Ad networks welcome MSN to fray
The online ad industry is enjoying such huge market expansion that even when Microsoft comes stomping into the domain nobody complains.
When rival ad networks say Microsoft Network's purchase last week of LinkExchange will "validate our space," they can be taken at face value.
"People are realizing that ad networks work," said Kevin O'Connor, CEO of DoubleClick, the Net's top ad network. "We think the deal is great."
Flycast Network CEO George Garrick agrees: "We're in an industry that's doubling every quarter. Market share isn't important. There's plenty of room for multiple ad networks."
Advertising, Garrick noted, isn't a zero-sum game, particularly not online. "Media is not an exclusive, either-or kind of business. We don't get too hung up about moves that other networks are making."
In announcing the estimated $250 million stock deal last week, MSN executives took great pains to say that the deal has little to do with LinkExchange's advertising "reach"--the percentage of total Internet users that see ads on the network.
But industry observers and some competitors beg to differ: Many say that reach, if not Microsoft's No. 1 reason for the acquisition, is certainly near the top.
"Reach is an important variable," said O'Connor, "but what people are really looking for is targeted reach."
LinkExchange, with 400,000 member Web sites, has greater reach than any other ad network, despite--or perhaps because of--its reputation as a mom-and-pop operation. More than 21 million Net users saw its ads in September, according to audience-measurement firm Media Metrix, reaching 42 percent of Internet users. That puts the firm ahead of companies like DoubleClick and 24/7 Media, which are industry leaders in terms of revenue.
LinkExchange allows small Web sites to trade ads with each other. In return for accepting two ads, each member may place one ad on the network. LinkExchange then sells the remaining inventory to paying advertisers.
LinkExchange's membership comprises "a highly qualified opt-in community" coveted by advertisers because of all the information they provide about themselves, said Evan Neufeld, advertising analyst at Jupiter Communications.
MSN Vice President Laura Jennings downplayed the reach aspect. "Our main strategy is to provide our users with small-business services," she said. MSN not only gets LinkExchange's giant membership list, but also its e-commerce tools, which it can peddle, along with its own Web software products, to MSN users.
LinkExchange differs from ad networks that "represent small sets of large customers," Jennings said, and LinkExchange is just the opposite.
"Our primary customer is the Web site owner," said Mark Bozzini, CEO of LinkExchange.
Same with SmartAge, another barter-based ad network. CEO Bill Lohse says his firm provides services to small, commerce-oriented sites that sell "everything from old comic books to ebony candlesticks from Afghanistan. "SmartAge isn't out for giant reach, he said. "We judge our success by the lifetime value we give to our members."
SmartAge gathers more information from its members than does LinkExchange, Lohse said, and if MSN tries to collect more data from members, he warned, membership could shrink significantly.
"With every question they ask, the fewer people they'll get to join," he said. On the other hand, the fewer questions they ask, the less valuable the membership will be to advertisers. "It's a delicate balance," Lohse said.
The deal puts Microsoft in a strong position on both the buy side and the sell side of Net advertising. On the buy side, it now has a huge, in-house distribution vehicle for its ads. Through LinkExchange, Microsoft can market not only MSN services, but its software as well.
On the sell side, the company has increased its ad inventory in a big way. LinkExchange advertisers include such heavyweights as Yahoo, GeoCities, Procter & Gamble, and American Airlines. With all the new inventory, Microsoft is hoping to snare even more big accounts.
And competitors likely wouldn't mind a bit. "We're creating a whole new industry here," said DoubleClick's O'Connor. "Everybody's invited."