Dance of the elephants

So what are the kingpins of on-line advertising up to? To date, Google has done an excellent job of wringing every last penny possible out of text-based advertising tied to search returns, while Yahoo has been pretty successful (stock price notwithstanding) at delivering a rich media experience to it’s end-users in the context of search returns. Sounds like there’s a nice confluence of opportunity here for both companies to combine their efforts. Then of course, there’s always the possibility that the other behemoth, Microsoft, seeing Google as the threat it really is, would try to step in and snap up Yahoo, since they are more acquirable now than they have been in years. But this misses a crucial point…

This assumes, of course, that all three companies see on-line advertising as the end-all be-all solution to a fatter bottom line. Google? Definitely. Yahoo? Yes, but less so, they’re great with rich media advertising, but Yahoo’s primary value to it’s audience is content; they have search and advertising (as do their competitors), but its incidental to the core value of a rich and varied content offering.

And Microsoft? Nope. They have been king of the desktop longer than most people using the internet have been alive. On top of this, most of their revenue comes out of corporate licenses, not consumer licenses. On-line advertising may be an interesting way for some companies to generate staggering amounts of revenue, but Microsoft’s focus on corporate licenses takes them out of that game. The threat to Microsoft from Google is not the ad model, its the move towards Software-as-a-Service (or the layman’s term “cloud computing”), a.k.a. Google Apps. Once the SaaS market starts to really take off, the potential revenues will dwarf anything coming out of the advertising side. That’s where Microsoft needs to realign; if they keep their focus on the ad market, Google will eventually be in a very strong position to steal the desktop right out from under them.

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