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AOL, Microsoft And Yahoo Are Officially Ad Sales Allies

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The portal trio alliance between AOL (NYSE: AOL), Yahoo (NSDQ: YHOO) and Microsoft (NSDQ: MSFT) that was being explored in September is now official, the companies said during a phone-in press conference.

The deal involves putting portions of their unsold inventory through through their own respective networks. The idea may seem a bit redundant, considering that all three already have massive reach — plus, if this is inventory they can’t sell on their own, why create a larger pool? Still, with Google (NSDQ: GOOG) and Facebook cutting into the portals’ traditional hold on display, this may be an imperfect answer to a challenging problem for all three.

In terms of the problem all three face, as eMarketer has noted, the shape of the display ad sales market has changed greatly. The overall display marketplace in the U.S. is expected to be $12.33 billion this year and $14.82 billion the next. of that amount, Facebook will have a 16.3 percent share of the U.S. display market this year, followed by Yahoo at 13.1 percent, Google at 9.3 percent, MSN at 4.9 percent, and AOL at 4.2 percent. Collectively, those top five display leaders have 47.9 percent of the display space in the U.S. That means there’s a lot of territory still to conquer amid an otherwise fractured market.

Ross Levinsohn, EVP of Americas at Yahoo, kicked off the call, saying that this alliance would create a liquid, marketplace for the three portals inventory. Joined by Ned Brody, Chief Revenue Officer, AOL and Rik van der Kooi, Corporate Vice President of the Microsoft Advertising Business Group, the trio positioned this announcement as offering a place for sale of “premium” advertising by “premium publishers,” and that it would be open to anyone, in a sense.

“There has a been a significant shift in how inventory is bought and sold, and we’re now 100 percent focused on controlling our own destiny, working directly with marketers and agencies and driving better returns for our advertising partners,” Levinsohn said in his opening remarks.

When asked if this deal was a way to counter the incursions of Google and Facebook into display, the executives said that this was not directed against any company in particular. However, it was meant to drive home the point that not all ad sales are created equally.

“The three of us have all put stakes down in premium display ad sales,” Levinsohn said. “Google has done a great job of monetizing the long tail. Facebook has done a great job around social. But the three of us have done that around premium. And there are other publishers who have done that and this is something they’ll be able to take advantage of.”

The three were also at pains to say that there was no creation of new company or entity that will handle the sales. Essentially, all unsold inventory will be pooled together — there was no minimum or maximum amount that that stated in terms of what each of the three will contribute. The hope is that it will raise CPMs, and if it goes as planned, it could at least slow down Google’s and Facebook’s increasing dominance of the display space.

Apart from the shadow being cast by Google and Facebook, the deal is also reflects the general move towards buying audiences instead of cherry picking the inventory of specific brands. By integrating one another’s real-time bidding systems for their remnant inventory by early 2012, Yahoo, Microsoft, and AOL expect to have the opportunity to access each other’s unsold inventory to achieve the greater scale and efficiency. Again, it’s hard to say how much benefit there will be, considering the existing promises of scale and ease of buying each of the three already boasts of.

The Microsoft Advertising Exchange and Yahoo’s Right Media Exchange will initially serve as the two marketplaces from which the partners can buy this inventory for resale to advertisers and agencies. AOL may — or may not — opt to use its own exchange system after the project launches.

Lastly, the deal should also help AOL achieve greater adoption of its large, interactive Project Devil ad formats, though Microsoft and Yahoo were quick to note that they too have similar premium ad options for marketers.