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Web Search & Marketing Newsletter - March 2008

Welcome to the latest edition of our monthly web search and marketing newsletter.

In this issue we look at Microsoft's bid to buy Yahoo!, which dominated the online industry news over the past month. We also review some of the latest research from the UK about social networking sites and ask the question 'have they now peaked in popularity?'. Finally we also report on the latest Internet advertising figures for Australia which show further healthy growth during 2007, particularly in the search marketing sector.

Read more about these stories below, or you can also browse through previous editions of the newsletter, either by month or by subjects covered.

On to this month's edition...

Microsoft's bid for Yahoo!

The online industry news has been dominated over the past month by Microsoft's bid to buy Yahoo!. The move came at the start of the month and although Yahoo! quickly rejected the move, Microsoft's intentions have now been made clear and there has been plenty of speculation on what the likely implications will be for the market and, in particular, the search sector.

Microsoft's offer was to buy Yahoo! for $US45 billion – a move that was prompted by a struggling Yahoo! who had just announced that they would be cutting around 1,000 jobs and had also reported a 23% drop in profits. Microsoft clearly saw this as a good time to acquire a key competitor who hold a good market share in the US and have also established stronger links with the online industry around the world, especially in Asia.

The acquisition would also give Microsoft access to additional search and pay-per-click technology, plus it would give them an extra foothold to compete against their arch-rivals at Google. Not surprisingly, Google raised concerns about the move, partly as 'payback' for Microsoft's action to stall their own takeover of DoubleClick last year, but also due to genuine fears about the additional market reach and technological capability that this combination of their two main rivals could create.

Subsequently, within the week, Yahoo! rejected Microsoft's offer as being far too low and that Microsoft were clearly trying to take advantage of their recent poor results by offering to buy the business at a bargain price. Now that Microsoft's intentions have been made clear they have said that they will continue pursuing Yahoo! through all possible channels and are now likely to make an approach directly to Yahoo!'s shareholders to gain acceptance of a strong offer.

Microsoft is unlikely to offer much more to buy Yahoo!, so now the fate of Yahoo! will largely remain in their own hands as their business struggles to maintain and grow value in the face of a determined suitor. Now that Microsoft has commenced this action they are likely to be persistent to achieve their desired result and news coverage will no doubt continue for some months yet. Speculation and comment will also fill online and offline news sources about what the implications for such a move will be for the online marketplace and what Microsoft will do with Yahoo! if, or when, their bid succeeds. You can keep up to date with developments through Google News.

In Australia there are some unique implications from the bid between these two search portals since both companies are in 50/50 joint ventures with fierce TV network rivals - Yahoo7 is a partnership with Seven Media and NineMSN is a partnership with the Nine Network. Should the takeover succeed in the US, then these two operations will come under the same owner and, according to analysts, it would create an untenable situation. As a result, it would be likely that at least one of the partnerships would need to be disbanded.

If you’d like to know more about the progress of the Microsoft / Yahoo! bid and how it may impact the search advertising market, please contact us now for more information.

Has social networking peaked?

One of the most discussed and possibly hyped topics of 2007 was the continued rise of social networking sites, such as Facebook. However, recent news coverage of this sector now seems to be declaring that the popularity of social networking may be on the decline.

A recent survey by Nielsen Online recorded a decline in the numbers of UK Facebook users, down by 5% in January to 8.5m. This marks the first decline in usage since the numbers were first measured in July 2006. Bebo and MySpace also showed slight falls in user numbers over January 2008.

But does this really mean that the social networking phenomenon has now peaked?

Given the huge popularity of these sites, there are bound to be dips and cycles in usage once the initial rapid uptake period had passed. Despite this new reported decline, the year-on-year figures for Facebook still indicate massive growth in user numbers of some 712%. Plus, the Nielsen research shows that while some site numbers have fallen, other UK social networking sites like Friends Reunited attracted more users in January 2008.

This could mean that users are looking for a social network that reflects their particular needs or demographics, or some are simply looking for a change. It can certainly be true that as these new services become more mainstream, original users of the sites may move away to use other networks instead, plus once the initial media frenzy has subsided, such major sites can then start to attract more negative publicity - as Facebook is now seeing with reports about privacy concerns and the inability of users to delete their details from the site once they cancel an account.

There are also new 'social' or user-generated content sites emerging all the time, such as the new social shopping sites and also Wikia Search, which we featured last month. This new type of search engine relies on user articles and ratings to help assess relevant content. At the moment, the site is still in Alpha release and the quality of the results is fairly poor, as admitted by Wikia Search itself. But many industry analysts believe this type of site could have staying power once the initial resistance and quality issues are overcome.

What does this mean for businesses looking to leverage social sites for marketing? Social networks still attract substantial numbers of web visits and mark a significant trend in the way the Internet is being used over the past few years. They provide many opportunities for businesses to access niche demographics or interest groups and so the trick will be keeping up with changes in the social networks and the features each one offers, as well as spotting those channels which best suit the unique selling proposition of a business.

If you want to start using social networking sites as part of your online marketing strategy or would like more information on how this could be done, please contact us now.

Internet advertising growth in Australia

The latest Internet advertising spend figures for Australia were published in February and despite a slower pace of growth over the past 12 months, it remains a very healthy marketing sector, with search advertising continuing to grow at the fastest rate and now almost achieving half of the total spend.

The new annual data from the Internet Advertising Bureau uses data compiled by PricewaterhouseCoopers and shows that overall growth in this advertising sector has slowed over the previous year. However, there was still a 34.5% growth from 2006 to $1.34 billion in 2007, with the market on course to achieve sales of $1.7 billion in 2008.

During 2007 the report says that the search and directories category - which is dominated by Google - has increased its level of spend at a rate that's double the figures seen for display advertising and classifieds. These figures remain an estimate however, since Google refuses to reveal their actual numbers, yet the search advertising sector was reported to have grown by 56% to $622.2 million, compared with a growth of 21% for display ($367m) and 19% for classifieds ($356m).

All 3 sectors are still showing good signs of continuing growth, although the search sector demonstrates the ongoing recognition of this market as a powerful marketing technique and a popular method of online advertising for many companies. Despite previous annual growth rates of around 60% for the Internet advertising sector as a whole, the increase of 35% in 2007 is seen as a slowdown for the market but still a healthy and sustainable growth pattern.

If you’d like to know more about these latest advertising figures, please contact us for further information.

Recent articles from The Marketing Workbench

The Marketing Workbench is our regular web marketing blog covering news and comment on Internet marketing events and trends. If you want to keep track of current stories you can visit this section of our website on a regular basis, or set up an RSS feed. These are just some of the items posted over the past month:

We hope you've found this month's issue useful. Please contact us if you need any more information on the items covered, or our advice on any aspect of your website's performance. Also, if there are any issues you would like to see in future editions of this newsletter, please submit your suggestions to us.