Frank Li

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

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...