An alternative Plan B for Microsoft

Yahoo remind me of the famous saying about the Palestinians:

"They never miss an opportunity to miss an opportunity"

After playing a hand of cards they didn't have with Microsoft, they have now essentially committed harkiri by becoming a node within Google's business. Why would any advertiser now bid on Yahoo's platform? I can't find a single reason, and I doubt advertisers will either (not that they had many reasons before...). I agree with Michael Arrington - Yahoo totally screwed this up, and their search business is pretty much dead.

Now everyone seems obsessed with Microsoft's next acquisition target. I'd like to offer Ballmer my 2c on a potential alternative to the $50B acquisitions they're looking to make. It's called the 200% rev-share program.

But first, a little background:
Online advertising is a strange business. While the advertisers are the ones paying for everything, acquiring advertisers is a secondary concern for an ad network. A distant second. The #1 key to making an ad network work is the publisher side. Even though the publishers are being paid, it's much more difficult to win publishers than it is to win paying advertisers. The reason is pretty simple: Ad space is binary, while advertising budgets are not. A publisher has to make a binary decision on who gets to sell certain ad space. Whoever they choose becomes the de-facto exclusive "owner" of that ad space. Publishers cannot take risks on that kind of exclusive deal, and therefore they all choose the leader who has proven to monetize best - Google in the case of text/search ads.

Advertisers, even though they are the ones paying the bills, are much easier to obtain because their choice on how to distribute their budget is not binary by nature. They can put some money on Google, some on MSN, some on Quigo, etc. Advertisers will generally follow the distribution. He who has publisher real estate will eventually get the advertisers. The other direction is far from guaranteed (see Miva, LookSmart, etc, etc).

A much better plan B for spending those $50B is by seriously upping the rev-share paid out to publishers. And I'm not talking about upping it from 60/40 (about what Google pays out), to 70/30. My suggestion would be to go for a 200 / -100 rev-share with publishers. Take those $50B and use them subsidize the publisher earn-outs for the next couple of years. 

Publishers are dying to have an alternative to Google for monetization. The trouble is that no one has been able to naturally monetize better than Google. And that gap is widening by the minute. This game cannot be won in a dog chase.

The only way to get back into the game is by locking publisher distribution, and the only way to do that is by out-paying Google, even if that means doing it artificially via subsidizing the rev-share and not though higher yield.

Microsoft should offer a 200% rev-share to all publishers (and search sites, etc) for next couple of years until every publisher in the world is talking about how much better monetization is with MSN than it is with Google. When that happens, critical mass of distribution will occur, attracting massive advertising $$'s, allowing Microsoft to *slowly* throttle down the revenue split to under the 100% mark.

This isn't too crazy... If anything, I'd go for a 300% or 400% rev-share and completely nail this down. Google can obviously react to this and raise rev-share splits as well. But for Google this is the *only* revenue source and it would be awfully painful to turn that into a money loser. Microsot can still afford to do this while Windows and Office are still the cash cows that they are. In addition, some of these publisher subsidies will be offset by the improved monetization of MSN's own properties.

This is one of those unique moments where it can really be said that it's now or never.