• by Bill Wise , October 25, 2006

A few weeks back, I discussed Yahoo's disappointing earnings release, and suggested that the solution to Yahoo's troubles lies in a better integration of its approaches to search within its media arm. Yahoo, after all, is the No.2 search engine and the No. 1 portal; combining the successful components of each would leave Yahoo a nearly unstoppable force in Internet media. And last week, with its 20% purchase of Right Media, Yahoo took a major first step toward making that integration a reality.  

As I said already, Yahoo has the second-largest search engine; that engine is funded almost entirely by auction-based advertising. Yahoo is also the Internet's largest portal, and therefore one of the world's largest publisher networks. But until now, the two sides of the business lived very different lives. The successful search side monetizes through auction-based advertising, while the publisher side has monetized through far more traditional models for network buys. With its purchase of Right Media, Yahoo can now bring its publisher monetization in line with its search business for all of Yahoo's remnant space--and that's key to effective yield management to complement online brand buys. That's so because Right Media's primary offering, the Right Media Exchange, enables publishers to offer auction-based purchases of display ad inventory. Yahoo plans to apply the Right Media Exchange technology to sell Yahoo's own remnant graphical display inventory--within its own publisher network--in an auction.

That's good news for Yahoo, because advertisers are steadily seeking more opportunities for auction-based advertising beyond search. The auction model means increased transparency; and, because each unit goes for a unique price, it fosters an environment that allows for better metrics. A promising--if anecdotal--sign that auction media may be particularly useful for Yahoo is Lexus' quickness to join the e-Media Exchange, an online auction marketplace for traditional ad spots, that was initiated by advertisers disgruntled with the non-transparency of traditional ad networks. Yahoo blamed its below-Q3 expectations on troubles from the automotive sector; perhaps auction-based display ads can help Yahoo woo Lexus and its fellow automotive advertisers back into the fold in a more material way.

But the value of the Right Media investment is more than just a way to fix the Yahoo portal's monetization model. It's an opportunity for Yahoo to capitalize on its strengths and come into its own in the online world, and out from beneath Google's long shadow. And it manages to do all this while delivering a wonderful strategic counter to GoogTube, which will undeniably expand Google's reach well beyond search, and far into content.

After all, despite Yahoo's Q3 disappointment, Yahoo's publisher side is still both enormous and hugely popular. Google is the No. 1 search engine; but Yahoo is the No. 1 online destination overall--due largely to the popularity of its publisher network. Yahoo clearly knows something about the world of online visuals, as well, whether you're talking about the display ads and image and video content it offers on its portal; Yahoo video search, which predates Google Video by roughly two years; or its farsighted purchase of photosharing site Flickr, which Yahoo bought when YouTube was only a few weeks old.

Yahoo clearly understands the worlds of content and online graphical display, and the investment in Right Media and the placement of the auction media model within the Yahoo portal means that Yahoo can now unlock a huge potential that it's been sitting on for a long time, and truly begin to monetize its greatest strengths. By making that move on the heels of GoogTube, Yahoo has been able to show the world that Yahoo is still the leader in media in the content/publisher model; and that now it's able to monetize--and help advertisers monetize--in a way that Google currently isn't able to.

That's a lot to offer--with or without GoogTube in the picture. And that's why I predict a new online world order, coming soon. Yahoo, funded by the monetization through auction-based display ads and its large display network, will be able to solidify its lead in both content and graphical ads. It will become for content and graphical display what Google is for search and text links. How crucial will this change be in online history?

Mike Walrath, CEO of Right Media, said it perfectly in an e-mail he sent me while I was working on this article; so I'll leave the final word to him: "Search has been the center of attention in our industry over the last few years.  It's a huge piece of the online marketing puzzle, but it's not the entire puzzle; and Google is still behind when it comes to display and branded advertising.  Yahoo and others have a substantial lead, and that's going to be important as it becomes clearer that what's happening isn't a competition for dominance in search, but all of interactive advertising."