AOL, Yahoo, And Microsoft Band Together To Fend Off Facebook’s Ad Assault

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There have been a number of rumors circulating around Yahoo, Microsoft, and Aol of late, most of them focusing on a potential Aol/Yahoo merger, or Yahoo’s acquisition by Aol or Microsoft, etc. Well, it seems the companies have officially become linked, but they’ve run into each other’s arms not by way of M&A, but by way of display ads. Yes, the three internet behemoths today announced agreements that they hope will improve the process of buying and selling premium online display inventory. In other words, the agreements will allow each to offer the other’s display ads to their respective customers.

With agencies and advertisers now able to pick and choose between Yahoo’s Network Plus, Aol’s Advertising.com and Microsoft’s Media network, each of which has different strengths in data, optimization, packaging, etc., this strategic partnership creates somewhat of a mega ad network. Online advertising is all about scale, and with this threefold growth in inventory, the three companies are looking to more quickly achieve the scale that is far more difficult to reach alone.

While the companies hope that this agreement will drive better returns for their customers (see Yahoo Executive VP Ross Levinsohn’s statement here), it remains to be seen just how “premium” the partnership’s ads will be. Premium ad inventories are inherently a product of scarcity, which seems to be a bit at odds with the scale/network approach the companies are taking, where nobody really knows what they’re selling.

What’s more, while this may improve the process of buying and selling online display inventory, it’s also a play to fend off the meteoric rise of Facebook (and, in turn, Google, which owns a 75 percent share of search advertising). Really, everyone is spending more time on Facebook, what with their measly 800 million users, and advertisers are following them there. To that point, Facebook now accounts for one out of every three ad impressions in the U.S. Up until now, no other web property in the U.S. really comes close. (See our coverage here.)

Thanks to the tables below from eMarketer, we see that Facebook leads the way in net display revenues in the U.S. with over $2 billion this year. Yahoo comes in second, with Microsoft and Aol far behind Google in third and fourth. The same ranking is true for share of the online display ad market, with Facebook holding 16 percent over Yahoo’s 13 percent — and eMarketer expects both Google and Facebook’s share to increase significantly next year to 19 percent and 12 percent, putting Google neck-and-neck with Yahoo.

What’s more, in terms of growth in online display advertising, Facebook saw a 66 percent increase this year, far outpacing the rest of the pack. I’ll hold off there, because you probably get the picture. Yahoo has the biggest ad network in terms of revenues and marketshare of this new ad trifecta, which certainly makes this an advantageous partnership for Microsoft and Aol, at least from this perspective.

But, in the end, at least for the foreseeable future, it’s hard to see this as anything but a bandaid. Facebook’s growth in display advertising isn’t slowing down any time soon.