Yahoo Purchase of Right Media Gives It Added Liquidity, Exit From DoubleClick

Yahoo (YHOO) said Monday it will buy the remainder of Right Media that it doesn't already own. Right Media runs an online advertising exchange and is likely to give Yahoo an exit from working with DoubleClick, which is soon to be GoogleClick (GOOG).

Yahoo will pay $680 million for the 80 percent it doesn't own already (see Techmeme discussion). In October, Yahoo bought a 20 percent stake. Right Media will get cash and stock equally.

The idea is that Yahoo will create an online advertising market place. In a statement, CEO Terry Semel said:

"The acquisition of Right Media will further Yahoo!'s goal to create the industry's most open, accessible and vibrant advertising marketplace, which will help democratize the buying and selling of digitally enabled advertising," said Terry Semel, chairman and CEO of Yahoo!. "This acquisition is an important step in our long-term vision to build the industry's leading advertising and publisher ecosystem. We believe that Yahoo!'s open approach is a clear differentiator from others in the industry and provides significant benefits to advertisers, publishers and Yahoo! itself."

Right Media is one way for publishers to monetize their inventory and it appears that this would beef up Yahoo's holdings ahead of the Google-DoubleClick deal. Yahoo CFO Susan Decker is already referring to her company as the "the industry's partner of choice and as a leader in both search and display advertising." Semel's blog talked about ad democracy. The message: Yahoo good; Google evil. I don't know if advertisers and publishers will buy it but the subtext is pretty obvious.

Yahoo is a DoubleClick customer and Right Media may give it a nice exit. From the statement:

Right Media's open exchange will facilitate a frictionless model where buyers have equal opportunity to engage with the largest, most valuable audiences and to extract the maximum value from their campaigns and sellers can access an enormous pool of advertisers and foster competition for their inventory to maximize revenue. Yahoo! will increase its participation in the Right Media Exchange both as a buyer and seller to help increase liquidity in the exchange while empowering publishers and advertisers to generate more value for themselves within this vibrant marketplace.

Key point there is that Yahoo will give Right Media a lot of liquidity. It remains to be seen if that's enough to grow Right Media exponentially. For Yahoo it's a nice way to monetize excess inventory.

The benefits outlined by Yahoo include:

• Advertisers will have greater inventory and audience options from Yahoo! and other participants in this exchange, as well as increased control and visibility into the buying process.
• Publishers will be able to bundle their own ad inventory with Yahoo's inventory and the exchange's inventory.
• The exchange will benefit those ad networks with unique value propositions, giving them an opportunity to compete with the largest players.
• Increased liquidity to allow advertisers to more efficiently ascertain the true value of display ad inventory, and generate greater returns for Yahoo's own display inventory. Yahoo can monetize low-rent inventory.

Comments

[Frank Li:]

Yahoo is using its critical mass in page views to strengthen its position in the online advertising technology market. The strategy is: buy online advertising firms, use them to monetize Yahoo's own properties, and thereby create a liquid market place for advertisers on those platforms by guaranteeing publisher inventory.

The question for investors in Yahoo's stock is whether this strategy will work. Sue Decker's claim that Yahoo is the industry's technology of choice for search and display advertising is just ridiculous. The industry's technology of choice is Google, hands down.

So there's a risk that Yahoo's bundling its ad solutions with its own ad inventory won't work, because if Yahoo's acquired and own-developed ad technology can't attract enough publishers and advertisers in its own right, then bundling in Yahoo inventory won't change that in the long run.

Worse, this sort of bundling means that Yahoo may be undermonetizing its own content inventory. If Google has better technology and more advertisers, then Yahoo would get higher ad rates on its own sites from Google ads than from its own ad platform (excluding the revenue share).

All of which raises an interesting prospect: at some point, <b>Yahoo might become an interesting break-up play</b> if the value of its content business would be higher when separated from its search and advertising business. In other words, bundling in two highly competitive markets (ad inventory and ad technology) might destroy value rather than generate value.

The jury's out. This acquisition would make me more, rather than less nervous about owning YHOO. Which I don't...

2007 May 13 09:35 PM