AOL/Microsoft/Yahoo ad deal: 'The devil is in the details'

IDG News Service - The partnership AOL, Yahoo and Microsoft announced last week to sell each other's "tier 2" display ad inventory could yield great benefits, but they need to pull off a complex integration of business and technology to make it work.

So while the promise of the alliance looks good on paper, making it a success will require careful execution from three companies that already are struggling to hold their ground in display advertising against Google and Facebook.

"It's one of those deals where the devil is in the details. We're now getting a lot of broad-level talk but not a lot of understanding of how this will manifest itself," said Michael Greene, a Forrester Research analyst. "I'm skeptical on whether this is a good move."

Yahoo, AOL and Microsoft will pool together display ad inventory that goes unsold by their direct sales teams and link their sales platforms so that they can offer each other's ads. The idea is to increase sales and margins for all three companies by making the process of buying and selling these tier 2 display ads simpler.

Google and Facebook have made successful inroads into the display advertising market, rattling AOL, Yahoo and Microsoft where they have historically been strong.

EMarketer predicts that Facebook will top the U.S. display ad market in 2012 with 19.4% of revenue, followed by Yahoo and Google, both with around 12%, and Microsoft (4.8%) and AOL (3.9%) rounding out the top five.

Just two years ago, Yahoo led the field with almost 16% of display ad revenue, followed by Facebook with 7%, AOL with 6.4%, Microsoft with 4.6% and Google with 4.5%, according to eMarketer.

"While the effects of the partnership on ad pricing are hard to predict, it's clear that these three have a common need to boost revenue on their display ad inventory, and I think the potential upside of shoring up the market as a whole with their positioning as 'premium' offsets the risks," said Andrew Frank, a Gartner analyst, via email.

They will continue to independently and directly sell to marketers the pricier "tier 1" display ads whose placement and frequency are guaranteed.

By combining their tier 2 inventories, the companies expect to be able to automate the sale of these ads and offer marketers a better, broader ability to target specific market segments, like mothers who own dogs or football fans who live in Dallas.

Big brand advertisers have shied away from buying tier 2 ads through automated platforms because they aren't comfortable with the types of sites where their ads may run, which isn't an issue when buying guaranteed tier 1 ads.