During these many months of the ongoing Microsoft-Yahoo! saga, Microsoft’s reason for wanting to acquire the web’s #2 search engine has changed more than once. At one time it was about Yahoo!’s talent — which dwindles with each passing day. At one time it was about technology. And it has always been about taking a slight step closer to Google in search.
At the Microsoft Worldwide Partner Conference on July 9th in Houston, Texas, Microsoft CEO Steve Ballmer summed up the real reason his company wants to acquire Yahoo!: volume.
There is a what shall I say? There’s kind of a return to scale, though, in Internet advertising. The more customers you have, the better, actually, the set of advertisers you have, the better advertisers and people actually like the ads in search. There are a lot of places people don’t like ads, but in search ads actually help the experience. So if you put together our volume and Yahoo!’s volume the thought was that should be a good thing.
Based on the miniscule average eCPMS that web sites are reportedly seeing, advertising is clearly a volume game. However, if purchasing Yahoo! is really all about scale in advertising, AOL might be a better fit.
Why AOL is the Better Target
When analytics firm Compete looked at the potential Microsoft-Yahoo! acquisition in February, they found there there is a significant overlap among the users of each property. Of Yahoo!’s 133.6 million total unique visitors, 96.5 million are also Microsoft users. The net gain in new users for Microsoft as a result of the acquisition would be just 33%. But the combined entity would be the largest on the web in terms of unique visitors and user attention.
On the other hand, if they’re after ad volume, then AOL might be the best choice. Reuters reported today that talks with Microsoft and Yahoo! over the fate of AOL are rumored to have heated up again, and that a merger or acquisition is likely within the next couple of weeks.
According to comScore, AOL had the fourth most visited collection of sites with 111 million unique visitors per month. That’s not as much as the the 142.9 million that Yahoo! commands, but it’s not bad — and would come significantly cheaper (as little as $10 billion, and probably no more than $20 billion). The potentially more important metric from comScore, though, is the total audience of AOL’s Platform-A advertising network: 172 million unique visitors per month — good for the largest ad audience on the web and a 90% reach in the US.
AOL’s annual ad revenue has grown each of the last 4 years, noted Larry Dignan in April, from $1 billion in 2004 to $2.23 billion last year. That’s less than half what Google pulls in each quarter, but AOL, according to some insiders, just hasn’t been managed well. Perhaps in the hands of Microsoft’s aQuantive ad folks, it would be able to make better use of all that inventory.
The one thing AOL doesn’t give Microsoft, is inroads in the search market. comScore’s latest search market stats have the company at 4.5%. Combined with Microsoft, that would still leave Redmond in a distant third place behind Microsoft and only marginally closer to Yahoo!
But as Greg Sterling points out, Microsoft could still theoretically go after Yahoo!’s search business after buying AOL for its advertising platform.