Yahoo Struggles With Content

First appeared in the Wall Street Journal

Ousted Yahoo Inc. Chief Executive Carol Bartz faced a plight all too familiar to many of her peers: Making money off digital content isn't easy and it's getting harder.

As Web traffic explodes, Internet companies are struggling to profit off ads shown next to the articles, videos and other content offered to viewers.

It's a simple rule of any market. The more information that is created, the more the value is reduced. And despite attempts to woo spending with bigger, bolder and more targeted ads, services that help consumers navigate that content, namely search, remain the big money makers online.

"People tell me that content is king, but that is not true at all," says Rishad Tobaccowala, chief strategy and innovation officer at Vivaki, the digital-media unit of Publicis Groupe SA. "Most people make money pointing to content, not creating, curating or collecting content."

Internet pioneers Yahoo and AOL Inc. are losing out to Facebook Inc. and Google Inc., both of which are adept at helping point the way to pertinent or interesting material. As a result, Yahoo and AOL are getting left behind in the fast-growing U.S. market for online advertising, which ballooned 20% to $31.3 billion from 2010 to 2011, according to eMarketer.

Yahoo and AOL's shares of the overall U.S. online advertising market will drop to 11% and 2.7% in 2011, respectively, according to the research from, down from 16.1% and 4.4% in 2009.

Their businesses have been plagued by a range of missteps that extend far beyond their current regimes. Both were slow to recognize the appeal of social-networking and to update their once dominant email services to compete with new rivals.

Excessive turnover and extensive bureaucracies have strained their relations with Madison Avenue, say advertising executives. Ms. Bartz recently attributed Yahoo's weaker-than-expected ad sales to heavy turnover among advertising executives.

Yahoo said in a statement that the company has been meeting with advertisers and agencies who say they excited by the advertising opportunities at the company. A spokesman for AOL declined to comment.

A few years ago, scale virtually guaranteed profits if Internet companies had relationships with marketers, as there were few sites that could deliver large audiences to advertisers. But advertisers now can turn to a wide range of competitors to reach a similar number of people, and that has pushed down the amount of money they spend on those sites and the price for ad rates on the portals.

"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, who says 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."

Pricing trends across both properties vary depending on where the ads appear, advertisers say, but overall rates aren't rising fast enough to compensate for meager to flat traffic growth. In the second quarter, AOL's revenue fell 8.4% from the year earlier to $542.2 million.

Yahoo's revenue fell 23% to $1.3 billion.

The average cost to reach one thousand views across both Yahoo and AOL sites has fallen steadily in the past year, ad executives say. At Yahoo, that rate dropped to an average $6.50 in July 2011 from $7.65 in July 2010, while at AOL, that rate dropped to an average of $7 in July 2011 from $9.45 in July 2010, according to SQAD WebCosts. Back in July of 1998, Yahoo was fetching about $25 per thousand. A Yahoo spokeswoman said their internal data isn't consistent with WebCosts' data.

Some companies have responded by cutting back the number of ads to boost their value. AOL stripped ads off several of its marquee sites in recent years, including AOL.com, its fashion site Stylelist and movie site Moviefone to make room for more premium advertising.

Both AOL and Yahoo are under pressure from "advertising exchanges," the lingo for services that allows advertisers to bid for ad space across a multitude of properties that reach a particular type of user. Increasingly, marketers will turn to the advertising exchanges directly to buy high volumes of cheap online ads instead of negotiating with big publishers like Yahoo and AOL for more expensive ads.

In addition, marketers can target those ads bought via exchanges directly to people who are likely to be interested in their product or service, regardless of the context of the site where they appear. That gives the big portals less bargaining power, advertisers say. Yahoo runs a major exchange but the business isn't growing fast enough to restore overall revenue growth.

While it's a juggernaut, Facebook isn't immune from the problem of expanding inventory. Advertisers say most ad rates on the social network remain low, as its growing traffic leads to a proliferating number of pages it can show ads on.

"Sometimes there is an irrational desire to be involved with things that are just on upswings," says Mr. Norman. "The value of (marketing on Facebook) may be open to some questions."

Smaller publishers are also feeling the changing economics acutely. News sites such as Salon and Slate aren't consistently profitable. Upstarts like the Daily Beast have yet to reach profitability though executives say the three-year-old site is ahead of its pace. Slate last month laid off a handful of editorial staffers, citing unexpected "head winds" in advertising.

Yahoo Introduce Video and Images into Sponsored Search.

Yahoo is offering select Y! Search Marketing users the opportunity to integrate images and video into their pay-per-click listings.

Sponsored search remains one of the top-performing tools available to online marketers today. Yahoo’s new service, Rich Ads in Search, would incorporate characteristics of banner advertising into sponsored search ad placements, reports MarketingVOX. Marketers could include videos and images, for example, making the experience "more engaging […] for advertisers," said VP-Search Monetization/Distribution Tim Mayer of Yahoo.

Google is currently piloting a less "rich" program called PlusBox, which enables users to click on a "+" symbol beside search results to see more offerings from a sponsor. These can include product images, posted in a format that mimics auction listings on eBay.

Display advertising is among Yahoo’s strengths. But as the recession presses hard on budgets, marketers are increasingly scaling back on less measurable ad options, including display, and pouring more cash into performance-based models like sponsored search. This trend was reflected in Yahoo’s Q4 earnings report, which saw display advertising fall 2% from the previous year as search ads rose 11%.

Rich Ads in Search was tested for a year with clients like dog food vendor Pedigree. A query for "Pedigree" on Yahoo brings up a pale blue box atop the search results page, where users can click to watch a Pedigree ad.

Other participants in the pilot included Sobe, Pepsi and Home Depot. Yahoo claims some advertisers saw click-through rates rise by as much as 25%, according to The New York Times.

"What the search results look like is a very different experience with rich ads in search versus the text link," said SVP-Revenue/Market Development Joanne Bradford. "There is consistency to the experience, which all advertisers want, and were unable to get until this point."

Instead of following the auction-based price model that rules rates in keyword-based sponsored search ads, Yahoo is charging a monthly fee for Rich Ads in Search. For the time being, only major advertisers with existing ads or logos will be permitted to participate.

Early last year, a JupiterResearch study found users prefer to have relevant content - such as maps, images, reviews and videos - blended into search results. It stands to reason that a similar media-blending method may increase ad relevance to users within sponsored results.

Microsoft Offers 45 Billion To Buy Out Yahoo

As long predicted by Peak Positions - Microsoft Bids For Yahoo.

Here's a video clip on Microsoft's formal offer to buy Yahoo. This CNET recap contains many of the details and some interesting interviews. One consultant in this piece actually calls Microsoft "desperate", we were wondering how she actually defines desperate ... let's see $56 Billion in liquid assets and much more in the immediate product pipeline makes Microsoft desperate in what way?

Well we all know the Redmond crowd took a nap, missed the bus and is more than a few years late in arriving at the keyword search party. It is still quite a stretch though to term Microsoft as desperate. Yes, Ballmer and Gates are making many new moves to fend off the open office movement, mashups, and online software delivery.

Yet this move to take over Yahoo further signals MSN's intent to increase their share and foothold in the keyword search industry and is not a move of desperation. Microsoft's move to buy Yahoo is a long calculated projection on the future evolution of their enterprise. Microsoft is only beginning to wake up and understand just how powerful the keyword search medium truly is.

MSN has been weighing two options for several months in seeking to become a meaningful search engine:

1) Dedicate more time, staff and resources to gain more share of search.

2) Spend Cash and Stock to acquire more search share immediately.

This offer to buy Yahoo symbolizes Microsoft's intent to address keyword search in the short term, increase their share now and shore up any weaknesses before Rupert Murdoch or Michael Bloomberg decide to apply more resources and further ignite the search wars.

What strategy does the MSN senior management team have outlined for pulling in the Yahoo portal? Do they have the skills and are they prepared to overhaul search strategies at both of these failing search engines?

First Things First ... Here's Mocrosoft's Bid For Yahoo

Terry Semel Leaves Yahoo.

Microsoft Takeover Looms Large as The Panama Project Continues to Implode.

Jerry Yang Returns as Yahoo CEO - Susan Decker Named President.

Yahoo! announced that Terry Semel will resign as CEO and pass the torch back to co-founder Jerry Yang.

Yang an original co-founder of Yahoo will remain on Yahoo's Board. Susan Decker, Yahoo's former head of Advertising has been named President. The changes culminate a dramatic sequence of events at Yahoo as the Panama Project continues to sink the ship taking many senior level managers and executives with it.

The Chief Technology Officer at Yahoo had resigned a couple weeks earlier and Semel just completed annual shareholder meetings that left the majority screaming for his resination.
Yahoo has faced mounting internal and external criticism in recent months as the Panama search project continued to flounder.

Panama has failed to increase revenues and is not helping Yahoo boost its shrinking share of the keyword search pie. Yahoo has reported poor results to date in 2007 with no end to the downward profit trend in sight.

Yang, 38, founded the company in 1994 with David Filo and serves on the board of directors, in addition to holding the title of "Chief Yahoo" overseeing the company's strategy and technological vision.

In a conference call with analysts held Monday afternoon, the company said it is seeing slower growth in display advertising --which include banner ads, website design and videos -- but better-than-expected performance from its recently re-tooled search advertising business.

Proposals opposed by the board that aimed to tie executive pay to competitive performance and challenge the company's human rights policies in China were defeated.

CNBC is reporting that Yahoo may need to explore strategic alternatives. Micorsoft has been knocking on the door for several months looking to join forces and give Google a tougher fight in keyword search.

"Yahoo is in a tough position of weakness so I think there are some people circling around it," Jim Friedland, an Internet analyst with Cowen and Co. "Given the weakness Yahoo has been experiencing, I think now is the time those talks become more real."

However, the analyst noted that forging a strategic deal with the likes of News Corp., Time Warner or Microsoft may not be in Yahoo's best interests.

Addressing such speculation, Jerry Yang said Monday the company's board believes Yahoo should remain independent.

For a full update visit - The Jerry Yang Blog


Some highlights from Jerry include:

Yahoo! has an incredibly bright future and I make this move with deep conviction and enthusiasm. I’ve partnered closely with our executive teams for 12 years to steer our strategy and direction and today I’m ready for this challenge.

Terry has given Yahoo! six of its best years. He delivered great value to our users, advertisers and shareholders. Terry refocused the company on key strategic priorities, and in so doing, helped Yahoo! increase our revenues nearly nine-fold from $717 million in 2001 to $6.4 billion in 2006; boost our operating income from a loss in 2001 to nearly $1 billion last year; and create more than $30 billion in shareholder value during his tenure. He helped grow our audience from 170 million to more than 500 million users globally, and he oversaw the expansion of our base of talented employees from 3,500 to nearly 12,000.

I will always be grateful for the incredible achievements under his leadership — and for his mentorship and friendship. We’ll continue to benefit from his support and guidance as he transitions to his role as our Chairman.

I also couldn’t ask for a better partner in Sue Decker as our new president. In addition to knowing this company inside and out, Sue has incredible talents, leadership abilities, a fierce focus on winning, and intense dedication to this company and its people. I look forward to teaming more closely with her as we pursue our joint vision.

What is the vision of Yahoo?

A Yahoo! that executes with speed, clarity and discipline.

A Yahoo! that increases its focus on differentiating its products and investing in creativity and innovation.

A Yahoo! that better monetizes its audience.

A Yahoo! whose great talent is galvanized to address its challenges.

And a Yahoo! that is better focused on what’s important to its users, customers, and employees.

The past year has obviously not been an easy one for us. But we’ve taken important steps to address the challenges we face, and we’re starting to realize some of the benefits – especially with the successful launch of Panama, which continues to receive positive feedback from advertisers and is exceeding our expectations.

By the way, that’s directly attributable to the operational excellent mentality Terry has instilled and is a clear sign one of his most critical initiatives is succeeding.

We have incredible assets. This company has massive potential, drive, determination and skills, and we won’t be satisfied until the external perception of Yahoo! accurately reflects that reality.

I have absolute conviction about Yahoo!’s potential for long-term success as an Internet leader.
Yahoo! is a company that started with a vision and a dream and, make no mistake, that dream is very much alive.

I’m committed to doing whatever it takes to transform Yahoo! into an even greater success in the future.

The time for me is right.

The time is now.

The Internet is still young, the opportunities ahead are tremendous, and I’m ready to rally our nearly 12,000 Yahoos around the world to help seize the opportunities.

Go Yahoo!

Jerry Yang
CEO and Chief Yahoo

Yahoo's Chief Technology Officer Resigns ... Jerry Yang Returns !

Yahoo Inc.'s chief technology officer is resigning after nearly a decade on the job, creating a management void as the Internet icon tries to mine more profits from a recent upgrade to its system for delivering online ads.

Farzad Nazem's plans to leave the Sunnyvale-based company were disclosed Wednesday in a Securities and Exchange Commission filing and a posting on Yahoo's Web site.

The resignation becomes effective June 8, 2007, only six months after Yahoo named Nazem head of the company's newly created technology group as part of a management shake up. He had already been Yahoo's chief technology officer since April 1998, two years after he first joined the company as senior vice president of product development.

While Yahoo searches for Nazem's replacement, company co-founder Jerry Yang will return to daily tasks and oversee the technology group as interim "executive sponsor." Fellow co-founder David Filo also will continue his focus on technology, the company said in statement.

In the posting on Yahoo's Web site, Nazem, 45, said he simply wants to retire. "After spending the last 26 years in this fast-paced technology industry, I've finally decided it's time to slow down," wrote Nazem, who also worked at business software maker Oracle Corp. before joining Yahoo.

Nazem's departure comes at a pivotal time for Yahoo. After suffering an 11 percent drop in its first-quarter profit, Yahoo is banking on long-awaited improvements to its pay per click advertising platform to boost its fortunes during the second half of this year.

In the Web posting, Nazem said he delayed his retirement until the new advertising formula - known as the "Yahoo Panama" project - was completed and he felt confident that his mission had been accomplished.

"With all this in place now, I know I'm leaving a strong, dedicated, and focused organization that is ready to define the next wave of the Internet revolution," Nazem wrote.

Yahoo parted ways with another of its top executives, former Chief Operating Officer Dan Rosensweig, at the close of March, 2007. Rosensweig left as part of the management shake up announced in late 2006. Yahoo is still looking for a new executive to oversee the "audience" and virtual tour entertainment group that was formed as part of that reorganization.

Nazem will walk away from Yahoo as a wealthy man, having made millions by exercising the stock options that he accumulated during his tenure. In the last four years alone, Nazem has realized $213 million in gains by exercising some of his stock options, according to SEC filings. Under his separation agreement, Nazem will retain the rights to another 2.97 million stock options with exercise prices ranging between $20.58 and $34.75 per share as long he adheres to certain restrictions, including a three-year prohibition against taking a job with Yahoo rivals Google Inc. or Microsoft Corp.

Yahoo also will pay Nazem the balance of his $500,000 salary and accelerate the vesting rights of his restricted stock in the company, according to SEC documents. Most of Nazem's stock options are currently worthless because Yahoo's market value has sagged since the end of 2005. Yahoo shares dipped 20 cents after the disclosure of Nazem's resignation.

Turmoil Continues at Yahoo

Yahoo CEO Terry Semel Facing Backlash as Yahoo's Director of Technology Resigns.

Just before Google Inc. went public nearly three years ago, Yahoo Inc. Chairman Terry Semel assured a roomful of securities analysts and money managers that his company would remain the Internet's brightest star. To punctuate his high hopes, Frank Sinatra's "The Best Is Yet to Come" played in the background.

Google has so thoroughly eclipsed its rival since then that a growing contingent of Yahoo shareholders believes the company would be better off without Semel, who could face a chorus of discontent when he takes the stage at Yahoo's annual shareholders meeting in July of 2007.

Even as it has struggled, Yahoo has continued to pay Semel like a rock star (Semel enjoys the highest salary in the world) - yet another sore point for frustrated Yahoo shareholders.

"Yahoo is drifting," said Eric Jackson, who intends to confront Semel during the meeting on behalf of about 80 Yahoo stockholders who own a combined 2 million shares in the Sunnyvale-based company. "And Yahoo's problems ultimately lie at Terry Semel's feet."

Although the stake held by Jackson's group represents less than 0.2 percent of Yahoo's outstanding stock, the shareholder misery is widespread, said Standard and Poor's equity analyst Scott Kessler.

"A lot of people are wondering what is going on and what Yahoo management is doing to get the stock moving in the right direction again," he said.

Yahoo Shareholders are exasperated largely because Yahoo has seemed to be meandering while online search leader Google has been stampeding farther ahead.

In the last year alone, Google has trumped Yahoo in the bidding for online video pioneer YouTube Inc. and Internet display ad service DoubleClick Inc. while widening its lead in the lucrative field of search. Google has established such a commanding advantage that the Mountain View company makes more money in a single quarter than Yahoo does in an entire year.

It's a humbling descent from the days when Terry Semel was singing a happier tune. After Google completed its August 2004 initial public offering, Yahoo was still the larger and more valuable company.

The IPO gave Google a market value of $23 billion compared with $39 billion for Yahoo at the time. Google's stock price has increased by more than sixfold since then, creating nearly $140 billion in additional shareholder wealth. Meanwhile, Yahoo's stock price has fallen by about 4 percent during the same period, leaving the company with a market value of $37 billion.

Semel, who ran a movie studio before becoming Yahoo's chief executive six years ago, isn't the only senior management executive at Yahoo on the hot seat. Besides pushing for Semel's ouster, Jackson's group believes six other directors on Yahoo's 10-member board should be bounced: Roy Bostock, Ron Burkle, Eric Hippeau, Arthur Kern, Robert Kotick, Edward Kozel and Gary Wilson.

Only Yahoo co-founder Jerry Yang, Hewlett-Packard Co. printing executive Vyomesh Joshi and Ed Kozel, CEO of Silicon Valley startup Skyrider Inc., have done enough to remain on the board, Jackson contends.

Although still difficult to do, removing Yahoo's directors has become a more realistic option for shareholders because of a new policy adopted this year. The rules now require each Yahoo director to be approved by a majority of the votes cast. Previously, Yahoo directors only needed a single supporting vote to prevail in uncontested elections, no matter how many shareholders may have been opposed. This system - known as a "plurality" vote - still governs most publicly held companies.

Despite the change to majority vote, Yahoo's board still can refuse to accept the letters of resignation each director must submit under the new rules. The resignation letters are supposed to ensure the directors can be removed if they don't win majority support, but the guidelines give the board the discretion to overrule the shareholders.

Three shareholder advisory firms - Institutional Shareholder Services, Glass, Lewis & Co. and Proxy Governance - have all recommended opposing three directors who sit on Yahoo's compensation committee. They are: Roy Bostock, a veteran advertising executive; Burkle, a billionaire best know for his investments in the supermarket industry; and Kern, a former radio broadcast executive.

The firms concluded the trio should be punished for too richly rewarding Semel despite Yahoo's recent struggles. In 2006, Semel received a compensation package valued at $71.7 million - more than any other CEO at the 386 publicly held companies covered in an Associated Press analysis of nation's top corporate paychecks.

Most of Semel's pay consisted of 6 million stock options given to him in exchange for agreeing to reduce his annual salary from $600,000 to $1. The committee awarded Semel another 800,000 stock options in February as his bonus for 2006 - a year in which Yahoo's stock price fell hard by nearly 35 percent.

The latest awards will give Semel an opportunity to build upon the nearly $450 million in gains he has already realized by exercising stock options Yahoo gave him in previous years.
"Semel is rewarded when times are good ... and when times are bad," wrote ISS, the largest of the three advisory firms.

Yahoo believes Semel's pay package is in the company's best interest because it's structured to give him a strong incentive to boost the stock price.

That's because stock options only yield profits when their exercise price is below the underlying shares' market value. For now, at least, the options that Semel got last year are worthless because their exercise prices exceed the stock's market value, which was hovering around $27 last week.

In its analysis, Proxy Governance questioned whether Semel needed any more incentive to boost Yahoo's stock price. As of April 1, Semel held 17.7 million stock options eligible for exercise and 7.1 million stock options that hadn't fully vested.

"Based on his ownership in the company, Semel already should have the proper incentives ... to work toward building long-term shareholder value," Proxy Governance wrote.

Yahoo says its confidence in Semel hasn't wavered.

"Under Terry's leadership, the company has a clear strategy to create stockholder value, and the company is well-positioned to capitalize on the substantial growth opportunities ahead for the Internet," Yahoo spokeswoman Helena Maus said in a prepared statement.

But Semel, 64, may be on a short leash after Yahoo suffered an 11 percent drop in its first-quarter profit while Google's earnings soared by 69 percent. Many analysts believe Semel will face even greater pressure to surrender the reins unless Yahoo's profits accelerate during the second half of this year.

A pivotal upgrade to Yahoo's system for distributing text-based ads alongside search results and other Web content is supposed to start paying off by then. The improved formula - dubbed "Yahoo Panama" because it's supposed to open new moneymaking corridors - adopted many of the measures Google has been using for years.

Semel also is counting on recent advertising partnerships with more than 260 newspapers and Viacom Inc. to revive earnings growth.

Jackson, a Naples, Fla. management consultant who owns about 100 Yahoo shares, doubts that Yahoo will regain its stride as long as Semel is calling the shots. That's why he turned to the Internet earlier this year to recruit Yahoo shareholders to support a plan to shake up the company. Besides gaining the support of 80 shareholders, Jackson said about 25 current and former Yahoo employees disillusioned with the company's direction have contacted him to support his cause and have been working in phase converters and many management overhaul specialists.

Besides finding a new CEO, Jackson wants Yahoo to close its entertainment and news division in Santa Monica, lay off employees with overlapping responsibilities and institute a cash dividend.

Jackson also thinks the board should be more open to takeover overtures, particularly since last month's media reports of a possible bid by Microsoft temporarily lifted Yahoo's sagging stock. But first he would like to see what a new leader could do with the tarnished Internet icon.

"It's frustrating because you can see so much unlocked potential in the company," Jackson said. "If it Yahoo were managed in the right way, it could be worth $150 billion."