Web Advertising Startups Illustrate Market Dynamism

The Wall Street Journal has an insightful article today about web-based advertising on the front page of the Marketplace section.

The technology it’s using could change the way the $16.9 billion Internet ad market works, bringing in a host of new players…Until now, the booming online ad market has been dominated by the likes of Google Inc. and Microsoft Corp. and small techie advertising shops such as Right Media Inc. and AdECN Inc. But new companies are rushing in.

This is precisely what CEI has argued all along in press statements and letters to the editor: The marketplace is dynamic and contestable, not static and rigid. The internet’s history is littered with faded giants who went bust because they couldn’t keep up with the ingenuity of upstarts. Google will suffer the same fate as AOL if it’s unable to remain at the forefront of innovation.

The WSJ article further reinforce the argument made by Wayne Crews and Alex Nowrasteh that opponents of Google’s acquisition of DoubleClick “ignore economic reality.” The marketplace is evolving right before our eyes, yet shortsighted lawmakers assert that Google armed with DoubleClick would be an unstoppable Goliath, powerful enough to jack up online ad rates and wipe the floor with its competitors.

In light of recent antitrust episodes like this one, and the XM-Sirius merger, we should ask whether antitrust laws ought to exist whatsoever. For more than two decades, CEI experts have observed that the only real source of monopoly power is government itself. That argument looks stronger than ever given that the only actual monopolies which remain have exclusive agreements with rent-seeking officials.

Since the Internet’s creation, the breakneck pace of creative destruction continues to amaze—and it shows no signs of slowing down. This perpetual process reveals the folly of the assumption that status-quo market conditions will prevail indefinitely.

Predicting the future of the web advertising is impossible, but in all likelihood behavioral advertising is just the beginning of what we’ll in upcoming years. As social networking continues to grow and marketing algorithms are refined, the web advertising scene in five years will look nothing like it does today.

As far as the future of web advertising, Google might remain on top, or it might be overtaken by a more inventive competitor. Either way, consumers win.