Tuesday, October 18, 2011
Story first appeared in the Wall Street Journal.
As Yahoo Inc. shops itself to potential buyers, its core advertising business is weakening. That trend is evident through Craig Atkinson's ad agency.
Yahoo's core advertising business is weakening -- the company in some cases has cut prices 5% to 15% -- a complication as Yahoo shops itself to potential buyers. Amir Efrati has details on The News Hub.
Mr. Atkinson is president of ad giant Omnicom Media Group's PHD unit, which oversees annual ad spending of $4 billion to $5 billion for companies including Starbucks Corp. and Gap Inc. Over the past year, he said, the agency's ad spending on Yahoo properties is flat to slightly down.
And in the past few weeks, since Carol Bartz was fired as Yahoo chief executive, Yahoo's Americas-region chief Ross Levinsohn and others have been on a "barnstorming tour" to meet with him and his peers, he said. "They're saying, 'We're willing to do what we have to do to win the business,'" Mr. Atkinson said, adding that while his advertiser clients still view Yahoo as a way to reach and target "enormous audiences," it's no longer a "must-buy."
Mr. Atkinson's experience is troublesome for Yahoo, which reports third-quarter results Tuesday. Following Ms. Bartz's firing, Yahoo's board has been looking at potentially selling off all or parts of the onetime highflying Internet company, people familiar with the matter have said.
One of the company's key assets is the heavy traffic to its Yahoo.com home page and its news, entertainment and other websites—and the strong online display-ad business those sites have sustained.
Any weakening in Yahoo's $4 billion annual ad business—a figure that excludes commission payments to Yahoo's business partners—may have implications for how attractive the company is to suitors. Yahoo's display-ad business, including graphical, interactive and video ads, generates 40% of the company's overall revenue but only grew 5% year over year in the last reported quarter—a sharp slowdown from double-digit growth rates in prior quarters.
Analysts expect Yahoo's display-ad sales to be flat or slightly higher than a year ago in the third quarter. By contrast, the overall U.S. online-ad industry has increased more than 20% so far this year.
Yahoo's Web-search partnership with Microsoft Corp. has been a drag on search-ad revenue, which accounts for one-third of overall revenue. And decline in the average amount of time people spend on Yahoo sites every month is now beginning to show up in the company's financial figures.
"The eroding ad business weakens the resolve of Yahoo's board to remain an independent company, increasing the chances of an outright sale," said Jordan Rohan an analyst at Stifel Nicolaus & Co. As long as Yahoo on Tuesday reports that quarterly revenue isn't more than 10% below the $1.2 billion to $1.26 billion range it previously projected for the quarter, potential buyers of the company "will be able to overlook it," he said.
A Yahoo spokeswoman said the company is in a "quiet period" before Tuesday's earnings and can't comment on sales and revenue.
To reverse its fortunes, Yahoo has been bending over backwards to please its largest ad clients, according to ad executives. In recent weeks and months, the company in some cases has cut ad prices 5% to 15%, including for its Yahoo.com home page and Yahoo Mail log-in page, and included features such as custom animation, said ad executives. The home page commands the highest prices for ad units on Yahoo, running anywhere from $200,000 to $850,000 for a full day.
Yahoo also changed the look of the Yahoo! logo on its home page for the launch of Walt Disney Co.'s most recent Pirates of the Caribbean film earlier this year, something the company had never done before for an advertiser, a Yahoo spokeswoman said.
In addition, when Yahoo and ad agencies disagree on how many people viewed a particular ad on its sites, Yahoo has been willing to bill the agency based on the agency's numbers rather than its own—something it seldom did before, according to agency executives. "Historically Yahoo was a company of 'No's' and they are slowly becoming a company of 'Yes we can,' which is very refreshing," said David Cohen, an executive vice president at Universal McCann, a media-buying agency owned by Interpublic Group of Cos.
Mr. Cohen, PHD's Mr. Atkinson and other advertisers said they are also encouraged by some other Yahoo moves. For instance, Yahoo has created an "agency development team" of more than 20 salespeople dedicated to each of the major ad agencies. Yahoo can now also propose large-scale display-ad campaigns on its websites within a week or two of being approached, down from four to six weeks previously.
Yahoo is also more proactive with its largest advertisers, agency executives said. In prior years, ad agency executives said, Yahoo billed itself as the best place to reach a wide audience and often waited on advertisers to call, a tactic that became less effective as Internet users began to spend less time on Yahoo sites, including Yahoo Mail, the company's biggest source of ad space.
Following an overhaul of its sales leadership that started last year, Yahoo has reached out to advertisers to work on large-scale campaigns surrounding "anchors," or annual events such as the Super Bowl and the Oscars, and "tent-poles," or less-frequent events such as the recent British royal wedding.
Such efforts have borne some fruit. Yahoo recently reached a deal with Procter & Gamble Co. for a display-ad campaign during the summer Olympics next year, worth tens of millions of dollars, said people familiar with the matter. Spokeswomen for Yahoo and P&G declined to comment about the deal.
Still, ad agency executives said Yahoo faces an uphill climb. Rishad Tobaccowala, chief strategy and innovation officer at VivaKi, an agency that oversees $7 billion to $10 billion in digital-ad spending for clients such as General Motors Co. and Coca-Cola Co., said the average rate for ads on Yahoo sites has fallen 10% to 15% annually over the past two to three years.
That trend is due partly to the growing availability of cheaper ways for advertisers to reach large audiences on the Web, thanks to technology from companies such as Facebook Inc. and Google Inc., which places ads on thousands of sites through its automated DoubleClick ad exchange.
Yahoo's ad prices have also been pressured by the growing amount of articles and videos on the Web, including "premium" content from media companies such as Walt Disney, Viacom Inc., and video site Hulu LLC, which is worth more than content generated by Yahoo. "Yahoo doesn't have the technology that Facebook and Google has, and it doesn't have the quality of content that other players have," said Mr. Tobaccowala, whose agency is part of ad giant Publicis Groupe SA. To remedy the content-quality gap, Yahoo has begun to form partnerships with leaders in various categories. Two weeks ago it announced the first such deal, which puts ABC News video content on Yahoo sites. The companies split revenue from ads sold against the content.
To better compete with technology rivals, Yahoo is teaming up with AOL and Microsoft to combine the supply, or inventory, of lower-priced ads that the companies sell on their respective sites into one marketplace where advertisers can buy it, people familiar with the plan said. The move theoretically could boost the ads' value. Spokeswomen for the companies previously stated they were working on partnerships but didn't elaborate.
Customers are supportive of the moves. "What you're seeing now is innovation to create more relevance for advertisers," said Adam Shlachter, director for digital in the U.S. for MEC, the global media-buying agency that is part of WPP PLC."We've heard a lot more from them [Yahoo] of late. There's more regular dialogue, lower prices and new opportunities," he said.