SEO Book’s Aaron Wall (and fellow Oakland denizen) and I had an interview, which we posted on his blog yesterday. Here’s an excerpt:

Steve Ballmer mentioned how advertisers + search volume build off each other to create a higher yield. Do you see online advertising becoming a natural monopoly market?

I don’t, because although economies of scale have an important part to play in establishing the pecking order among firms, there are other ways in which an ad network can successfully compete.

Google certainly benefited from being an early, aggressive mover in the space, and it is clearly the dominant player, but there is still substantial opportunity that is being capitalized on by other networks. Smaller ad networks fighting Google with a more generalized approach can still offer lower pricing, because heavy bidding with Google and limited high-quality inventory means that Google can’t necessarily always provide the best value proposition to advertisers, so they offload to other networks. But there will always be other ad networks that either nail a specific vertical market well enough to be an attractive option for both niche advertisers and publishers, and smaller ad networks will also continue to innovate, creating engagement and pricing (payment) models that work better for some advertisers and publishers.

Google as a network can’t do all these things – the market is just too big and too complex. But there is a way for Google to be the dominating player in the market by owning the marketplace, by opening up its platform to other advertisers, as it has done. Google doesn’t derive any direct benefit by doing so, but one predominant ad delivery platform creates the liquidity in the market that makes Google’s economies of scale matter.

Read the full interview here»

This entry was posted on Friday, January 16th, 2009 at 11:16 am and is filed under Online Advertising. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.