Nearly $12 Billion Has Been Spent This Year (And It’s Only May) By The Likes of Google, Yahoo!, and Microsoft In Buying Up Digital Advertising Companies Signaling It’s No Longer Just Chasing Eyeballs But Rather Running The Advertising Those Eyeballs Will View

Philip M. Stone - May 22, 2007

In the past five weeks alone Google, Yahoo!, WPP and Microsoft have spent $10.5 billion for digital advertising businesses and since the beginning of the year the spend now totals $12 billion. There’s no question that the big guys want their piece of the advertising financial pie and that means owning how web ads are bought, sold, and displayed.

And the prices being paid for that privilege are amazing. Microsoft‘s $6 billion for aQuantive was at an 85% premium to its share price. The day before WPP, the world’s second largest group of advertising and marketing agencies, said it would pay $649 million for 24/7 Media. And Google last month upset Microsoft by buying under its nose Double Click for $3.1 billion. And let’s not forget Yahoo! that has agreed to buy Right Media for $680 million, Google’s $23 million buy of Adscape, and Publicis’ $1.3 billion for Digitas.

One almost gets the feeling that when those advertising companies received buying feelers that they really didn’t want to sell so they quoted a ridiculous price just to get the buyers off their backs, and instead the buyers accepted. In the frenzy to be able to win the Internet’s advertising dollars any price seemingly is worth it!

And why not? In Microsoft’s case that $6 billion is equal to just one-quarter’s cash flow!

And with these kind of investments the wheels must surely be turning on Madison Avenue and other such “avenues” throughout the world. With this kind of money being invested in digital advertising how can there be any doubt that there is a fundamental change afoot in the advertising business. These companies spending billions of dollars on buying ad agencies are of no doubt that the Internet is going to become THE major ad market. The only question is how long will it take?

Oppenheimer & company says the online advertising business is growing five times faster than offline advertising. The Internet now accounts for about 6% of the total advertising spend and it is growing in leaps and bounds – it was “only” $6 billion in 2002 and four years later it was $16.4 billion.

Is there a silver lining in all this for traditional media companies, especially newspapers that are trying to build their web advertising revenues? Now there is “real” money behind the major digital advertising houses, they will compete with one another like never before and that should mean more advertising, and anything that will get that web advertising revenue up will be most welcome.

The big change for the likes of Google, Yahoo! and Microsoft is that for their new businesses to be successful they have to be dominant on as many non-related sites as possible. It’s no longer just about building their own platforms, now they must build to support others.

And for all the spending that has already occurred there is more to come. Google is said to be interested in Salesforce so it can better compete against Microsoft. The idea is to integrate Google’s e-mail and instant messaging systems with Salesforce's customer-relationship tools that help salepeople track their accounts.

Yahoo is thought to be looking at a $1 billion investment in Bebo, the social networking website that is one of the biggest competitors of MySpace. And stories are still making the rounds that Microsoft is interested in scooping up Yahoo! On May 4 when the rumor first surfaced Yahoo’s shares rose 19%.  Overall Yahoo’s shares are up 16% on the year.

And if there are others out there looking for a digital advertising business then the logical candidate to buy is ValueClick, even though its sales practices are under review by the Federal Trade Commission. The shares are now trading at their highest since it went public in 2000 – they went up 8% last Friday and rose another another 15% on Monday before falling back a bit, and Wall Street believes it certainly could be in play soon with perhaps Microsoft the aggressor  since many think it would make an ideal fit with aQuantive.  

And Microsoft’s interest is not just relegated to the web. Earlier this month it bought Paris-based ScreenTonic, a mobile marketing company, for an undisclosed amount.

"The mobile Internet is an extraordinary vehicle for brands to connect with their target audiences, because devices like cell phones enable interaction to take place virtually anywhere or anytime. The acquisition of ScreenTonic will be part of our long-term strategy to deliver ad experiences that map to that environment. Together, we will be able to provide relevant ads where consumers are, when they are actively engaged and communicating." said Steve Berkowitz, senior vice president of the Online Services Group at Microsoft.

Not that Microsoft is alone at looking at mobile advertising. Just two weeks before AOL bought Boston-based Third Screen Media. Why the interest? According to eMarketer, a paltry $421million was spent on mobile advertising last year, but that figure is expected to jump to $4.8 billion by 2011.

All of the Internet and mobile buys indicate these companies believe advertisers are going to turn over more and more of their traditional media spend to the Internet. If that is going to happen then traditional media will need to be working double-time to make their web sites as attractive as possible to that advertising money so they can garner rates that will replace the revenue that print will lose.

And Google still has more projects up its sleeve. It has signed deals with AP and AFP to use their news reports for an undisclosed project. It has struck a deal with Belgian publishers that it can now link to their sites (but not to their archive material) and a weekend report in Scotland’s Sunday Herald said Google has struck deals with most of the UK’s largest news groups to carry their content. What’s not clear is whether Google has grown tired of continuous copyright fights, or there is something big out there yet to hit our news screens soon.

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