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Summary:

GigaTeam was visiting GooglePlex today, meeting with a few executives. If there was anyone at Google who was worrying about an online advertising slowdown, we did not run into them! Jokes aside, the sharp decline in Yahoo’s stock, about 13% for the day, following CEO Terry […]

GigaTeam was visiting GooglePlex today, meeting with a few executives. If there was anyone at Google who was worrying about an online advertising slowdown, we did not run into them! Jokes aside, the sharp decline in Yahoo’s stock, about 13% for the day, following CEO Terry Semel’s comments that online advertising was losing momentum, showed up on our feed readers, and gave us a bit of a pause. After all, Yahoo had already tamed expectations back in July, and hinted that it sales and profits would not be as high as Wall Street expected. So this indeed was a shocker.

Semel’s proclamations of course are enough to chill everyone (including us) whose business model revolves around advertising. But is this a problem that highlights the plight of Yahoo or is it symptomatic of a larger slowdown. Or is it the case of ad-supported consumer Internet hitting a big, gut-wrenching air pocket? Just maybe, the old media dons, and new age rivals (read MySpace) beginning to chip away at Yahoo’s bread and butter banner advertising business?

I suspect it is a combination of all those factors, but I might be in minority, because experts clearly think otherwise.

“It feels and smells like a macro” problem, rather than something specific to Yahoo or the Internet industry, said Martin Pyykkonen, an analyst with Global Crown Capital LLC. [via Reuters]

Yahoo attributed its revenues miss on a sharp drop off in automobile and financial services advertising, a view echoed by Barry Diller, chairman of IAC Media, though he restricted his comments to slower ad-spending by the financial sector.

Yahoo’s fortunes are very heavily reliant on Yahoo Finance, one of its most popular properties. Hitwise says that it is currently the market leader by a wide margin, with over 34% market share. Most people use it to follow their stocks, and it remains a popular bulletin board destination. (Back in July, a redesign had many Yahoo BB users up in arms.)

As a consequence, the company has been able to attract big spending financial advertisers such as Ameritrade, ETrade and ScottTrade. If you look at the chart for all the major financial/online brokerages, and compare it with Yahoo, you see a pattern. They sneeze, and a soon after Yahoo catches a cold. (Paul Kedrosky points out that the slowing housing market is reflected in Yahoo’s warning.)

Now lets take the other sector getting the blame – automobiles. EMarketer, a New York-based market research firm forecasts automakers’ online advertising spend for 2006 at about $1.95 billion, and is forecasted to grow to about $2.67 billion in 2006. Given the current state of Auto industry, that number looks highly unlikely.

Ford Motors has been laying off people by thousands, shutting down plants. General Motors is in a similar predicament. In other words, things are tough in Motown, which means that the automakers would be looking to get more bang for their buck, and will become more result-oriented in their advertising efforts. Perhaps when Google earnings come out, we should expect the other shoe to drop (or not.) (Take our poll.)

Hindsight is 20/20, but Yahoo’s miss might be a symptom of a deeper malaise at the company. The company’s much vaunted, next generation advertising platform is woefully late. The stock has been meandering for a while, making the company vulnerable to loss of talent.

Updated: If you take a look at Linked In, you can find some astonishing names with an interest in “career opportunities.” They have updated their LI profiles, so no need to point to those links. Okay maybe that is a bit of a stretch, But still it is hard to ignore some of the whispers in the Valley; start-up CEOs calling Yahoo is the farm team of Silicon Valley. There are those who say that Yahoo continues to lose ground to its rivals such as Google. These are clearly tough times for Yahoo, and it would need some serious mending for the company to get its mojo back.

Looking beyond Yahoo, if the bigger macroeconomic slowdown is looming ahead, it is time to start thinking about alternatives. And that means sleepless nights!

  1. Bitacle Blog Search Archive – Yaho-ouch! – GigaOm…

    […] Seattle Times Yaho-ouch! GigaOm…

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  2. Yes, using the LinkedIn ‘career opportunities’ tag is a huge stretch. As an executive search consultant who uses LI heavily, there is a pretty low correlation between ‘career opportunities’ and someone who’s actively looking.

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  3. Om, “a stretch” is putting it rather mildly. I guess 2.5 years ago I carelessly checked every available option on LinkedIn’s contact section. It’s now corrected, so you can fix your post by running a script against other names at Yahoo and linking to the next schmoe who needs to freshen up their LinkedIn profile from years ago! Or not!

    Not quite pretexting, but “dirty pool!” nonetheless!

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  4. I choose to believe the entire financial and automotive sectors are spending less, not just with Yahoo. This makes sense, if you believe that “financial sector” advertising budgets were driven by the boom in real estate coupled with low interest rates on mortgages. This is all slowing down, isn’t it? Same goes for automotive, as you point out it’s tough times in Motown.

    That said, I do believe the current online advertising environment will change for most publishers. As I pointed out here and here, the primary driver of growth in online advertising will continue to be the long tail of advertisers, who measure their ROI specifically to targeting criteria.

    If I were a publisher relying on selling a general demographic or audience based on CPM rates, then I’d be concerned. Users want relevant ads, and advertisers want to reach relevant users.

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  5. Yahoo! What’s Happening?…

    Yahoo! said it was experiencing some advertising weakness so the stock fell double digits. The problem might be something at Yahoo!, with the ad market in general, or a general slowdown in the entire economy.
    I’ll admit I haven’t paid much …

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  6. Yahoo!’s challenges are symptomatic of the Web 2.0 implosion that I have been commenting about for a while. You can only go so far re. delivery of value (i.e. Click-Through-Rate [CTR] % growth on the part of AD buyers) if the target audience is driven by keyword based search that lacks context, and on top of that ad placements that are 1-dimensional re. obtrusiveness. The “Web of Keywords” and Pagerank is being gamed, and it ultimately eats into CTR

    The Semantic / Data Web is the next dimension re. Web usage patterns, and in this Open Data Access and context centric Web, I anticipate new business models (that include ADs) that will match and exceed what we have today.

    Google is in as much trouble as Yahoo! Or should I say, equally vulnerable. Both companies need to move beyond unintelligent search based AD models (keyword search algorithms only go so far! Ditto the “Walled Garden” and “Data Acces Connundrum” that is the achilles of Web 2.0 business pattern in general.

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  7. I’d say loss of talent will be Yahoo’s biggest problem, and not the loss of a couple big names, but a broader loss of generally talented engineers who are actually writing all the code, who’d prefer a 20k instant pay hike to the raise that’s promised but never came.

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  8. The reason Yahoo is hurting and talking about an online advertising downturn is due to the aweful conversion rate of their pay per click search advertising. It converts at around 10% of what you would expect to see from Google. Even MSN’s pay per click advertising converts at a higher rate. The problem is not the market or the medium, it is Yahoo.

    The loss of talent, as highlighted in Jianing’s comment above is the real problem. Without the right players, Yahoo is never going to compete.

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  9. I buy online media for a mortgage company and I can tell you for sure that the financial services sector climate is definitely impacting the big online publishers. In a time when ppl are searching for efficiency, search is typically the best channel…it’s no surprise Google is not worried. And if you really look at it, the eCPM on search campaigns are generally higher than those of your display media buys (unless you are buying branding type home page spots). I would imagine financial services industry is hurting Yahoo more than Auto, as even though domestic auto makers are struggling, Japanese and Korean imports are going very aggresive.

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  10. Yes the online ad boom is going to slow down but only for brand display advertising (whoose fortune is tied much more with yahoo than google).

    The direct response search ad boom is going to continue except in one niche thats the mortgage/realestate industry.

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