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Software is Eating the Digital Advertising Business

19 Aug 2013

Yahoo! has released undeniable data about the growing impact that advertising technology companies are having on the company. Display ad revenue (ex-TAC) was down by 12 per cent, the price for a display ad was down 11 per cent and the number of ads sold was down 2 per cent.

So, what is happening? In short, software is eating the digital advertising business.

A year ago, Marc Andreessen wrote an essay in the Wall Street Journal entitled, "Why Software is Eating The World." Few outside of the advertising technology industry realised this inevitable transfer of value from traditional companies to software companies included the media business and notable internet players such as Yahoo!.

Now that large public companies are beginning to miss their display numbers, the broader market is starting to take notice of the following trends:

Software is King (not Content). The two largest sellers of online advertising are Google and Facebook -- two companies that are software companies at their core and produce no content (although one can argue users add content to their platforms). The traditional companies that produce content (WSJ, People, CNN, Disney) and the internet companies that produce content (AOL, Yahoo!, Microsoft) are all losing share. Yahoo! is particularly vulnerable in mobile and video, two categories in which they have insignificant owned and operated inventory to sell.

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