Web 2.0 Summit: More Consolidation Expected In Online Ad Market

Panelists from Microsoft, Yahoo, and AOL suggest acquisitions may win out over building expensive ad platforms.
The number of companies in the online advertising market is expected to shrink as larger companies continue to gobble up smaller players in order to expand their reach and build a better Web platform for advertisers, an industry executive said Thursday at the Web 2.0 Summit.

During a panel discussion at the San Francisco conference, executives from Microsoft, Yahoo, and AOL agreed that consolidation was necessary in order to meet the demands of advertisers for a platform capable of finding and reaching multiple segments of Web users.

"In the industry, we're going to see more consolidation," Brian McAndrews, who leads the Advertiser and Publisher Solutions Group at Microsoft, said. "It's tremendously expensive and technology intensive (to build an ad platform), and there's only a few players who will be able to do that."

Indeed, consolidation has already been happening in a big way. McAndrews joined Microsoft after the ad agency he headed, aQuantive, was bought by the software maker in May for $6 billion. Other big acquisitions included Google proposed buy of DoubleClick for $3.1 billion, and Yahoo pursuit of RightMedia for $680 million, both announced in April.

During questioning by moderator John Battelle, founder and chairman of Federated Media Publishing, most of the panelists claimed that consolidation would not lead to less competition or options for advertisers. McAndrews, for example, pointed out that large networks such as Facebook or MySpace, would still be available. "There's going to be lots of players in the ecosystem," he said.

But panelist James Bilefield, chief executive of Openads, disagreed, saying online ad publishers would be better served without such advertising behemoths. "Our publishers increasingly want to take control of their inventory," rather than turn it over to huge ad networks. Openads makes free, open source ad serving software that the company claims is used by more than 20,000 publishers in 140 countries.