If you're a business owner with an online presence, odds are that you know all about contextual marketing. You can pay a company like Google (Nasdaq: GOOG) or Yahoo! (Nasdaq: YHOO) to place a brief, three-line text ad with a link back to your Web site. You then bid on keywords that you would like to be featured in on each company's search engine.
Your placement by the site depends on how much you are willing to pay for each click back to your site. Some keywords like "asbestos lawsuit" or "home equity loan" may fetch bids of several bucks per click, though if you try hard enough you can be on the receiving end of Google's search engine for just a penny per lead.
A lot of interesting things have been happening in this space lately. It will have implications for you as an advertiser in the future, but the near-term opportunities are for you as an investor.
Sector consolidation is happening. Last month found Google agreeing to buy graphical advertising giant DoubleClick. Yahoo! countered by forging a deal to buy all of the Right Media exchange that matches up advertisers with website publishers in an open marketplace. Things really began to heat up over the weekend when published reports claimed that Microsoft (Nasdaq: MSFT) was now looking to buy Yahoo! in its entirety.
Speculators often take advantage of the feeding frenzy in fragmented sectors, buying up smaller players that may be acquired. It's a risky move, though it's undeniable that a few acquisitions will result in the remaining players trading at a premium. You are seeing it now, with shares of small interactive marketing companies like aQuantive (Nasdaq: AQNT), ValueClick (Nasdaq: VCLK), and 24/7 Real Media (Nasdaq: TFSM) broiling in the rumor mill.
Consolidation isn't as pretty a picture for consumers, who fear paying higher prices with fewer competitors around. Business owners often feel the same pain. My father runs a wholesale frozen food distributorship. Pan American Frozen Foods was actually one of the original Hispanic Business 500 companies through the 1980s. The company's specialty has been frozen French fried potatoes, moving millions of pounds each year.
Well, a lot has changed since he started the company more than 30 years ago. There used to be two dozen different potato packers in the early years. Sourcing product at a competitive price was never a problem. However, sector consolidation has whittled down the pool of feasible suppliers to just a half-dozen now. With fewer competitors around, price wars are rare and the negotiating leverage often belongs to the suppliers.
Yahoo! and Google aren't selling shoestring fries or tater tots. At least I hope it never gets to that point. However, the same dynamics are at play here. Acquiring key rivals will give advertisers fewer alternatives. It will be more important to go through the remaining players to get noticed, and sponsors wont' command the same kind of leverage that they once had.
That may be bad for businesses and consumers. However, as I mentioned earlier, it's where the opportunities can be had for investors to cash in on a sector that is coming together.
Rick Munarriz is a personal finance columnist for HispanicBusiness.com. He has written for sites such as The Motley Fool and Citysearch, and he can be reached through Reportedly.com where he discusses his latest articles.
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