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Yahoo reported another disappointing quarter, with ex-TAC revenues (i.e., revenues minus the money it shares with ad network partners) down 5 percent, to just over $1 billion. Its core display advertising business was up 5 percent, but it appears to be losing share to companies like Google and Facebook. Yahoo is still one of the biggest online properties in the U.S., with fairly sturdy content and communications assets, but its options for restoring growth are getting fewer.
The reason? Yahoo has missed the most important new digital consumer trends. It might still have a shot at adding social media; after all, after many failures, Google’s Google+ project to add social elements to its services appears to be gaining traction, at least among early adopters. But Yahoo failed to translate a solid position in casual gaming into social gaming, and it is only dabbling in social commerce, even though it coined the phrase. And its acquisition of “content farm” Associated Content doesn’t seem to be increasing profitable traffic. Meanwhile, outsourcing its search business to Microsoft hasn’t paid off yet. So what is the company to do?
Yahoo blamed its display-ad sluggishness on a sales re-org that delayed some big deals. Let’s give Yahoo the benefit of the doubt and assume it still has good relationships with big-brand advertisers like GMC, Visa and Target (all of which are serving up rich media ads or sponsorships on Yahoo as I write this). If Yahoo cashed out its assets in China, it could use that money for other acquisitions and investments to bolster online advertising and gain a little social media momentum.
Yahoo already has a decent number of online video viewers – it’s a distant No. 3 after YouTube – but it is relatively weak in how much time those users spend with its content (35 minutes per viewer compared with Hulu’s 185, according to comScore). Buying Hulu might be too expensive: Apple and Google are rumored to be interested, and Hulu may not get long-term exclusive contracts for TV shows. But Yahoo’s brand-advertising expertise is still better than Hulu’s, or Netflix’s or Amazon’s. Its IntoNow TV check-in acquisition is already focused on synching twin-screen activities with on-air ads, and Yahoo Connected TV is showing signs of life. Yahoo could make a compelling social TV pitch to advertisers like Coke and Verizon, for example, connecting an on-air ad to an on-screen or PC-based check-in or other activity.
Yahoo could try to be the social-media advertising marketplace for everybody but Facebook. Even a social network as big as Twitter needs help creating and selling ads. If Yahoo didn’t choose to acquire a real-time ad network like OneRiot or 140 Proof that places ads near social streams, it could still bulk up its social targeting and analytics via Lotame, 33Across or Media6Degrees. With some acquisitions and integration, Yahoo could ease the effort a publisher or ad buyer has to make to cobble together customized solutions.
Yahoo is reportedly working on a hybrid content/ad syndication network. Instead of just renting out ad space, a second-tier online publisher could get related personalized content and advertising from Yahoo in a single package. Yahoo has plenty of high-quality content, and it could make Associated Content create advertorial-like opportunities. Newspaper publisher Gannett attributed a solid online quarter partly to its ad network partnership with Yahoo, proving that Yahoo has some success dealing with quasi-competitors.
With some effort, Yahoo could reenergize its business around video, a social advertising network and/or syndication over the next 9 to 18 months. Its costs are under control and its ad business is growing, albeit slowly. If investors or its board don’t have the patience, I suppose it could try to sell itself to Microsoft or AOL, assuming they’re still interested. Either would be a pure consolidation play among general-purpose content portals, combining audiences, tech infrastructure and sales forces. That kind of cost-savings merger is always brutal, and brutally difficult to execute.