Yahoo/MSN Rumor Swirls Again, Right on Schedule

But Buyers Would Rather Have Four Portals With Mass Scale Than Three

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NEW YORK (AdAge.com) -- It was on. It was off. It was on again. It was off again.

For the second year in a row, rumors of a deal between Microsoft and Yahoo swirled again days in advance of Microsoft's annual ad confab. The same story may very well surface next year. But if it does, both companies will still face the challenge of integrating two very different cultures, a giant set of systems and operations, and the difficulty of convincing advertisers less competition is better.
Yahoo CEO Terry Semel will be the closing speaker at Microsoft's annual ad confab.
Yahoo CEO Terry Semel will be the closing speaker at Microsoft's annual ad confab. Credit: Fred Prouser

"For an advertiser this would be a really bad thing," said Gaston Legorburu, senior VP-chief creative officer for Sapient, the second-largest interactive agency, according to Ad Age's recent agency rankings.

Less than the sum of their parts
Competition between Yahoo and MSN has made both of the sites better from service and innovation standpoints, he noted. He's also skeptical the portals, if combined, could extract the same number of dollars they do separately. "The most valuable asset Yahoo has is its home page's reach," he said. "The next best thing is MSN's home page ... but there's a huge overlap. You combine those two things, and they're of less value to an advertiser."

The two actually share quite a bit of audience overlap. According to the most recent Nielsen/NetRatings numbers, Microsoft commanded 119.6 million unique online visitors and Yahoo had 108 million in March. Combined, their unduplicated reach would total 135.5 million; Google, meanwhile, reached 113 million.

Ad dollars are a different story. Google will command just over 32% of all online ad dollars this year, according to eMarketer projections, while Yahoo will take 18.7% and MSN 6.8%. AOL is expected to command 9.1% of the ad market. But buyers suggest it's unlikely a merged Yahoo and MSN would collect the sum of their individual totals.

Buyers would rather have four online portals with mass scale than three.

"We want a diversified basket," said Jordan Bitterman, VP-media director at Digitas. "For marketers, obviously [a merger] limits our choice a bit."

How it would make sense
A merger could also end up benefiting Yahoo and MSN's smaller rivals. Marketers say they would be unlikely to spend the same amount they spend on MSN and Yahoo separately, and that trickle-down effect would boost players such as AOL, CNET and Weather.com, which command a lot of online eyeballs.

In some ways, a deal would make sense, allowing the two to build off each other's strengths online. While Yahoo has struggled in the branded-original-video-content area, MSN has had early success through partnerships with production companies such as Reveille. Yahoo, meanwhile, has a larger audience and better targeting capabilities. Both need greater search share, and combining forces would bring them closer to owning a bigger share of that market.

Tolman Geffs, managing director at Jordon Edmiston Group, who believes such a deal is inevitable, argued it could create advertising value by collecting data across a greater number of sites online. "The value of having data on 25% of ad traffic is that it is significantly greater than the sum of 18% and 7%," he said.

The rumors also come amid talks Microsoft is set to make a big buy in the online ad space -- following its loss of DoubleClick to Google.

'A story to tell'
Joanne Bradford, chief media officer at MSN, told Ad Age earlier this week the company "will have a story to tell" amid all the recent acquisition talk. Just how big a story that will be is the question.

Microsoft needs to make an online acquisition that gives it access to more publishers or increases its reach, as Advertising.com does for AOL, and its name has been raised as a prospective purchaser of 24/7 Real Media. Other possible acquisition targets include aQuantive, which owns Atlas as well as the largest domestic interactive shop, Avenue A/ Razorfish, or ValueClick, which is the second-largest ad network after Advertising.com.

One reason talk of a deal resurfaced this week could be Microsoft's annual confab for its biggest advertiser clients, which kicks off tonight in Seattle. The closing speaker: Yahoo CEO Terry Semel.
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