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Summary:

Exactly how are companies going to make money on the social web? The path to the next generation of online advertising does indeed remain murky, but two new deals may provide a little light.

Two bits of news — Ringleader Digital snagging $6 million for its ad network, and Goowy being acquired by AOL — started me thinking again about how exactly companies are going to make money on the social web. The anticipated $80 billion in online ad spending cited by Microsoft as the rationale behind its bid for Yahoo is a big number, but how that spending will be apportioned isn’t clear.

Like the evolution of banner ads in the 90s, when startups touted eyeballs and their site’s stickiness, or the transition to search advertising in the early 00s (are we really calling this the aughts?), the path to the next generation of online advertising is murky. In the same way that radio and billboards are still hanging around, search and display ads aren’t going anywhere, but what’s next?

As to whether or not widgets will make it as an ad medium, or if we’ll see more viral campaigns asking us to Elf Ourselves, or submit a user video to YouTube, it’s still anyone’s guess (though actually that last method may be on the decline).

With so much uncertainty and so many different places to place ads right now, the funding for Ringleader (which used to be called MoPhap) makes sense. Ringleader is an ad network that can place a variety of ads (it works with clients that represent brands such as Absolut), but it’s also a tracking company with technology that allows it to aggregate reports seamlessly across other ad networks. At its core, however, Ringleader is a middleman standing between the web sites and the agencies placing ads on them.

The advertising world will accept a middleman with the technology to give a unified view of their placements on the web in the current market, which is notably fragmented, but my bet is that as the industry consolidates, a large agency or a tech company looking to serve the agency market will pick them up. Which leads me to wonder if advertising firms or technology firms will end up controlling the monetization of the social web.

That’s one of the reasons AOL’s purchase of Goowy, a personalized portal company and widget maker, caught my eye. Any exit is good news when it comes to validating an uncertain market, and AOL has apparently bought into the widget-as-advertising-vehicle concept enough to give a small acquisition a whirl. As Ron Grant, president and COO of AOL, said in the release:

“Consumers are increasingly creating their own online experiences and Goowy’s widget technology will allow us to reach audiences wherever they are. This acquisition adds a new facet of widget-based advertising to our robust set of solutions available through Platform-A.”

AOL has successfully turned users into ad dollars for years, much like Yahoo has. As those ad dollars get bigger, owning the analytics and having the ability to place such dynamic content seems to favor those in the technology space, with their engineering talent and infrastructure. One only has to look at Microsoft’s recent buys (or attempts to buy) in the sector to understand that technology companies are angling for a larger role. However, tracking and placing ads is a far different business than selling business software.

Will ad agencies and marketing firms acquire the technology to maintain the media placement side of their business as more of it moves online? With Internet advertising topping $36 billion in 2007, that’s still just 8 percent of the total worldwide advertising spend, so it’s possible agencies are OK with ceding that part of the market to technology firms. The tech guys are certainly happy to take it.

  1. good analysis – it seems it is platform provider ( to consumer ) would get bigger pie in retail market – however still not sure what would be the best model for B2B advertising?

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  2. shouldn’t it be 80 Billion rather than 80 million. 80 million is kind of puny for 45 billion yahoo bid.

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  3. We think the real power is consumer-driven. That’s why we created Blip’d.

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  4. GigaOM, can you please number your comments, like techcrunch.

    Makes it much easier to refer to a previous comment, as in “hey #2, you rock”

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  5. Very informative, thanks for sharing GigaOM!

    nhick
    http://www.itrush.com

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  6. Stacey Higginbotham Tuesday, February 5, 2008

    Hakim, thanks for pointing that out. If Microsoft ends up paying $44.6 billion for Yahoo!, the market better be worth more than $80 million.

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  7. There is an interesting piece on the myth of rising CPM’s on http://www.edgeconomy.com. Worth a read.

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  8. Maybe Palo Alto Tuesday, February 5, 2008

    A simpler picture may help clarify things a bit. On one side are the consumers/users and on the other side are the providers of goods & services. Connecting them with the lowest friction, highest efficiency is where the dollars will be spent.

    To the extent consumers/users aggressively seek information about goods/services on their own (e.g. search), value accrues to the search providers. All other representations of a user’s want for information will also attract dollars (e.g. Social Network walls, widgets, virtual gifts, blogs,…).

    Technology providers will continue to have a key role since it is a safe bet that the rate of change of technology continues to accelerate. Technology seems to consolidate easier/faster than advertizing companies or other ‘agencies’ where human relationships (accelerated by technology ) still change/evolve at a slower pace.

    Sorta like yin/yang, each needs the other to exist and thrive. They both win as long as the other also wins.

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  9. [...] Control of online advertising Much is being written of Microsoft’s attempt to purchase Yahoo!  That being said it is all about the online advertising market.  Who will control it, who will provide access and who can monetize best. [...]

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  10. I’m surprised nobody has mentioned The Rubicon Project (http://www.rubiconproject.com) for online advertising. They’ve secured $21M in financing since starting up last summer.

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