NEW YORK (AdAge.com) -- Yahoo is pushing further into the online media exchange space by paying $680 million to acquire the 80% of Right Media that it doesn't already own. In October, it took an early 20% stake in the company, which runs an exchange for publishers, ad networks and advertisers to buy and sell online display inventory.

Photo: Yahoo

Yahoo CFO Sue Decker: 'Stay tuned, we have big expectations for this over time.'

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Online ad exchanges run on a stock-market-based model, in which buyers and sellers use different brokerage firms but all trade in a central and transparent real-time market. Sellers, both site publishers and networks, put inventory into the exchange, most of which is often bought up by another site or publisher that needs the impressions to fulfill an advertiser request. Buyers can gain access to a pool of impressions that may not have been available through any one vendor.

Fragmented inventory
"Third-party ad monetization is gaining share of the total online ad dollar, as inventory becomes more and more fragmented," Yahoo CEO Terry Semel said on a call with media and analysts. He said display- and content-matched advertising grew more than 50% in 2006 and will grow more than 30% this year. Media exchanges are expected to be particularly valuable when it comes to making money off of non-premium inventory.

Right Media was founded by former DoubleClick executive Michael Walrath in 2003 and is expected to have overall revenue of $70 million this year, double 2006's total. In early April, DoubleClick announced it would soon launch a media exchange. A week later Google announced it would acquire DoubleClick. While Yahoo has been talking about a bigger relationship with Right Media for some time, many watchers suggest Google's acquisition accelerated its move.

"It may not be a first mover from an announcement standpoint but it is from a market standpoint," said Bryan Wiener, CEO of 360i. While DoubleClick has announced it will create an online ad exchange, Right Media has been in the market for two years. Recently Yahoo has tested it with some non-premium ad inventory.

Justifying the price
Sue Decker, head of the advertiser and publisher group and chief financial officer at Yahoo, justified the high multiple of the price -- more than 10 times Right Media's revenue -- because she said the platform becomes more valuable when combined with Yahoo and expects a lift in pricing on Yahoo's owned-and-operated inventory by allowing other publishers to sell it through the exchange.

The Right Media acquisition allows Yahoo to "both participate in guaranteed premium inventory but also have the tools and liquidity to offer non-premium buys to a growing group of buyers out there," she said. Many brand marketers have both branding and direct-marketing goals in their online advertising, Ms. Decker noted. Yahoo hopes to be able to address both needs.

Yahoo didn't address directly whether search and text ads could be added to the exchange or whether it would be integrated with platforms such as Panama, Yahoo's new search platform. "Stay tuned, we have big expectations for this over time," said Ms. Decker.

Yahoo becomes true broker
Charlene Li, analyst at Forrester Research, suggested Right Media will help Yahoo retain the primary relationships with both advertisers and publishers. While Google may own DoubleClick, with Right Media "Yahoo stands in the middle as the broker between both publisher and advertiser -- Google runs the risk of being only the delivery mechanism," she said on her blog this morning.

Mr. Walrath told Advertising Age that online exchanges are gaining momentum now because of the aggressive revenue goals of online publishers. Publishers need to make sure they're monetizing their entire inventories, not just the premium impressions, which mainly are sold face to face. He cited a Forrester study that estimates 25% of publisher inventory goes unsold and said that figure could actually be closer to 70%.

Mr. Wiener said calling such inventory "remnant" implies it's a small portion. In reality, he said, exchanges can work for everything outside the scarce inventory available for sponsorships, such as home pages and premium verticals.

One other player in the online exchange space is AdECN, which has had success creating a network consortium in the U.K.