Microsoft, AOL and Yahoo team up in online ad deal

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In a testament to how powerful Google and Facebook have become as Internet moneymaking machines, Microsoft, Yahoo and AOL are joining forces to sell advertising.

In a deal announced Tuesday, the three tech giants said they would pool their resources to sell leftover ad space beginning in January.

They pledged to continue to compete and maintain their own sales teams. Microsoft, Yahoo and AOL are looking to avoid the appearance they are forgoing their independence and avoid drawing scrutiny from antitrust regulators.

The effort is aimed at slowing the growing momentum of Facebook, which has become attractive to advertisers as the world’s most popular online hangout. Research firm EMarketer says Facebook is already the leader in U.S. display advertising with a 16% share of the online ad market.

Google, the world’s dominant search engine, spread its tentacles into display advertising with its 2008 purchase of DoubleClick. Its share of the display advertising market has jumped to 9% today from 2% in 2008. During that same period, Yahoo saw its share fall to 13% from 18%. Microsoft has 5% and AOL has about 4%, according to EMarketer.

The value of ads on AOL, Microsoft and Yahoo have slipped with rising competition from Google and Facebook. The three partners are hoping to drive up the price advertisers are paying for page views.

With Yahoo’s revenue declining, the company’s board is exploring whether to sell all or part of the company. Microsoft, on the other hand, benefits from Facebook’s success: It bought a 1.6% stake in the social networking juggernaut for $240 million in 2007.

The advertising alliance gives the three companies the right to sell each other’s excess ad space. The partners said the deal was not exclusive and would be open to other publishers. The three companies will integrate their real-time bidding technologies.

‘While this collaboration could drive some incremental yield improvements for the portals’ unsold display inventory, we believe it is unlikely that the combination of inventory can spur significant increases in overall display ad revenue given market share challenges,’ J.P. Morgan analyst Doug Anmuth said in a research note. ‘We believe this agreement comes more from a position of weakness as all three players attempt to create a compelling alternative to Google for marketers and agencies.’

Anmuth said Google’s vast network of more than 1 million advertisers makes it easy for them to reach large audiences. Google also offers targeting and measurement tools that ‘are appealing to performance-based advertisers,’ he said.

Anmuth estimates that Google’s display revenue will gross $3.8 billion in 2011, compared with $1.9 billion for Yahoo.

In an interesting twist, he said the alliance would help Google in antitrust probes because the Internet search giant can point to it as an example of credible competition in online ads.

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-- Jessica Guynn