A Long Time Ago, In a Galaxy Far, Far Away, Internet 1.0 reigned supreme and profits were an afterthought. My, my, my how things have changed since then.
Wednesday, May 10, 2006 | Wayne MulliganRating:
That's certainly true of the monumental battle shaping up on the World Wide Web. Back in the days of the Commercial Web Version 1.0, words like "critical mass" and "path to profitability" were the talk of the trade.
During the roaring 1990's that was code for "Our goal now is size - after we go public or get taken over, we'll worry about profits."
My, my, my how things have changed.
Now companies are worried about cost reduction and profit maximization - things any real business should've always been worried about.
And now that clear lines have been drawn in the sand, these online companies are worrying more and more about their competitive strategies. These companies are starting to lay down battle plans for a digital war of epic proportions …
Web Wars
The Battle Ground: Search Engine Advertising. To put it in perspective, an industry research organization, SEMPO, estimated that search engine advertising generated $5.75 billion in 2005. Those are huge numbers for an industry that didn't exist a few years ago.
And to capture a bigger and bigger slice of a fast growing pie is certainly something worth fighting for.
On one side, we have Google (NASDAQ: GOOG).
As of last week, Microsoft (NASDAQ: MSFT) decided to throw its hat in the ring by launching a new advertising service for its MSN portal - AdCenter.
And as of yesterday, Yahoo! (NASDAQ: YHOO) has become the latest army to join the battle, as it announced the re-launch of its search engine advertising product, Overture.
Interestingly enough, the Overture service (which Yahoo! acquired 2 years ago) was the first player in this space. The company virtually owned the entire market - that is until Google stepped in and pulled the rug out from under them (the service just hasn't been able to see the same type of growth since).
This is due to the shoddy backend technology the company uses; let me give you an example …
How it Works
Take a moment and go to Google.com. Now, type in a simple phrase like, "investing advice".
As you notice, a number of advertisements come up along the right hand side of your page, along with your regular search results on the left. Google doesn't have a guy sitting behind a desk deciding which advertisements go where. A computer decides that based on a number of factors, 2 of the biggest of which are:
1. How much a business is willing to pay every time somebody clicks that ad. If I were willing to pay $2 each time somebody clicked an ad, but the guy down the street was only willing to pay $1, theoretically, my ad would appear first.
2. The more an ad is clicked on, the more "relevant" the computer deems the ad, and therefore the higher it will be placed.
That 2nd factor is something Yahoo!'s system had always lacked. Without placing the more successful ads at the top, Yahoo! greatly reduced the amount of revenue it should've been getting.
Obviously it stands to reason that if a particular ad is getting more clicks, it's because users feel it's more compelling or relevant to their search. If that ad bumped to the top of the list, it will get even more clicks, and thus generate more revenue for Yahoo!.
Following me so far? Good!
What's Changed
I'd like to think the folks at Yahoo! are a tad bit smarter than yours truly. Actually, they're probably a lot smarter than me, but it still took them a couple of years before the company decided to give its system a complete overhaul.
Now, the company plans on using both the amount an advertiser is willing to bid for each click AND how many clicks the ad gets in order to determine the placement of ads on its system.
This will likely mean faster growth in Search Engine Advertising revenue for Yahoo!, something the company desperately needs if it wants to become a serious threat to Google.
The same goes for Microsoft.
But these companies can't rest on simply being "just as good" if they want to win this war. They'll have to innovate … they'll have to revolutionize the online advertising space all over again.
That's exactly what Yahoo! is planning to do with its new service …
Not only will businesses be able to bid on the small text advertisements that appear next to search results, they'll also be able to include ads in print magazines, mobile applications and even on television.
Yahoo! is offering a number of options for advertisements, all in a self-serve format.
Meaning, if you owned a small business, you could create a Yahoo! advertiser account and begin buying up media space across the Internet, Television and Mobile advertising networks.
Think about how powerful that is - think about how revolutionary that is as a concept!
One of the Best Times to be in Technology - EVER!
I've said it before and I'll say it again: Right now is simply one of the best times to be investing in the technology space.
It's no longer about growing as fast as possible and worrying about profits later - the game is all about maximizing profits!
With the technology we have out there today, small businesses can level the playing field and advertise just like the big boys do.
With the new targeting technologies we have, only the most relevant advertisements will get through to a person.
For instance, imagine you owned a small surf shop in a quiet beach town. How would you get people to know about your store?
Forget traditional media. In the digital world, this is what you would do:
You'd create a Yahoo! advertiser account. Then you'd buy ads targeted towards people that search for the terms "surf, surfing, and surf boards", but you'd only have your ad displayed if the "searchers" lived in your neck of the woods.
Now, let's take that one step further. You then decide to do mobile advertisements - so anybody with a mobile phone within 1 mile of your store on the next hot beach day would get your advertisement sent to their phone.
How powerful would that be? How much money would that save you? How much revenue would that generate for you?
That's the real power in all of this: These technologies not only help the web giants, they also enable the little guys out there reduce their costs and earn more money, which translates into bigger profits for everyone.
In my opinion, I see this space heating up dramatically over the next 12 months. Google will be facing a ton of competition, and Yahoo! will be fighting fiercely for those advertising dollars.
We'll also see new players enter the space, like IAC's Ask.com, which just went through an impressive overhaul of its search engine.
We'll just have to wait and see how things turn out, but as Mr. Dylan said, "The times they are a changin'! "
Oh, I Almost Forgot …
Got some great news for you this week!
The wait is finally over - Tech Stock Insider 2.0 will be officially launching this coming Monday!
Just like Yahoo! has revamped its search engine advertising service, we've done the same with the Tech Stock Insider service.
Beginning Monday, I'll be offering members weekly market commentary - this is where I'll break down events from the previous week and the upcoming week, and tell my members how the news can help or hurt them.
In this business, information is the most valuable commodity you can have!
Members will also start to receive weekly stock recommendations. That means every single week, they're guaranteed to receive at least 1 brand new investment recommendation!
It used to be once a month. Now, Tech Stock Insider members will be getting 300% MORE value for the SAME PRICE.
I'm not sure how long that will last though - once demand heats up, we might have to raise prices or close the service to new members altogether. We don't want to compromise the returns we get on our investments by having too many people diving into the same positions at once.
So my advice to you: Get involved now while you still can. Hope to have you on board very, very soon!
Until next time …
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Wayne Mulligan
Contributing Editor
The Tycoon Report
