AvenueA/Razorfish, a leading digital advertising agency in the US, is reporting that the share of client dollars it spent on portals went down in 2007, while niche, vertical sites increased their share. More info is at CNET. CNET says, “The share spent on portals dropped from 24 percent in 2006 to 19 percent, while search share rose to 31 percent from 28 percent, vertical sites rose to 39 percent from 37 percent, and spending on ad networks was flat at 11 percent. More dollars went to the top 5 ad networks.”
The share of dollars to the portals, the generalists who offer a litte bit of everything — some basic things like mail and news and sports and some high end things like behavioral and contextual targeting, went down. While the share of dollars to specific, targeted sites (vertical sites in the paragraph above) went up — these are the sites that offer a targeted audience doing one thing and engaging deeply in that area.
Sounds like what has been happening at department stores. These large, non-specialized stores saw their market share drop from 38% in 1995 to just 19% in 2002 (source: RetailTraffic). Department stores lost out to deep discounters like Wal-Mart or specialized stores such as Ann Taylor and Abercrombie & Fitch that relentlessly pursued a focus on a certain type of consumer, rather than just a tagline of “Everything to Everyone” which turns into “Nothing really for Anyone.” Seems to me like department stores and portals are pretty similar.
I wouldn’t be surprised at all, in fact I would expect, that we will continue to see revenue shift away from portals and move to players that provide more specialized, targeted solutions. 2007 might just be the tipping point for the maturity of the online advertising industry in the US away from the mass-market, generic solutions offered by the portals. And like the data shows, it looks like we are tipping to a world where these niche communities and/or technologies take up the baton and lead the race of the next 10 years of online advertising.
The ramifications I believe are similar to what happened in the television world. Television saw a similar evolution as the major networks (CBS, ABC, NBC) saw a splintering of their audience and market share to cable television. If you use that as a roadmap, portals to compete in this new world need to build/buy vertically oriented sites and keep them separate (to keep their high quality audience from being diluted by the portal audience), or to buy ad networks that recreate niche or technical targeting. And if you’re a vertically oriented site or ad network you are like a brand new cable network — you are looking good as long as you stay focused!
This is all especially interesting in light of Microsoft’s $40B+ bid for Yahoo! Am I saying that Microsoft is wasting $40B? No, definitely not. Going back to the similarities in TV, the major broadcast networks have still increased their revenues every year (until recently). Even while the consumer audience was splintering and moving to cable the broadcast channels were able to charge more and more per viewer because it was the only place for advertisers to get a mass audience. I fully believe that Yahoo! and MSN will still be able to charge $500k-1M a day for the homepage ad placement and that will go up for a while. But the core of the business is aggregating large audiences, so though broadcast networks were able to grow their topline the core of their business was actually rotting out as the audience shrunk. The portals will also hide the rotting of their core business for some time, but it will catch up with them eventually. And one thing that will hasten it is the distributed nature of the web. In TV you don’t have an ad network that can get you a mass audience across thousands, or even hundreds, of channels in a one day period of time or in a single hour. On the web you have this, and ad networks can target precisely as well. Ad networks could be the portal replacement for how to reach a mass audience and will provide competition to the mass portal homepage placement (e.g., Advertising.com in the UK sells a Netblock which is a buy across all the ad placements on their network on a Saturday morning). Net net: the time bomb on portals will tick a heck of a lot faster than it did for broadcast TV.
In summary, it looks like web viewers are spending with their traffic. Department portals are being sidelined for specialty sites — how are YOU shopping these days?