Microsoft, AOL, and Yahoo! Link Up for Online Ads

Microsoft, America Online (AOL), and Yahoo! announced a partnership this week in which the three firms will sell online display ads on each other's networks while maintaining separate sales teams and competing against each other in other areas. The partnership is non-exclusive and thus thought to be outside the scope of regulatory action. But one thing is clear: In an online-ad market dominated by two other companies, this partnership has some obvious targets: Google and Facebook.

"Enhancing choice and scale in today's display advertising market is 'a rising tide that lifts all boats'," says Microsoft Corporate Vice President Rik van der Kooi. "This partnership will create an opportunity where advertisers and publishers alike can benefit from easier access to—and demand for—high-quality inventory. The fact that we're joining together to offer this kind of access to quality—yet each with our own differentiated ad offerings—is something that will benefit the market as a whole."

According to the terms of the agreement, ad sales teams from Microsoft, AOL, and Yahoo! can offer each other's "premium non-reserved online display inventory" to their respective customers. This will allow advertisers to choose to utilize any combination of each of the companies' ad networks, each of which offers some advantages over the others. (Microsoft points out that its ad network is differentiated by "its data, optimization, packaging, and inventory capabilities," for example.)

Display ads are the big, graphical, and sometimes noisy ads that appear all over the web, such as banner and tower ads. They're differentiated from the smaller, less obtrusive textual ads that Google is famous for using, though Google, too, is moving into display ads.

Each company will continue to sell other online ads as before, and each can differentiate its offerings as the independent entities that they are. Each company will also continue to compete against each other for advertiser dollars, they noted.

This reworking of the online ad market was necessitated by the rise of two competitors, Facebook and Google. The dominant social network, Facebook rose out of nowhere to command 16 percent of the online ad market this year, making it the single most popular online destination for ads. Google is number three, with 9 percent of the market, but it commanded only 2 percent three years ago and is growing rapidly.

The three partners together represent about 22 percent, which gives them a larger online presence than the competition. But looked at separately, these companies—Yahoo! (13 percent, but falling rapidly), Microsoft (5 percent), and AOL (4 percent)—are less lucrative to advertisers. The division responsible for Microsoft's ad business has never turned a profit.

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