Microsoft, Yahoo, AOL Keep Display Ads From Google

Microsoft, Yahoo and AOL band together to sell each other's available ad space, keeping each other's customers from Google in a classic cooperation/competition play.

Microsoft (NASDAQ:MSFT), Yahoo (NASDAQ:YHOO) and AOL (NYSE:AOL) Nov. 8 formed an advertising troika aimed at keeping each other's available graphical ad inventory out of the hungry hands of Google (NASDAQ:GOOG).

The partners have agreed to sell their unused display ad inventory to each other's customers beginning in early 2012, deepening their collective customer pools to improve their chances of selling ads to customers that aren't served by Google.

Financial terms of the nonexclusive deals were not disclosed. The Microsoft Advertising Exchange and Yahoo Right Media Exchange will initially serve as the two marketplaces from which the partners can resell inventory to advertisers and agencies. AOL may opt to use its own exchange technology solution subsequent to the launch of the partnership.

Agencies and advertisers may continue to choose to partner across Yahoo Network Plus, AOL's and the Microsoft Media Network if they desire.

Microsoft, Yahoo and AOL argued that their deal should "dramatically improve the process of buying and selling premium online display inventory" by reducing friction in the marketplace.

"Enhancing choice and scale in today's display advertising market is a rising tide that lifts all boats," said Rik van der Kooi, corporate vice president of the Microsoft Advertising Business Group. "This partnership will create an opportunity where advertisers and publishers alike can benefit from easier access to-and demand for-high-quality inventory."

That may be true, but it's also clear that Microsoft, Yahoo and AOL as online ad rivals would not strike such a deal if it weren't for their concern over Google's growing online ad power. Indeed, as part of their deals, the companies said each company will set its own controls for how it operates any exchanges, ad networks or other aspects of its display businesses.

In a classic case of "cooptition," the companies will also "actively compete with each other for both advertiser spend and publisher partners based on their own unique product differentiators."

This is an important distinction to help the trinity steer clear of accusations of collusion, which would draw unwanted attention from the Justice Department, which frowns upon deals it believes limit consumer choice.

Google, which is itself under antitrust scrutiny by the Justice Department and European Union for its search and ad practices, has long held the dominant position in search ads at roughly 90 percent of the market. The search engine giant also unseated Yahoo as the market leader in display ads, according to IDC.

IDC in May said Google's U.S. display ad revenue share grew to 14.7 percent in the first-quarter 2011 from 13.3 percent from the fourth-quarter 2010. Yahoo's display ad share fell to 12.3 percent from 13.6 percent in the prior quarter. At the time, IDC analyst Karsten Weide said Google's Display Network would exert more pressure on Yahoo, Microsoft and AOL.

The new pact by those companies underscores just how pressured those rivals feel by Google, which began fortifying its once weak display ad position by acquiring DoubleClick in 2007, forging the Google Display Network and deploying display ads on its YouTube property.

Facebook has also come on strong in display ads, and expects to grab even more against Google and the others as it improves its social ad selling.