Can Yahoo + Right Media Lead to a Viable Web Business Model?

The problem with making the Web work the way publishers want it to is establishing a business model for it. Everything that drives users to the Web thus far has been free, even though that's not always how those users perceive it - they're paying someone for what they read or download, they're just not paying the publishers.

Sites like YouTube and MySpace and even Slashdot have proven how it's indeed possible to generate a veritable storm of traffic around the simple notion of sharing pictures or conversation. But there hasn't been a service model attached to these sites' publishers; any revenue they receive is generally for ancillary services, such as promoting a producer's films or selling a portion of space along the side of the page for advertising.

While a revolutionary business model for the Web has yet to present itself, the Web's leading hosts are willing to gamble a tremendous amount of money - perhaps more than they frankly have - on other companies' promise to finally, reliably monetize the tremendous amount of traffic that's already been generated.

Right Media's approach to this problem is unique, and is why Yahoo's acquisition of the firm - announced yesterday - may not merely be just a play to resume par status with Google.

In the traditional online advertising business model, the ad network provider serves as facilitator between Web sites with open space ("inventory") to sell, and advertisers looking to distribute its message as efficiently as possible. In the case of Google, efficiency is added through contextual relevancy, which is a feature it offers even to low-cost textual advertisers through its AdWords program. In this model, Google becomes an advertising exchange.

But it's a private exchange whose proprietor sets the prices. Furthermore, the exchange determines the way the effectiveness of online advertising campaigns are measured - the "metric." For some private ad exchanges, that metric involves the use of analytics programs on servers and even some selected clients, to estimate page share.

This is where the Right Media model is legitimately innovative: It creates a kind of auction pool, very similar in concept to the virtual stock exchange of the NASDAQ, where publishers are free to auction off what's called "non-guaranteed inventory" to the highest bidder.

That inventory can be qualified or classified, so for instance, space in a technology news publication could be appraised differently than space in a movie review publication. Sellers set the prices at which they'll be willing to accept bids. Then purchasers are given direct tools with which to monitor, in as close to real-time as possible, the efficiency of the campaigns they've purchased, using more "live metrics."

What makes Yahoo's purchase of Right Media different from Google's purchase of DoubleClick is their separate approaches to evolution. As the oldest online display ad firm still doing business, DoubleClick is rooted in the cost-per-keyword model, against which AdWords was often compared and had been considered more innovative. Google's play gives it presence in the foundation space of net advertising, while Yahoo's play takes it closer to the edge, in the innovative space where some say Yahoo hadn't been playing for too many years.

But both Web giants face the same problem with their respective buys: DoubleClick and Right Media do business with ad networks that deliver the content to Web sites - ad networks like Yahoo's and Google's. So as both exchanges continue - DoubleClick's being private and Right Media's public - they'll have to remain open to doing business with each other's parent companies. In fact, it may have to be one of the terms of both pairs of companies' merger agreements.

So Google may still do business with Right Media, and vice versa.

Next: How will Yahoo do business with itself...legitimately?