...and the rapid fall of the East Coast Media

Advertising agencies have become the prime target of the Internet giants in their most recent M&A activities.

It is all part of the roll-up in the industry, as Sramana Mitra describes it well.

It is also a way for GOOG, YHOO, and MSFT to acquire advertising agencies as part of their inevitable move up the value chain.

The goal in these acquisitions is not the technology but the revenues and customers. Why split revenues with advertising agencies? Especially if you know how much advertising content you can publish in the months ahead. And you have the computing platforms to scale the advertising content much more efficiently.

It is much better to acquire those companies because:

• You recover the share of ad revenues paid to the advertising agencies.
• You also buy the customers. And those customers are going to be increasing their online advertising spend dramatically as they finish up with advertising contracts elsewhere.

These are easy numbers to crunch for the CFOs and justify the valuations of the deals.

But the Internet giants will face challenges:

• These are more people based businesses than they are technology based.  They don't scale nearly as well as servers-and-software. Google and the others know how to grow through servers-and-software but not through people.
• Managing the advertising businesses is going to require skills in managing relations that are nothing like software developer relations. Managing those businesses well and not killing them will be a challenge.
• Their market valuations might come under pressure if their cost of business rises because of the people-scaling factor and impacts operating margins.

The Rise of the West Coast Media

This is all part of a larger trend as the new media companies of the West Coast grow in value, while the old media companies of the East Coast cutback and shrink.

GOOG, YHOO, EBAY, AMZN, and MSFT are all publishers. They publish pages of content and advertising. Some of it is subscription based, some of it is advertising supported. These are technology-enabled media companies.

Our West Coast media companies are growing by leaps and bounds. The East Coast media companies are shrinking.

---

Advert: The New Lenovo ThinkPad is here! A short review.

Additional:

Silicon Valley has become Media Valley - someone should tell NYC

 Silicon Valley is rapidly turning into Media Valley--and New York, NY should look out--the capital of the media world is shifting about 3,000 miles westwards. Some of Silicon Valley's largest companies are media companies: Google, Yahoo, EBay, for example are...

Posted by Tom Foremski on February 24, 2007 5:18 PM

The acceleration in the disruption of media

I'm often invited to talk to groups of people about what's going on in the media sector, and I often start with a simple observation: At no other point in our lives will we be witness to such a...

Posted by Tom Foremski on November 22, 2006 3:53 AM

Cherry picking advertising and not paying for the journalism

Google can sell advertising for much less because it doesn't have to pay for any journalism. Newspapers, TV and radio sell advertising so that they can pay for the journalism. Craigslist can operate a global classified ads business with...

Posted by Tom Foremski on May 17, 2006 2:17 AM

What happens if the old media dies too soon? The urgent need for solid online news media business models

Exploring the new media business models

Old media is being cut off at the knees as Google and a few others grab ad revenues. But for most new media enterprises, existing business models don't generate enough revenue and it's not yet clear what will. An analysis of the situation and some thoughts on new approaches

Posted by Tom Foremski on November 14, 2005 7:00 AM