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I'm a partner in the advanced analytics group at Bain & Company, the global management consulting firm. My primary focus is on marketing analytics (bio). I've been writing here (views my own) about marketing, technology, e-business, and analytics since 2003 (blog name explained).

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February 09, 2008

Expanded Awareness At AOL: MIHOO + eBay? And What About Amazon?

Dave Morgan is a shrewd operator.  In adding buyat to advertising.com, he expands what AOL knows about how surfing ties to buying.  As I wrote here, this expanded awareness of consumer behavior makes it possible to develop better targeting algorithms, raising the CPMs he can charge advertisers or helping him be more competitive at existing rates.

So if a smaller affiliate network like buyat makes sense for AOL, what about two well-known larger networks? 

For example, when does Microsoft add eBay to Yahoo!? Like Yahoo!, eBay's stock is down 30% from last fall.  The premium over the market price that Microsoft is paying for Yahoo! represents only about 5% of Microsoft's market capitalization, arguably leaving plenty of room for another deal of similar scale without stockholders getting nervous about excessive dilution -- and eBay's market cap today is only about a third bigger than Yahoo!'s was pre-MIHOO.  Amazon, with a market cap of $30 billion, is in essentially the same position. (And maybe since it's a neighbor of Microsoft's, it might make more sense?)

This idea isn't that radical.  Yahoo! and eBay already had a partnership.  Google gets the value too, though it hasn't made much progress with its own services, Froogle and Base.

Some will say another deal soon is practically impossible, because integrating Yahoo! will consume Microsoft.  I believe that's a red herring.  The value in the MSFT/ YHOO deal will be created by a better advertising capability: better reach, better data, better targeting.  It won't come from integrating media properties.  If you believe this, it suggests that this is where the integration focus should be.  This  simplifies the integration challenge, and allows Microsoft to turn its attention to the next move.  Also, the current economic circumstances favor further consolidation, especially in a market (digital marketing) with longer-term fundamentals (growth, returns to scale) that remain strong.

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