A Microsoft-Yahoo Ad Network Still Isn't GoogleA Microsoft-Yahoo Ad Network Still Isn't Google

As Microsoft continues its enthusiastic pursuit of Yahoo, one of the supposed prizes of that acquisition is the Yahoo advertising network. Steve Ballmer says that catching Google is his goal, so a strong competitor to Google's ad network is critical. I am not convinced that is what they are getting.In 2003, Yahoo bought the Overture ad network to quickly augment its expertise in advertising -- particularly keyword-based advertising. Ostensibly the keyword-based ads were meant to be used at the top of keyword searches at the Yahoo Web site, but they also were used in less-savory contexts.

Before Yahoo swallowed Overture, it was doing business with intrusive pop-up adware companies such as Gator Corp. (later renamed Claria). The arrangement continued after Yahoo bought Overture, resulting in truly bizarre situations. For example, if you searched for "auto loans" at the Yahoo site with Gator software installed, you would get a page of results for auto loans, including paid keyword ads at the top of the page. Seconds later you'd also get a pop-up ad from Gator with the exact same paid keyword ads. Both were being fed by the same Overture-based keyword advertising engine. It was ugly, sleazy, and counter-productive.

Today, Yahoo is a player in both search-keyword advertising and display ad networks. They also are battling extreme click fraud; Yahoo admits that click fraud grew 32% in the fourth quarter of 2007. Yahoo's strength is in display advertising, but ComScore research found that just a tiny percentage of "heavy clickers" represent about half the clicks on Yahoo's network. These users are generally not a great demographic, with household incomes less than $40,000 a year. If a recession is coming, these folks will have a tough time buying the things they see advertised on Yahoo's networks.

I can't see how Microsoft buying an ad network filled with junk clicks will really move Ballmer toward his goal of catching Google. Yahoo is already far behind Google in this business, and Microsoft's own efforts are far from stellar. Even combined, they are only about half the size of Google in the ad space. It seems unlikely that the two trailing players in this business can unite and organize well enough to make a serious challenge to the leader.