Verizon could boost Yahoo ad targeting, but challenges ahead
The identity crisis that led to Yahoo’s demise
NEW YORK, July 27, (Agencies): Verizon’s deal for Yahoo could give the phone company a stronger foothold in digital advertising as it takes what it knows about its customers’ whereabouts and combines that with Yahoo’s popular destinations and AOL’s advertising expertise.
To boost traffic and revenue even more, Verizon could also ship some phones with Yahoo apps already installed.
Ultimately, Verizon could do what Yahoo alone could not: make money off its highly trafficked properties, such as Yahoo Sports and Yahoo Finance.
But Verizon also faces the same challenges a stand-alone Yahoo had: how to get better ad rates through personalization and targeting, when Google and Facebook are already adept at that.
Although the new Verizon would be No. 3 in the $60 billion US market for digital advertising, “one shouldn’t delude themselves into thinking that it’s a close third place,” MoffettNathanson analyst Craig Moffett said. “They’re third place in a two-player market. Ad dollars are going to Google and Facebook and they’re coming out of everyone else.”
According to eMarketer, Google and Facebook had a combined 55 percent of the US digital-ad market last year, while a combined Verizon and Yahoo would have had just 6 percent.
Marketers could be drawn by Verizon’s ability to know where its phone users are, but that might apply only to Verizon’s customers — not to other Yahoo users around the world. Meanwhile, Facebook and Google already have a lot of that data — Facebook through its social network, and Google through its Android phone system and popular services like maps, email and search.
Like many other major broadband providers, Verizon wants to be more than a “dumb pipe” that just provides internet access, Columbia Business School professor Rita McGrath said.
Verizon wants to build a business that can make money off the ever-growing amount of time people spend on their phones. To that end, it has invested in digital-ad businesses and mobile video, including the creation of go90, a video service aimed at millennials.
With its $4.4 billion purchase of AOL last year, Verizon got technology that matches ads with websites like Huffington Post and TechCrunch. With Yahoo, which Verizon is buying for $4.8 billion, Verizon will get websites, apps and other services used by more than a billion people worldwide each month.
Verizon can use AOL’s ad technology to sell ads and make more money off those Yahoo properties, whether on a computer or phone. Forrester analyst Dan Bieler said Verizon and AOL will be better than Yahoo was at using Yahoo’s user data and wide range of apps and media properties to sell ads.
Ultimately, AOL’s ad-sales technology could encourage brands to spend more money across a range of Yahoo websites and apps.
But some analysts aren’t sure that a troubled Yahoo can make Verizon into an ad player that rivals Facebook and Google. Jefferies analyst Mike McCormack said he’s doubtful an older internet brand like Yahoo will bring in the kinds of users that Verizon has been trying to lure with go90.
Yahoo is among the stodgier internet brands, but comScore says the age breakdown of Yahoo users in the US is not substantially different than Google or Facebook users.
Verizon could drive more traffic by loading Yahoo apps on Android phones, although Apple forbids this on iPhones. In a conference call, Yahoo CEO Marissa Mayer suggested that Verizon “and its distribution on mobile” could help get Yahoo’s mobile apps “in front of more users.”
Careful
But eMarketer analyst Martin Utreras said the company would have to be careful not to annoy users by doing that.
Instead, it’s more likely that Verizon would use location and other data it has about its users to help advertisers target people across the internet. For example, on a hot day, Verizon could show an ad for a nearby store that sells barbecue equipment, Bieler said. That might be valuable to the advertiser, and Verizon could charge more.
Verizon has in the past been aggressive with tracking consumers. The Federal Communications Commission fined it $1.4 million in March for how it followed phone users online for ad targeting with a “supercookie” that was at first nearly impossible to block. The company changed some practices that were criticized by privacy advocates.
Now, the FCC wants broadband providers like Verizon to seek a customer’s permission in most cases before sharing data with advertisers. The rule wouldn’t apply to Facebook and Google as they don’t provide internet access. If approved, the policy could make Verizon’s prospects for Yahoo even more difficult.
Meanwhile, when senior Yahoo executives gathered at a San Jose hotel for a management retreat in the spring of 2006, there was no outward sign of a company in crisis.
The internet pioneer, not yet a teenager, had just finished the prior year with $1.9 billion in profits on $5.3 billion in revenue. The tough days of the dot-com bust were a distant memory, and Yahoo Inc, flush with lucrative advertising deals from the world’s biggest brands, was enjoying its run as one of the top dogs in the world’s hottest industry.
But for one retreat exercise, everyone was asked to say what word came to mind when a company name was mentioned. They went through the list: eBay: auctions. Google: search. Intel: microprocessors. Microsoft: Windows.
Then they were asked to write down their answer for Yahoo.
“It was all over the map,” recalled Brad Garlinghouse, then a Yahoo senior vice president and now COO of payment settlement start-up Ripple Labs. “Some people said mail. Some people said news. Some people said search.”
While some executives said this was a useful management exercise that took place multiple times over the years, it proved an ominous portent of the business troubles to come.
Indeed, the demise of Yahoo, which culminated in an agreement this week to sell the company’s core assets to Verizon Communications Inc, has been more than a decade in the making. Many of the more than two dozen former Yahoo managers interviewed by Reuters over the past two weeks — who now occupy executives suites elsewhere in Silicon Valley — agree that the company’s downfall can be traced to choices made by both the executive leadership and the board of directors during the company’s heyday in the mid2000s. Some of the missed opportunities are obvious: a failed bid to buy Facebook Inc for $1 billion in 2006. A 2002 dalliance with Google similarly came to naught. A chance to acquire YouTube came and went. Skype was snapped up by eBay Inc. And Microsoft Corp’s nearly $45 billion takeover bid for all of Yahoo in 2008 was blocked by Yahoo’s leadership.
Just as damaging as the missed deals, though, was a company culture that ultimately became too bureaucratic and too focused on traditional brand advertising to prosper in a fast-moving tech business, according to some of the former Yahoo managers Reuters spoke with.
“It became very difficult to get both investment and alignment” around new product initiatives, said Greg Cohn, a former senior product director at Yahoo and now CEO of the mobile phone app company Burner. “If you built a new product and the home page didn’t want to feature it, you were hosed.”
Worst of all, once Alphabet Inc’s Google had displaced it as peoples’ first stop for finding something on the internet, Yahoo was never able to decide on exactly what it wanted to be.
Yahoo today has more than 1 billion users and has focused on mobile under chief executive Marissa Mayer, who told Reuters in an interview Monday that she still saw a “path to growth” for Yahoo, which the Verizon merger accelerated.
Yahoo will continue to operate as a holding company for its large stakes in Alibaba and Yahoo Japan, which are worth far more than the core business.
Yahoo declined to comment for this story.
The appointment of Terry Semel, who had completed a highly successful run as chairman of the Warner Bros. movie studio, as CEO in 2001 seemed to answer a question that bedeviled many early internet firms: was it a tech company, or a media company?
Semel could not be reached for comment on his Yahoo tenure. But the focus on media proved lucrative in the short term as big advertisers, desperate to get on board with the next big thing, flocked to one of the largest properties on the web. Revenue soared from $717 million in 2001 to nearly $7 billion by 2007.
Indeed, Semel and the media executives he brought in by all accounts turned a scrappy young internet startup into a highly profitable company that brought old-line advertising to a new medium.
“From our perspective, we were a media company,” said Dan Rosensweig, Yahoo’s COO from 2002 to 2007 and now CEO of online education company Chegg Inc. “It didn’t feel at the time that there was a strong likelihood we would beat Google at search ... Nobody could argue that we weren’t the largest front page on the internet.”
Yahoo placed its signature purple everywhere then — on cookies and cupcakes, on the carpets, and even in the martinis.
“When Coca Cola came to campus, we rolled out the purple carpet,” recalled Wenda Harris Millard, Yahoo’s chief sales officer from 2001 to 2007 and now president and COO of business development firm MediaLink.
Campus
Millard said all the major advertisers, from Coke to General Motors, wanted to come to Yahoo’s campus at least once a year.
“We were just doing gazillions of dollars with them,” said Millard.
But the excitement, and the revenue, associated with the big advertising deals ten years ago turned out to be a trap in many ways. Like its brethren in the print media business, who continued to rely on selling ad pages long after it was clear that it was a dying business, Yahoo couldn’t help but to focus on where the big money was, even though that wasn’t where the future was.
“The worst consequence of trying to be a media company was that they didn’t take programming seriously enough,” wrote Paul Graham, co-founder of the Y-Combinator tech incubator who sold a startup to Yahoo, in a 2010 blog post about the company’s woes. “Microsoft (back in the day), Google, and Facebook have all had hacker-centric cultures. But Yahoo treated programming as a commodity.”
The downside of the media orientation became more clear as the 2000s wore on. In 2003, Yahoo acquired Overture, the company that essentially invented the ad-search technology that made Google rich. But Yahoo never succeeded in creating a strong competitor to Google’s AdWords and AdSense systems. A subsequent, hugely expensive effort to rebuild its search and advertising technology, dubbed Panama, similarly bore little fruit.
Products
Meanwhile, market-leading products like Yahoo Mail, and early social media efforts like Yahoo Groups, were neglected as managers wrestled over which products would get priority on the hugely valuable Yahoo home page, according to three former executives. Promising acquisitions, including photo-sharing site Flickr and social bookmarking service Delicious, withered on the vine.
Former staffers say they were consumed with endless internal meetings and shifting priorities. Former senior product director Cohn recalls how efforts to make Yahoo an open platform — with nifty third-party applications around specific content areas such as travel — foundered in the face of opposition from managers in charge of Yahoo’s in-house products.
Too often, the end result was money spread too thinly across too many marginal initiatives, as Garlinghouse famously pointed out in a leaked internal document known as the Peanut Butter Manifesto.
By 2007, it was becoming clear that Yahoo was losing ground fast on the product side as Google solidified its hold on search. New players like Facebook and Netflix Inc continued to arrive and steal Yahoo’s thunder. Semel left that year in favor of co-founder Jerry Yang.
Whatever plans Yang may have had were quickly disrupted by the unsolicited Microsoft takeover bid in early 2008. The offer split the management team, Garlinghouse and others say, and those divisions persisted even after Microsoft’s offer was beaten back.
Yang, who championed the resistance to Microsoft, stepped down again in 2008. Three other CEOs followed before Mayer was appointed in 2014.
The leadership turmoil “made for a difficult existence for a board, a management team, and a general employee population to get committed to the same goal,” said Rosensweig.
Yang did not respond to requests for comment.