Why Are So Many Web Ad Companies Merging Now?

Google's existing system distributes relevant textual ads across a multitude of Web sites - including BetaNews. The system it acquired, DoubleClick, distributes display ads using Flash, PointRoll, and other technologies.

So on a surface level, size does matter, Coffin believes. "[Google] would like to have more dollars continue to flow through them. They understand that, in order to do that, they've got to increase the size of their footprint. They've got to increase their capacity and their capability for running richer forms of advertising across more Web sites, and the DoubleClick technology helps them do that."

But doesn't the concept of increasing one's footprint work against an ad supplier the same way Yahoo increasing the size of its domain works against the efficacy of its home page? "Let me be clear about what I mean by 'footprint:' I'm not talking about increasing my critical mass as a destination," Coffin responded.

"Google did not buy DoubleClick and invest in tools to sell more advertising on Google. It bought DoubleClick and is investing in tools to distribute the advertising across the Google AdSense Network, and the Google AdSense Network is tens of thousands of non-Google Web sites with whom they have agreements, and on whom they have real estate, and they can run relevant advertising in those places.

Burst Media CEO Jarvis Coffin

"If you look inside any of the Google boxes on BetaNews, no doubt, the links inside those boxes reflect back on Web development technology, etc.," he continued, "because Google's technology will have sniffed the content of BetaNews, and they'll be able to figure that out. DoubleClick now gives them a more robust solution for putting four-color, full motion ads inside those units. So we go from accommodating simply text link ad units - which is a nice $4, $5 billion business, very similar to the Yellow Pages - to being able to sell four-color advertising that you see in your magazine for IBM now running in that same space...So that's what I mean by 'increasing the footprint:' increasing it horizontally, not vertically."

The change you may soon see in the dynamics of the Web, Burst Media CEO Jarvis Coffin believes, is that advertisers will start to take advantage of the new tools made feasible by the Google/DoubleClick and Yahoo/Right Media deals (and perhaps the Microsoft deal that followed), to scale their ad campaign investments across multiple sites. As a result, the importance of the "top 10 domains" may lessen over time, as the quality of content takes precedent over the capital structure of its publisher.

"I think in the last month, you're seeing the broader Internet marketplace come to terms with the fact that the first ten years of our existence spent building these massive centers of gravity - whether it's MSN or Yahoo or AOL, the whole portal notion," Coffin remarked.

"While there have clearly been some winners in that, even the winners are coming to terms with the fact that that is inefficient, it's exhausting, trying to create enough user loyalty and repeat visits and then figure out how to sell enough advertising over that. In order to grow your advertising every year, you have to grow the size of your Web site, and the number of users that use that Web site. And what are you doing in that process? You're making it less and less relevant.

"In the meantime, with no barriers to entry, [in] this marvelous environment called the World-Wide Web, your developers are putting up Web sites, if they're doing it for themselves, on everything from fly fishing to Ford Focus, and harvesting Google AdSense and creating these vertical niche environments for advertisers to connect with people. But you need to start to scale that."

It would appear the Internet media environment Coffin's pointing to would have Yahoo concentrate more on expanding the breadth of its network and the depth of its content, as opposed to the reach of its portal. Advertisers have placed too much faith on the nature of the Web to behave like the nature of its media predecessors in print and broadcast. But the old dynamics simply no longer apply.

"It is time to get over the idea that the Internet should behave like ABC, CBS, and NBC," remarked Coffin. "We were constrained by technology in those days, and there were 24 hours in a programming day, [so] whatever you wanted to watch, it was appointment media. We brought those ambitions and that mindset to a new media environment that was completely at odds with them. And the new network of the new information age isn't about lots of people in one place. It's about lots of people in lots of places. And this solves a very important problem for both advertisers and consumers."

The signal these ad merger deals should be sending to advertisers, Coffin believes, is that it's time for them to rethink their strategies in favor of broader reach through wider, yet measured, distribution. While they all see the same reality approaching on the horizon, however, Coffin stepped back a few paces, and confided a little bit of fear about what that realization will necessarily trigger.

"I'm not confident that they are necessarily coming to terms with it; they understand it in principle," he stated. "The evidence still suggests, however, that the water's only up to their ankles, and they're still hovering around the Top 10 Web properties because they're inherently risk-averse."

That said, Coffin believes the Google/DoubleClick deal will work for the reasons he believes the rumored Microsoft/Yahoo deal would not work: Both would inflate their respective footprints, but only the former would do so in the right direction.

"Certainly Microsoft plus Yahoo would create more capacity for advertising, but at the end of the day, it will still run dry," said Coffin. "They will still fail to be able to scale...You can't do that too many times. How many times in a row can you do that and hope to compete with a marketplace that sees...40,000 [or so] blogs per day? The virility, the organic power of the Internet marketplace, trumps even Yahoo and Microsoft, and they're figuring that out."