Better Adverts and Lower Costs are in the Regulators Crosshairs

A number of companies appear interested in buying Yahoo, including Google-parent Alphabet, Time Inc., and DMGT (the British parent company of the Daily Mail newspaper and Elite). Now Verizon Communications, one of the major US broadband companies, is reportedly interested in buying the core of Yahoo too. Yahoo has a 204 million unique monthly visitors to its site or about 80% of the total US Internet count of 257 million individuals. Attracting eyeballs to the Internet is key to the success of online advertising, and there are three key improvements to improving digital advertising – the sheer size of the visitor count, advertising quality, and tactics to reduce consumer cost, such as encouraging the visitor to linger.

US Digital Media Properties for February 2016 ranked in millions of unique visitors:

Google 243, Facebook 206, Yahoo 204, Microsoft 201, Twitter 177,

Amazon 171, AOL 166, Comcast/NBC 152, CBS 148, and Apple 141

Google’s email, search and other services draw visits from 95% of US Internet users. Its dominance in visitors, coupled with Google’s skillful collection and analysis of visitor data, allows it to serve up visitors who meet an advertiser’s target profile. This has made it the preferred place for digital advertising. AOL has shown similar competence but it lacks Google’s scale and is probably seen as less efficient from an advertiser’s perspective.

Yahoo’s visitor count is impressive, but for some reason, Yahoo lacks Google’s ability to isolate visitors with the most valued attributes and serve them up to advertisers. If that skill could be applied to Yahoo visitors, it would become a stronger competitor to Google. Verizon must think that the skills it learned from purchasing AOL are sufficient to turn Yahoo around.

When Google plotted to merge its search operation with that of Yahoo in 2005, they were talked down from that ledge on antitrust grounds. A similar concern may apply to a Verizon-AOL-Yahoo merger of Yahoo’s core services. The antitrust assessment may hinge in part on the visitor counts each attracts. The DOJ has wide latitude and can set up the analysis to favor its preferred outcome. For example, if it defines the marketplace narrowly, that signals it is skeptical of the merger’s merits.

Total visitor count for the merged trio (Verizon-AOL-Yahoo) cannot be derived from just adding unique visitors, because that would double count individuals and the total would exceed the total count of US Internet users. For example, I used both Verizon and Yahoo during February 2016 and I am counted as a unique visitor in each. In a merged trio, I would need to be removed from one of the headcounts. The total visitor count of the trio would be closer to that of Google, providing a more vigorous level of competition.

A tool called “zero-rating” is being used to attract more visitors and encourage them to linger for longer periods of time. This advertising or promotional tool makes any additional data usage not count on consumer data caps, while the consumer is on the promoted site or application. That reduces the cost disincentive for consumers, and of course, consumers love “free of charge.”  The advertiser can choose to arrange for this through an agreement with a mobile phone service or Internet service provider who has a data charge component in their billing.

Several wireless companies have adopted the practice. For example Facebook was zero-rated for videos while consumers were on T-Mobile. Google has arranged for zero-rating of YouTube. Netflix offers its own cost-saving variant that slows down some of its movie transmissions to a speed that does not impair quality, but which saves data, and thus data charges. It seems all the byte-count and speed manipulations are being done by or at the request of information service providers, and to the delight of consumers.

There are two of these themes focused on digital advertising: first, the skillful categorization of visitors to allow selecting them for specific adverts; and second, increasing the venue’s headcount of visitors to improve the yield of an advertiser’s campaign. The FCC’s new rules for improved consumer privacy could disrupt the effectiveness of information service providers such as Verizon or AT&T, but not for information providers such as Facebook or Google. The identical marketing tactics are exempt from FCC regulations if they done by an information provider. If the regulations are good for consumers, then they are good regardless of which competitors practice them.

The FCC should not be hobbling just half of the competitors. Asymmetric regulation reduces competition and consumer benefits.

The new privacy regulations may have a bearing on selecting the nature of the company that is to be mothership for a merged Yahoo core. Hideously complex legal tangles venerating 1934 precedents are tragically common results from DOJ and FCC when they take on telecom. It’s a pity that today’s consumers are not the dominant focus of their handiwork.