The conventional wisdom has been that the top three to five properties will conquer the online advertising world and all others will fade away.  Having witnessed that winner-takes-all reality in the portal, search, social network, video and platform wars, it’s hard to dispute the argument.

However, the problem is, after 15 years of online media, the numbers suggest that scale for scale’s sake is actually somewhat worthless.  Both AOL and Yahoo! have a lot of reach and scale, and advertisers are starting to doubt if that alone is enough: “What do Yahoo and AOL bring? In fact, they don’t bring all that much,” said Rob Norman, chief executive of WPP PLC’s GroupM North America (in a Wall Street Journal article),  arguing that marketers view them as large quantities of mostly commoditized inventory. “Just because you have a lot doesn’t mean that you have something that is of distinct value.”

The Portal Killer: Facebook… Not.

Yikes.  Of course, maybe this is because Facebook is killing it.  Well, not so fast.  Apparently, Facebook itself is failing to hit the lofty projections that have fueled its valuation in secondary markets by as much as 25%.

After all, in December 2010, Facebook announced that it had raised $1.5 billion at a valuation of approximately $50 billion.  Its valuation in secondary markets has subsequently soared to $70 billion.  According to PrivCo CEO Sam Hamadeh, whose company analyzes privately held firms, in the prospectus for the Goldman Sachs placement to its private clients, Facebook had projected “conservative first-half sales projections” of more than $2 billion, full-year advertising revenue of $4 billion and total revenues of $4.7 billion.  By missing its projections by such a wide margin, were Facebook a publicly traded company, its stock would be getting eviscerated.

While Facebook now has over 700 million users, it isn’t immune from the laws of demand and supply: advertisers say most ad rates on the social network remain low as a result of booming inventory of ad placements (doesn’t help that Facebook also blasts 5 impressions per page).

Added GroupM’s Norman (in the same WSJ article from which he’s quoted above): “Sometimes there is an irrational desire to be involved with things that are just on upswings.  The value of (marketing on Facebook) may be open to some questions.”

Mind you, like all privately held firms, the company has time to bide until it takes away the online advertising throne away from Google, right?

Google remains the king of the hill

Without a doubt, despite all of the “Google is a one-trick pony” and “social will kill search” rhetoric, Google is killing it.  But, where I believe Google deserves most credit is in recognizing (finally) that algorithms alone won’t win over Madison Avenue and big, Fortune 500 branding campaigns and budgets.  This is why Google bought YouTube initially.  Of course, reach and volume alone failed to make a dent in video and branding revenues, so YouTube has done multiples things to address that, including

– its decision to acquire Next New Networks to better harness talent on YouTube,
– launching the $100 million fund to win over Hollywood, and
– attempting to acquire Hulu by offering more than anyone else has.

And if that’s not enough, last week Google bought travel directory Zagat to bolster its social, local, mobile and content offerings at once. It’s hard to tell if Google’s purchase of Zagat was mostly driven by content, social, mobile, or local (SoLoMoCo?) but the fact remains: the question isn’t whether Google is now a fully-fledged media company but rather if it’s a content company.

“Let me guess Ash, content is the solution to all?”

Actually, no.  Content remains the long-term glue that holds it all together, but by and large, content has failed to become the silver-bullet solution.  One reason for this is that content remains the black sheep, red-haired stepchild who has been orphaned by the technologists-turned-financers who have never really embraced content as a profitable endeavor, but rather reluctantly accepted it as a necessary evil to generate more advertising revenue.  This is changing: look no further than the evolution of tech-driven ad networks that are evolving first into media companies and slowly but surely into content companies.

Of course this has taken so long, that even believers in media are losing their religion: Rishad Tobaccowala, chief strategy and innovation officer at Vivaki, the digital-media unit of Publicis Groupe SA was quoted  as saying (again in that WSJ article): “People tell me that content is king, but that is not true at all. Most people make money pointing to content, not creating, curating or collecting content.”

He has a point.  Historically, portals and search engines got investors’ love.  Today it’s social networking and platforms.  Time will tell if content proves to be king after all in the eyes of marketers and investors alike.