Microsoft, Yahoo, AOL team up to sell Internet ads

Microsoft, Yahoo and AOL are joining forces in an online advertising attack on Google and Facebook.

The alliance, announced on Tuesday, is designed to sell some of the less-prized ad space that Microsoft Corp. Yahoo Inc. and AOL Inc. have had trouble filling on their own.

Even as they share some resources, the three companies vowed to retain their independence and compete against each other with separate sales teams. For that reason, they said they don't expect U.S. antitrust regulators to object to the nonexclusive partnership before they begin selling ads together in January.

Ross Levinsohn, a Yahoo executive vice president, hailed the alliance as a "fundamental rethinking" of the Internet ad market.

That statement also could be interpreted as a bit of wishful thinking. Microsoft, Yahoo and AOL all need to change the direction of an online ad market that has been increasingly tilting in the direction of Google and Facebook.

Having already built a money-making machine in its dominant search engine, Google Inc. has become even more powerful in Internet marketing since it bought DoubleClick's ad service for $3.2 billion in 2008. That deal provided Google with a springboard to leap from text ads that appear next to search results into the graphical messages known as display advertising.

Facebook is attracting more advertising as it becomes more established as the Internet's most popular hangout. The company accumulates valuable insights into people's interests as its 800 million users share their passions. That advantage has helped Facebook become the leader in U.S. display advertising with a 16 percent share of the online ad market, according to the research firm eMarketer Inc.

Yahoo, the former leader, has seen its share fall from 18 percent in 2008 to 13 percent this year. Google's share of the display market has risen from 2 percent in 2008 to 9 percent.

Microsoft stands at 5 percent and AOL is hovering around 4 percent, according to eMarketer.

As it has fallen further behind in Internet advertising, Microsoft's online division has piled up operating losses of $7 billion since June 2008. Revenue at both Yahoo and AOL is steadily falling. Yahoo has been struggling so much that its board is mulling whether to sell all or part of the company.

Microsoft may eventually benefit from Facebook's success. It bought a 1.6 percent stake in Facebook for $240 million in 2007. By some estimates, Facebook is now worth three to five times more than it was when Microsoft made its investment.

By tapping into each other's technology, Microsoft, Yahoo, and AOL are betting they can save money and sell more advertising.

The partnership will cover a category of advertising that doesn't typically appear in the prime slots on websites. Microsoft, Yahoo and AOL believe that space will be in higher demand if they can succeed at creating a more efficient, transparent market that helps connect advertisers with the Web audiences best suited for their marketing campaigns.