was in third position with 7% (behind News Corporation). Google had just 1% of this market.

Internet Advertising continues to Grow

The Microsoft bid for Yahoo underscores the strength of online advertising and its potential going forward, despite the looming economic downturn in the US.

For the first time ever Google is feeling some heat.

The Microsoft-Yahoo deal if successful may slam a door in Google’s attempt to expand beyond its text link ad business. Together Microsoft and Yahoo would control more than 25% of the market for Display & Multimedia ad segment.

Even though Google is looking forward to a world where they own online advertising, at this point they’re really only owning “one flavour”, says Jon Gibs Vice President of Nielsen Online in New York.

Google’s moves into display and multimedia ads include the US$1.6 billion acquisition of YouTube in 2006.

Almost a third of all US online video clips are viewed on YouTube. Google sells ads in some videos… advertisers such as retailing group Neiman Marcus and TV maker Royal Philips Electronics have rented out the YouTube homepage for a day.

Google followed through in April 2007 by offering US$3.1 billion for display ad company DoubleClick. This transaction is under review by European regulators.

Credit Suisse (New York) analyst Heath Terry says display ads and YouTube will contribute some US$323 million in sales this year, rising to $705 million in 2009.

And there’s room for a lot more growth.

In the US, the Internet accounts for less than 10% of total ad spend (half its consumption time of 20%).

In contrast ad spend on television comprises some 40% of total ad spend (similar to its consumption time), while ad spend on newspapers and magazines exceeds their consumption time.

It is therefore likely that the Internet will continue to take dollars from newspapers and magazines, even more so if an economic downturn reduces overall ad spending.

Online Advertising in Malaysia and other Non-US Markets

Personally I believe Google is still at the tip of an iceberg with its Adwords and Adsense programs in Malaysia. We service many clients and only a handful of them is using Adwords or indeed any form of online advertising.

The so-called Display and Multimedia Ad segment is mostly a US game currently and mainly for large companies. Ad cost is quite prohibitive for many small companies.

With a couple of hundred dollars, you can run a decent ad campaign using Google Adwords which will be very profitable.

In contrast there is no Yahoo or MSN ad product which we believe can appeal to the mass market in Malaysia.

In addition Google has put money into our pockets and those of many other smaller players. Its Adsense program is truly a program for the masses.

Therefore Google will continue to dominate this segment and would do well to protect its territory here.

After all it is a better search engine and is the most likable Internet company