CES isn’t just a critical time for TV manufacturers, tablet companies and electronic roller skate inventors to lay out their wares for the year. It’s also turning out to be a vital time for the future of Yahoo.
Indeed, Marissa Mayer has spent much of her early tenure as Yahoo CEO trying to reestablish Yahoo’s credibility in the startup-centric, let’s-build-a-social-app-and-make-millions world of Silicon Valley. The hope is that by inserting tech entrepreneurs like Max Levchin on Yahoo’s board, or buying cool mobile startups like Summly (as has been rumored), the engineering world will gradually reconsider the portal as a cool place to work and build innovative products.
But there’s a crucial, perhaps even more important constituency that also needs to be reinspired by Yahoo, and one that Mayer has largely ignored, until now. The ad world is dying to hear Mayer’s plans for the company. And that’s scheduled to happen during a series of meetings with top digital agencies in Las Vegas at CES next month.
The list of questions top buyers will have for Mayer should be long. While she hasn’t spoken a lot publicly on her overarching philosophy about Yahoo, it appears clear that, based on Mayer’s actions, when it comes to the internal battle between tech and media, tech is winning. Mayer is focused on bolstering Yahoo’s search business, its mail product and its homepage during her early months on the job. All wise, methodical moves, in the eyes of buyers.
It’s where Mayer wants to take the company long-term that is the problem. And in this situation, reading the tea leaves is tricky and puzzling. After successfully freeing up $1.3 billion from Yahoo’s Alibaba sale, various reports have Mayer looking to make a huge splash in ad tech. The list of possible acquisitions ranges from supply-side platforms like PubMatic and The Rubicon Project to retargeting companies like Criteo, demand-side platforms like Turn, and even the agency world's engine for billing and paying vendors and clients—MediaOcean.
“Her hire has definitely reinvigorated management," said Bryan Wiener, CEO of 360i. "Agencies need to be serviced, but advertisers need a reason to get excited. She needs to articulate her vision. I would say the next 100 days are critical.”
Here’s the problem though: It’s hard to imagine Yahoo—once known as the ultimate Web outlet for brand advertisers—getting anybody too excited about payroll software. Buying a Media Ocean hardly seems the fastest route to TV dollars.
And sure, retargeting and programmatic buying are red-hot areas of growth at the moment, which is why a Turn or a Criteo might make sense. But that strategy also has its share of problems.
For one, Yahoo’s been preaching its ability to offer brands better ad targeting for over a decade; the company’s had millions of registered users filling out profiles since the 90s and has trumpeted retargeting at least since the days of acquiring Blue Lithium.
Of course, around that time, Yahoo also acquired the second-tier ad exchange Right Media. Last year, under interim CEO Ross Levinsohn, Yahoo snatched up the ad network/targeting firm Interclick, which yielded the promising targeting platform Genome.
With that history, the obvious question is, why double down on ad tech, particularly when capturing the hearts and minds of big brands? Or would Mayer simply be happy relegating Yahoo to a direct response-oriented ad seller, all about helping brands sell stuff to their best customers?
Still, it would seem that a few billion would be better spent on a Pinterest, a Buzzfeed or even a Foursquare, rather than a Rubicon.
"Buying a consumer brand would be interesting," said Jeff Lanctot, chief media officer at Razorfish. "I think for people in the industry now, Yahoo's in-house tech has a little rust on it. They need to shine it up or make acquistions. I could see the logic in going consumer, but I don’t think that a focus on ad tech means a deemphasis on media. Ross Levinsohn was clearly very focused on media. When he was passed over, the assumption was the pendulum would switch back. So it's not a surprise to me, and I'm not disappointed."
Most of the agency world is willing to cut Mayer lots of slack. For one thing, the CEO just had a baby. Plus, Yahoo’s problems are massive, and can’t be changed overnight.
As one leading agency executive explained Yahoo’s situation: The companies that have generated the most excitement in the online ad business in recent years—Google, Facebook and Twitter—have reinvented aspects of the way agencies do things. “That’s much harder for Yahoo. They’re like the 800-pound gorilla of basic content. And Mayer either needs to change direction from that or use it to the best of her capabilities.”
Yahoo’s biggest holes, according to this executive, are in search and social media. And when it comes to search and targeting, Yahoo has assets but lacks the underlying technology to tie it together.
Perhaps surprising, this executive noted that Yahoo brought in nearly the same amount of revenue from search ($414 million) as it did display ($452 million) in Q3.
And on the consumer side of things, they don't have connective tissue either, at least nothing like Apple’s iTunes ecosystem, Amazon’s shopping engine or even Microsoft’s budding community that potentially bridges Xbox and Skype. "People flitter in and out of Yahoo,” said the ad exec.
So maybe going all in on targeting is the way to go? Become the direct response portal of choice. That might be a lost opportunity, according to some buyers.
“Search retargeting with display, message sequencing through the purchase funnel, and advanced analytics have been the theme on many Yahoo proposals over the last quarter of 2012,” said Jim Waters, vp of media for Digitas. “That data-driven approach has been consistent with the Google Display Network model. But Yahoo needs to win in the content space to effectively differentiate themselves from Google, who has the clear advantage with search scale and insights. Content needs for clients are increasing at a rapid pace, as paid media is driving earned media engagement and amplification.”
One way Yahoo could seem to continue to differentiate is in video, where the company has had some modest success with both originals and branded entertainment series. And since Mayer was hired, the company has renewed series like Burning Love while announcing a project with Jack Black. Mayer has kept the respected Erin McPherson in place as the head of Yahoo video. According to sources, the company may explore rolling out a syndication business along the lines of AOL’s budding AOL On network.
Still, Mayer hasn’t talked much about video to date. And it’s hard to tell how much of a priority original content will be going forward, given its cost and unproven revenue model (during a recent episode of the Nerdist Podcast, Tom Hanks implied that advertisers had not gravitated to his Web show Electric City. “I would like to see it continue,” said Lanctot. Like in TV, it's hits driven business. My expectations is there in not as much as much emphasis.”
Said another observer: “The question is whether she takes the whole original content thing further or let YouTube run away with that.”
Whether or not video is Mayer’s priority, her sales team surely is. That’s definitely something the buying community wants to hear about. Most agency executives are bullish on Mayer’s hiring of COO Henrique De Castro, even if many don’t know him personally. And Mayer’s recent decision to reorganize sales around categories has received praise.
A big question hanging over Yahoo’s sales team seems to be whether De Castro needs to hire a strong number two, i.e. a Madison Avenue schmoozy type who can court big customized brand deals, or whether Yahoo needs to cull its inside ads sales team and fully embrace programmatic selling for premium inventory. Or a little of both.
Either way, Mayer and her agency friends will have a lot to talk about. It’s likely she’ll find an engaged, if slightly impatient audience.
“With Yahoo, there’s definitely change fatigue," said one digital buyer. "There's been a constant stream of new leadership. I’m as tired as the next person. But it’s not Mayer’s fault.”