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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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  11. “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”

    It’s 8% now, but with time print advertisements and TV will decline as people will increasingly learn to rely on online media. It would be short-sighted for agencies to give up anything at this stage and it’s really no wonder that the technology companies are going after it so aggressively. Advertising is the single largest source of online revenues period.

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  12. Internet marketing has died. Most online marketers have been ruined by Google’s adword and control of search engine that impeded online marketing. Therefore the future of e-commerce will be dominated by multi-million and dollars corporations. The small guy internet marketers have been kicked out by Google. And this same atrocity will end up leading them to doom in a few yrs because e-commerce is powered by small businesses and not established big corporations who don’t care if they succeed online or not. They have TV and radio advertising where they can continue squandering money. So in the long run, Google will implode for destroying internet marketing and ruining the lives of millions of small business people and marketers.

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  13. [...] and the Internet: gigaom.com/2008/02/05/who-will-cont… [...]

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  14. “Will ad agencies and marketing firms acquire the technology to maintain the media placement side of their business as more of it moves online? “

    I think this article might be somewhat out of date. Yahoo!s aquisision of Blue Lithium, AOLs aquisision of AdTech, Google’s Aquisision of Doubleclick and Microsoft’s Aquisision of Atlas means the major publishers already own the tracking technolgoies. That was last year!

    Yawn

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  15. Christopher Dack Wednesday, February 6, 2008

    For the record, we’re calling this decade the “double naughts,” or just “naughts” for short.

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  16. No doubt in our minds that the future is in online classifieds. Service such as http://www.ClassifiedFlyerAds.com that will syndicate your full color online ad to top online directories will rule. These full color online ads receive 1st page Google ranking and achieve massive exposure from the online directories they are syndicated to. You create it once in under 10 minutes and it’s automatically sent out all over the internet to top online directories and search engines. This concept can also be appealing to advertisers who want to advertise their banners or ads on the bottom of these online flyers. It’s a platform that is appealing to sellers and advertising because it provides mass exposure for free or little money.

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  17. I recall back in 95 when web development agencies began to spring up (agency.com, Razorfish). At first, they did not get involved in software development, security or IT infrastructure. As time went on and applications could be bought off the shelf, and infrastructure and security expertise became more available, Agencies began to hire the talent needed and they competed with IT consulting companies. I think you might find an Ad agencies looking to buy a good technology company and combine their expertise for success.

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  18. [...] This article interested me through our talks of media ownership. It touches on Microsoft buying up Yahoo, which seems to be the only way they think they can compete with Google. This doesn’t so much worry me, since advertising is a part of life, and I’ve seen enough futuristic stories to adapt to the fact that advertising will be increasingly more pervasive. I wonder, though, about who will be advertising more. [...]

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  19. It’s so interesting ,but i still cann’t understand who will control Advertising on the Web

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  20. http://www.oix.com the new way of channeling ads

    I, for one, welcome our new ad-channel overlords

    At least when I surf, the ads will have some connection to the porn I’m looking at

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  21. [...] Friday, March 14, 2008 at 8:30 AM PT Comments (0) Business software may be profitable, but the growth and sex appeal is in advertising. At least, Microsoft seems to thinks so. Amidst efforts to make headway with its takeover offer for [...]

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  22. [...] is over. It was one of the big contributors to AOL’s ad revenues last year. At the same time, more competition is coming. The Google-Doubleclick combo isn’t good news for Platform A by any [...]

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  23. Online advertising is the wave of the future but the key is syndicating your advertising to as many places with the least amount of effort.

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  24. When compared to traditional advertising it becomes obvious the objective of marketing.

    Marketing is not what generates a sale or closes the sale. Marketing in any business is to attract a potential customer.

    It is the responsibility of the business, be it bricks and mortar or online to close and complete the sale.

    So the question is, will advertising decline? Well to answer that question then simply ask yourself, does your business still need a flow of potential customers?

    If there is a replacement for advertising, online or offline, then maybe.

    Sure businesses have tighter budgets now, but should they increase their potential customer flow or let it dwindle in times of recession?

    Simple answer, never let the customer flows dwindle. Cutting costs and expenses is important when revenue drops, but cutting expenses will not cause revenues to increase. Only increasing customer flow or web traffic will.

    Cost per click and Cost Per Action Online Advertising is a wiser investment now more than ever as businesses begin to measure the quality of marketing efforts and the ROI.

    Online Advertising with FreeKii.com served over 40 million ads in 2008.

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