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Yahoo buys ad service to compete with Google

Yahoo Inc. added another weapon in its high-stakes duel with its richer Internet rival Google Inc. Monday by snapping up online advertising exchange Right Media Inc. for $680 million.
/ Source: The Associated Press

Yahoo Inc. added another weapon in its high-stakes duel with its richer Internet rival Google Inc. Monday by snapping up online advertising exchange Right Media Inc. for $680 million.

Although the cash-and-stock price is well below the $3.1 billion that Google recently agreed to pay for online ad distributor DoubleClick Inc., Right Media didn’t come cheaply for Sunnyvale-based Yahoo.

Last October, Right Media was valued at $200 million based on the $40 million that Yahoo paid to acquire a 20 percent stake in the privately held company at that time. Yahoo is now paying more than three times Right Media’s valuation just six months ago to gain full ownership of an exchange designed to make it easier for Web publishers to show what they have to sell to online advertisers.

The notion of a more transparent market is becoming increasingly attractive to both publishers and advertisers, especially since it has become apparent billions of dollars in spending is bound to migrate from other media to the Internet during the next decade.

With the shift, major advertisers are expected to increasingly emphasize more visual ads instead of the short text-based messages that have driven the success of search-driven networks controlled by Google and Yahoo.

Both Right Media and DoubleClick specialize in these display, or so-called “graphical,” ads. After focusing primarily on finding the best place to show advertisers’ messages, Doubleclick is now trying to develop an exchange similar to the one Right Media has been building up for the past two years.

New York-based Right Media still isn’t profitable, but is expected to generate about $70 million in revenue this year, doubling from 2006, Yahoo Chief Financial Officer Susan Decker told analysts in a Monday conference call. Right Media typically collects a 7 percent commission on advertising arranged through its exchange.

With roots in the dot-com boom of the 1990s, DoubleClick is much larger with annual revenue of about $350 million.

Yahoo believes it can help Right Media quickly expand its exchange after the acquisition closes in the second or third quarter. About 19,000 advertisers, publishers and networks buy and sell advertising on its auction-based exchange.

In Monday’s conference call, Yahoo Chairman Terry Semel was effusive about the Right Media deal, hailing it as “revolutionary” at one point. “It will help Yahoo drive more value for more advertisers, publishes and partners than any other company,” he said.

Investors seemed less certain as Yahoo shares dipped 10 cents to $28.24 in Monday afternoon trading on the Nasdaq Stock Market. Yahoo’s stock price has fallen by 12 percent since Yahoo announced disappointing first-quarter earnings two weeks ago. The results served as another reminder that Google has been widening its lead over Yahoo in online search — by far the Internet’s biggest moneymaking machine so far.

During the first three months of the year, Google generated $3.6 billion in ad revenue, more than doubling Yahoo’s $1.5 billion.

Google’s upcoming marriage to DoubleClick, announced earlier this month, may have increased the pressure on Yahoo to counter by buying Right Media outright.

But Decker said in an interview Monday that the company was laying the groundwork nearly a year ago when it began selling display ads for online auction leader eBay Inc. Since then, Yahoo also has formed an online advertising alliance with 264 U.S. newspapers that are prime candidates to participate in Right Media’s exchange.

Now that both Google and Yahoo have bought advertising intermediaries to help expand their clout on the Internet, Microsoft Corp. is widely expected to make a similar deal as it tries to become a former formidable force online. Microsoft is believed to have bid at least $2 billion for DoubleClick before getting trumped by Google.

( is a joint venture of Microsoft and NBC Universal News.)

The list of possible Microsoft targets include aQuantive Inc., ValueClick Inc. and 24/7 RealMedia Inc.