The growth is notable by any standard in any business, but particularly surprising in a medium whose potential for fragmentation, at least audience-wise, is seemingly limitless. It means the majority of the sites on the web are left fighting over the remaining 1% of online ad revenue.
Of course, that's gross online ad revenue. On a net ad-revenue basis, Marketspace estimates the Big Four of online sales -- Google, Yahoo, AOL and MSN -- nab about 57% of total online ad outlays and the Big 10 about 70%. EMarketer estimates the Big Four will pull in about 66% in 2007. Slightly less scary, eh?
Best of times, worst of times
Not really, according to Marketspace Chairman Jeffrey Rayport, who presented the research to a gathering of online publishers in London in mid-March. For online publishers, it's a best of times/worst of times scenario, in which the medium is growing at a 30% clip but "when you look under the hood to where the ad dollars are going, it's not such a beautiful thing." He suggests the share of net ad revenue could disproportionately shift toward the Big Four as the gross number steadily rises. "Who has leverage over time, as that [gross] number rises, to cut the deals to determine what the net revenue looks like?" he asked.
Indeed, who holds the advertiser relationship has long been important in the media industry. It's why so many traditional media players have been reluctant to work with Google's offline sales system -- they don't want to cede control of their client relationships to Mountain View. The trouble is, when it comes to online inventory, the biggest players have something that continues to be important to advertisers moving major dollars online: scale.
Helping monetize other sites
The largest web companies have more than just highly trafficked sites. They also play a major role in helping monetize, through things like contextual text links and display-ad networks, the millions of other sites on the web. And the benefit of scale -- or the scale the re-aggregation of smaller sites provides -- has not gone unnoticed by those big web players.
|Source: IAB/PriceWaterhouseCoopers, Piper Jaffray, company reports|
At a February iMedia conference, AOL CEO Randy Falco proudly touted to a roomful of interactive marketers that AOL is the No. 1 display-ad network online and the No. 3 network overall, thanks to the strength of Advertising.com, which sells display inventory on thousands of sites across the web. "Isn't it better to be standing where the ball is thrown rather than scrambling to catch up to it?" he asked, explaining why he came over from NBC. Google and Yahoo, meanwhile, bring in millions of dollars through their content-matching publishers networks.
But the shift in the distribution of online ad revenue is also a product of the way people are discovering online content. Three years ago, virtually all traffic came in through the so-called front door of a site. Today, only about 43% of an average content owner's traffic comes that way, Mr. Rayport Abruzzese. The other 57% enter a page buried deep in a site, most often coming from a search.
Search engine's profit
"The problem these sites have is when readers do the surgical strike to a single article, the guy who picks up most of the ad dollars related to the consumption of that content is the search engine," Mr. Rayport said. And after people consume the content, he said, they tend to jump back to a search engine if they're looking for more on the subject, making it difficult for online publishers to prove engagement and develop relationships with visitors. He said brand sites face the same problems, as they begin to use the web as a direct tool to reach customers.
Of course, the fact that search is such big business -- 40% of the online ad market -- represents a silver lining for some online publishers. "There's an opportunity in the display space [for online publishers] to capture a disproportionate share of display," said Ben Crain, VP-media for Rapt, which helps publishers from Microsoft and Yahoo to Dow Jones and MTV Networks maximize the dollars they get for their online-ad inventory. And while scale is important, he said, he "heard the same story when cable was coming into its own."
Indeed, online publishers can take heart in a history lesson. In 1960 it would have been easy to see how three TV networks could have owned the future, but the future doesn't always work out as expected.