Four large newspaper owners are forming an online ad network called quadrantOne in hopes of competing with Google, Yahoo, Microsoft, and AOL.
Local newspapers have it hard when it comes to claiming a slice of the billions of ad dollars spent online. Big marketers that want to send a message to the masses are more likely to turn to big Web companies such as Google (GOOG), Yahoo! (YHOO), and Microsoft (MSFT), and the vast networks they’re tapped into. “What [national advertisers] have always done is seek the easiest solution—a couple of big portals—to give them national reach,” says Jack Williams, president of Gannett Digital Ventures, the online division of the Gannett (GCI) newspaper chain.
But now, companies representing 174 small papers and other publications are banding together to make their task easier. Four of the nation’s largest newspaper owners, Gannett, Hearst, New York Times (NYT), and the Tribune, have formed an advertising consortium dedicated to attracting marketers that seek big audiences through local channels.
The hope is the combined advertising network, dubbed quadrantOne, will attract advertisers previously turned off by the daunting task of amassing audiences of millions by buying space individually on dozens of smaller Web sites. “Local publishers just don’t have the scale to compete with the big portals,” says Dana Hayes, quadrantOne’s interim CEO and Tribune Interactive’s senior vice-president of sales. “So what quadrantOne is really looking to do is to create a virtual portal.”
Quality, Scale, and Placement
Joining forces, however, is only part of the uphill struggle against tech’s titans. The new network will have to compete vigorously in three key arenas: site quality, scale, and the science of placing ads where they will have the biggest impact.
The newspapers have an advantage when it comes to site quality, experts say. When marketers buy ads from the major portals, they often don’t know exactly where their ads will appear. In contrast, quadrantOne will show advertisers exactly where on its network an ad will run. “Big branded advertisers want to know where their message is running, and quadrantOne will operate in a fully disclosed way,” Hayes says.
It’s in the other two areas where the work may prove most daunting. Google, Microsoft, Yahoo, and Time Warner’s (TWX) AOL have already spent billions of dollars to gain size and technology. Together, the big four spent some $10 billion in 2007 (BusinessWeek.com, 7/24/07) acquiring companies that are well-versed in the strategic placement of ads on vast networks of Web sites. Those acquisitions come on top of billions of dollars spent on internal efforts to figure out which ads are most effectively reaching a desired audience. “Advertising online is very quickly moving from being an art to a science,” says Jeffrey Rayport, founder and chairman of Marketspace Advisory, a strategy consulting firm. “If you want to play that game, you have to not just get the reach but you have to take very seriously what you are going to do about the science and analytics.”
Unevenly Divided Ad Dollars
The spending spree is far from over. At the end of January, Microsoft made an unsolicited $44.6 billion bid to acquire leading Web destination Yahoo. The transaction would make it the largest property on the Web with the ability to reach nearly every online user with an ad at some point in the course of a month. Meanwhile, Google is trying to win approval from European regulators for its $3.2 billion acquisition of ad-serving giant DoubleClick, which would improve its ability to place ads.
Even without those investments, the Big Three have dominated the $28 billion U.S. online advertising market. As much as 85% of online advertising dollars went to the companies in 2007, with less than one-third of that amount passing on to the partner sites within their networks, according to Rayport. Google, in particular, has consistently expanded its share, with more than 40% of all online ad dollars flowing through its coffers. Old Media Takes Aim at Web Goliaths
Seeking Critical Mass
Meanwhile, newspapers have grown weaker. Newspaper advertising dropped more than 7% in the third quarter of 2007, according to the Newspaper Association of America. Much of that decrease was fueled by a 9% decline in print advertising, which accounts for more than 90% of newspapers’ revenue.
Gaining size is one of the consortium’s biggest challenges. QuadrantOne will sell and deliver ads on sites of local publications owned by its founding members, including New York Times-owned Boston Globe and Tribune’s Los Angeles Times (though not on large national sites such as those for The New York Times and Gannett’s USA Today). The partners’ local papers alone give the consortium an audience of 50 million Web visitors a month, according to measurement firm Nielsen Online. The group plans to expand membership to other local newspaper and TV Web sites before it becomes fully operational on Apr. 1. “We have had discussions with a lot of people,” says Gannett’s Williams.
But 50 million visitors pale in comparison with the Big Four’s audience. Google, Yahoo, Microsoft, and AOL each regularly see a minimum of 120 million unique visitors each month, according to research firm comScore (SCOR). Advertisers that want to reach a big audience are still likely to gravitate toward an established portal. “To truly control your destiny, you have to be really big these days,” says Dave Morgan, AOL’s outgoing executive vice-president of global advertising. “The big marketers that spend hundreds of millions are only going to work with a couple big ad networks and four or five smaller ones.”
Despite the challenges, newspapers and other media publishers have little choice but to join forces to compete with Web Goliaths. The alternative is to partner with Google or Microsoft in online advertising, but that carries its own risks. Chief among them: Big players would direct the most valuable ad campaigns to their own sites, rather than those of a partner with which they must share revenue. Either way, newspapers will need to team up with rivals to get their fair share of the online ad market. “Sometimes people you cooperate with you also compete with,” says Morgan. “It’s just how it works.”
By Catherine Holahan
Holahan is a writer for BusinessWeek.com in New York.
