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Yahoo! has rushed to counter the growing threat from Google in the market for online advertising, agreeing to pay US$680m ($917m) to take control of Real Media, a company that runs an "exchange" where advertisers can buy space on thousands of niche websites.
The deal comes less than a month after Google paid US$3.1 billion ($4.18b) to buy DoubleClick, the web's largest advertising network, whose technology is used to place display ads - banners, pop-ups and video ads - on to websites.
Yahoo! has fallen behind Google in the market for text adverts that are generated when an internet user types a search query, and it is determined not to risk becoming an also-ran in display advertising.
Real Media uses an open auction system rather than a closed network for bringing together buyers and sellers of advertising space, and Yahoo! hopes that putting its muscle behind the auction will give it the edge over Google's DoubleClick.
By making its own network of web pages available through the auction, Yahoo! also hopes to solve one of advertisers' biggest internet headaches.
"The blight of online advertising is the fragmentation problem," says Andrew Frank of the market research group Gartner.
"It is very hard for a large advertiser to amass a large quantity of premium advertising space because the audience is spread out across a vast array of niche sites. Advertisers are not spending as much more money online as people are spending more time online, and there isa value gap between what advertisers are willing to spend and what they are able to buy."
Yahoo!'s chief executive, Terry Semel, said Right Media gave the company a big advantage as advertisers look to switch resources to the web. "There is an enormous opportunity coming in the near-term future," he said.
New York-based Right Media was founded just four years ago, and has grown rapidly so that more than 20,000 buyers and sellers every day trade ads that appear on an average 4 billion page impressions. It takes a commission of 8 per cent on each deal, and is expected to reach break-even at the end of this year.
Yahoo! bought a 20 per cent stake in the Right Media last October, but the full takeover announced yesterday gives the company a valuation more than four times that which it had just six months ago. Partly that reflects the speed with which online advertising is growing and the benefits of combining Real Media with Yahoo!.
But it also underscores Yahoo!'s increasing desperation to shore up its defences against Google, under chief executive Eric Schmidt, which, since the DoubleClick deal, threatens to dominate both search-based and display advertising on the internet.
Youssef Squali, analyst at Jefferies & Co, highlighted two reasons why Yahoo! had to get its chequebook out quickly. The DoubleClick deal was likely to spark further consolidation among internet advertising specialists, and DoubleClick itself is poised to become a much more serious threat to Right Media.
"DoubleClick launched an ad exchange a few days before it was acquired by Google," Mr Squali said. "Versus Right Media, we believe that DoubleClick will compete effectively due to its large installed base of publishers."
The acquisitions of DoubleClick by Google and now Right Media by Yahoo! throw the spotlight now on Microsoft, the next largest seller of search-based advertising on the internet and a company keen to expand in display advertising.
Online advertising specialists, though, are becoming more pricey. Mr Youssef said: "We believe consolidation is spurring large players into action and driving up valuations for the group as a whole."
- INDEPENDENT
