The problem has persisted despite many executive changes, revampings and rebranding campaigns that have tried to make Yahoo a destination as highly valued by its advertisers as its users.
Yahoo is second only to Google as the most-visited Web destination in the United States market, bringing in 178 million unique visitors monthly in June, according to comScore. That is a 27 percent increase over June 2008. But the company’s market capitalization is little changed from 2003. The company holds the No. 1 spots in news, sports, finance, entertainment news, real estate and comparison shopping sites, according to data collected in June by comScore. Yahoo’s e-mail service alone drew 2.2 billion visits in June, according to Experian Hitwise.
What a mismatch: Where else on the Web can you find, on the one hand, so many happy users whose growing numbers testify to their satisfaction in Yahoo’s services and, on the other, financial performance that is so lackluster?
A fundamental change in the way display advertising is being bought and sold is hurting Yahoo’s core business. Today, advertisers care less about creating a partnership with a particular Web site and more about the behavioral characteristics — as best as they can be known — of their target users, wherever they happen to be. More and more ads are placed through online ad exchanges, in which ad agencies buy from whoever offers the lowest price for users who meet the buyer’s criteria.
Yahoo sells display ads — at a premium price — to advertisers interested in claiming a place on its choicest pages. This is “Class 1 display.” Those purchases do not come via online ad exchanges. They require an old-fashioned sales technique that long predates the digital age — what Carol Bartz, the Yahoo chief executive, calls “face-to-face relationship selling.”
When Yahoo does not manage to sell the available space on its premium pages at a guaranteed high price, it channels the space as Class 2 display into the ad exchanges, where it is sold at much lower rates. In the second quarter, a significant portion of its Class 1 display space in the United States market failed to sell.
The impact on the company’s financial performance has been unmistakable. For the quarter, Yahoo’s revenue for display ads worldwide was up 5 percent over the year-ago period, which doesn’t sound bad. The problem is that there was high growth everywhere but the United States, where that revenue actually declined. Growth in the United States matters most because an overwhelming majority of the company’s revenue comes from this single market.
Ms. Bartz, Yahoo’s chief executive since January 2009, said in a conference call after the earnings report that the reasons for the shortfall were recent moves at its United States sales group, including leadership changes, field staff turnover and organizational restructuring. All was being straightened out, and the new people were coming up to speed, she reassured listeners.
She did, however, have to lower the long-term guidance for the growth of display ad revenue, which would now fall below what had been projected just two months before.
Yahoo investors, though, showed no inclination to accept the idea that the poor display ad sales were just a minor execution problem. Yahoo’s stock has fallen about 20 percent since the earnings were announced on July 19. That compares with around 10 percent for the Nasdaq, so the recent market rout carries only partial responsibility.
KEN SENA, a director in the equity research group at Evercore Partners, says he doesn’t believe that Yahoo’s strategic position is hopeless. “Given the number of visitors who come to the site, Yahoo has an opportunity,” Mr. Sena says. But the company’s executives, he adds, must somehow figure out how to “create a new experience for those visitors.”
An executive who is working on the new experience is Ross Levinsohn, executive vice president for the Americas, who joined Yahoo nine months ago.
He retained a newcomer’s optimism after the disappointing second-quarter results were released. “We hope to tap into the portion of the $85 billion spent on TV advertising today that is shifting to digital,” he said in an interview late last month. Yes, “$85 billion” certainly has a nice ring to it.
Mr. Levinsohn did mention, however, that more of Yahoo’s choicest display ad space was being filled in online ad marketplaces. “Commoditization,” as he called it, “has been far more aggressive than most people would have thought,” he said.
That does not augur well for the future. Ask any Web publisher. Once prices go down, down they stay.
Randall Stross is an author based in Silicon Valley and a professor of business at San Jose State University. E-mail: stross@nytimes.com.
Article source: http://feeds.nytimes.com/click.phdo?i=a1f501a30639c7f2bf4dacc37016d96c
Speak Your Mind
You must be logged in to post a comment.