Social networking sites grab big slice of Web ads

About one of every five Internet display ads in the United States is viewed on a social networking Web site like MySpace and Facebook, according to a new report.

The report by analytics firm comScore underscores the increasing prominence of social media sites in the Internet landscape and broadening acceptance of the sites by brand advertisers.

It also illustrates the increasing competition between social media sites and established Internet companies like Yahoo Inc and Time Warner Inc's AOL which have long billed themselves as the top online destinations for brand advertisers.

The study by comScore, released on Tuesday, said social media sites represented 21.1 percent of U.S. Internet display ads in July, with MySpace and Facebook accounting for more than 80 percent of those ads.

"Because the top social media sites can deliver high reach and frequency against target segments at a low cost, it appears that some advertisers are eager to use social networking sites as a new advertising delivery vehicle," said Jeff Hackett, senior vice president of comScore.

According to comScore, AT&T Inc, Experian Interactive and IAC/Interactive Corp's Ask Network were the top three advertisers on social networking sites in July.

While social media sites have enjoyed a surge in popularity in recent years -- Facebook is now the world's fourth-most visited Web site -- some observers have questioned whether the sites can be effectively monetized.

Because the content on social media sites is created by users, and could therefore prove racy or offensive, some have questioned the willingness of marketers to place their brands alongside that content.

"They are sensitive to some extent, but nowhere near to the extent you might think," Sanford Bernstein analyst Jeff Lindsay said of advertisers.

The price of placing ads on social networking sites is significantly less than on a Web portal like Yahoo or AOL, said Lindsay. The vast amount of Web pages available on social networks means that advertisers can purchase a massive volume of ad impressions at bargain prices.

The strategy may not be ideally suited to smaller marketers, or advertisers seeking a direct response from their ads, said Lindsay.

"For big, national brands it works just fine, just like TV," said Lindsay. "It's a huge, huge volume game."

Icahn cuts stake in Yahoo!

Billionaire investor Carl Icahn has sold 12.7 million shares in Yahoo!, cutting his stake in the company a month after it formed an Internet search partnership with software giant Microsoft.

Icahn, a member of Yahoo!'s board and one of Yahoo!'s largest shareholders, sold the shares during the last 3 trading days on Wall Street, according to a filing on Monday with the Securities and Exchange Commission (SEC).

Icahn sold the shares at prices between $14.74 and $14.92.

In November, following the decision of Yahoo! co-founder Jerry Yang to step down as head of the Internet firm, Icahn increased his stake in Yahoo! to 5.4%, up from the 5% he owned previously.

Icahn and Yang were involved in a very public dispute last year when Yang rejected a $47-billion takeover bid by Microsoft for the company he founded with a Stanford University classmate in 1995.

Icahn's sale of Yahoo! stock came a month after the company agreed to a Web search and advertising partnership with Microsoft.

Under the no-cash deal, Yahoo! will use Microsoft's new Bing search engine on its own sites while Yahoo! will provide the exclusive global sales force for the companies' premium search advertisers.

Yahoo! lost 1.62% in New York on Monday to close at $14.61.

Yahoo-Microsoft deal finally worked out (confirmed)

The story has had quite a volume of press since a few months ago when Microsoft's offer to buy out Yahoo! for $47.5 billion was turned down by then Yahoo CEO Yang.

A couple of weeks later, rumors about a different Yahoo-Microsoft deal came out. This time, it was only for the Yahoo's search business, and Microsoft's advertising arm. In this new deal, it was supposed that Microsoft will handle Yahoo's search engine, while Yahoo handles Microsoft's online advertising.

Just yesterday, however, a deal not very different from what was rumored was confirmed to have been struck between the two tech giants. The obvious drive behind this would be to take on search and targeted advertising giant Google. But the question of whether it's going to work remains.

The long-expected deal means Microsoft's new Bing search engine will be combined with Yahoo's experience attracting advertisers in the first serious threat to Google Inc -- if the companies get regulatory approval and can make the partnership work.

Yahoo shares fell 12 percent as some investors were disappointed by the limited scope of the deal, which did not include up-front payments for Yahoo. Some investors had expected up to $3 billion up-front, according to a Bernstein report.

"I would have preferred more money," said Ryan Jacob, chief investment officer of Jacob Asset Management, pointing to the lack of an upfront payment, as well as revenue-sharing and cost-savings terms that were not as high as he expected.

"There are risks on both sides. Big deals like this tend not to work out. It's a long-term deal that's going to take a long time to implement," said Jacob, whose $40 million fund holds some Yahoo shares. "It's better than no deal."

Microsoft shares closed up 1.4 percent, while Google shares fell 0.8 percent.

Yahoo estimated the deal would boost its annual operating income by about $500 million and yield capital expenditure savings of $200 million. Yahoo also expects the deal to boost annual operating cash flow by about $275 million.

Antitrust obstacle

Under the deal announced on Wednesday, Microsoft's Bing search engine will power search queries on Yahoo's sites. Yahoo's sales force will be responsible for selling premium search ads to big buyers for both companies.

The partnership poses only a theoretical challenge to Google at present. It could take two-and-a-half years to get approval and be fully implemented, according to Yahoo Chief Executive Carol Bartz, which would mean the partnership would not be fully effective until early 2012.

Microsoft and Yahoo still face antitrust and privacy issues. Google dropped a planned search partnership with Yahoo last year under pressure from the U.S. Justice Department.

But experts said the deal would likely get the go-ahead after examination by Obama administration antitrust officials since it would create a stronger rival to market leader Google.

Google said only that it was "interested" in the deal, while the chairman of the US Senate antitrust panel said it warrants "careful scrutiny."

Microsoft and Yahoo expected the deal to be "closely reviewed" by regulators, but they were "hopeful" it could close in early 2010.

The deal concludes a lengthy, and at times contentious, dance between the two companies. They have been in on-again, off-again talks since Yahoo rebuffed Microsoft's $47.5 billion takeover bid last year.

Microsoft CEO Steve Ballmer clashed last year with former Yahoo CEO Jerry Yang, who was strongly opposed to an all-out acquisition. Relations between the two companies improved under new Yahoo CEO Bartz, who took the reins in January and started to shake up Yahoo's management.

Ballmer and Bartz met "three or four times" over the past six months as they hammered out a deal, according to Ballmer.

How the deal works

While Bartz had previously said any deal would require a partner with "boatloads of money," she said on Wednesday the agreement provided "boatloads of value," adding the revenue- share agreement in the Microsoft deal was more valuable to Yahoo than a one-time payment.

"Having a big up-front cash payment doesn't really help us from an operating standpoint," Bartz said.

Microsoft's AdCenter technology will serve the standard sponsored links that appear alongside search results. Microsoft will pay Yahoo an initial rate of 88 percent of search revenue generated on Yahoo sites in the first five years.

That means Yahoo can concentrate on selling ads on its websites, while still generating revenue from search ads without the expense of maintaining its own search engine.

Bartz said the deal will result in "redundancies" in Yahoo's staff, although she declined to be specific. She stressed any changes would not occur until after full implementation of the partnership.

According to comScore, Google has a 65 percent share of the US search market, compared with Yahoo's 19.6 percent and Microsoft's 8.4 percent.

"Microsoft will be able to report a greater share in terms of search ... And Yahoo doesn't have to spend any more money on search," said Barry Diller, CEO of IAC/InterActiveCorp, which owns rival search engine Ask.com.

Yahoo shares closed down $2.08 at $15.14 on Nasdaq, while Microsoft closed up 33 cents at $23.80 and Google shares closed down $3.61 at $436.24.