NEW YORK In late 2004, Yahoo CEO Terry Semel, speaking at the Association of National Advertisers, used a familiar metaphor for the company's strategy: a digital theme park that tempts visitors with endless attractions to get them to stay inside the gates. Analysts credited the strategy for reviving the company's fortunes following the dot-com bust.
Fast-forward three years. Yahoo, badly trailing rival Google and in the midst of a corporate reorganization following Semel's exit, is breaking with that vision. Instead of relying solely on the many features designed to keep people around to view the ubiquitous ads, Yahoo, and other first-generation Web portals, are taking a page from Google's playbook to remake their businesses to focus not just on attracting eyeballs (and ad dollars) but to find them across thousands of sites and other digital destinations.
Yahoo illustrated its embrace of a network strategy by inking a deal last week to buy ad network BlueLithium for $300 million in cash. The deal came less than two months after it closed another deal to buy ad network and exchange Right Media for $650 million.
"It's a reflection of consumer behavior," said Bryan Wiener, CEO of digital agency 360i. "They've been disaggregating themselves. They're spending less time on portals and spreading themselves to blogs and elsewhere."
Google recognized that early on by stitching together a far-flung network of sites that now accounts for over half its revenue. That's led Yahoo and fellow Internet 1.0 portals AOL and MSN to expand in a similar way. AOL has seen the weight of its business shift from its site to its growing network businesses, including market leader Advertising.com and behavioral targeting specialist Tacoda, a $275 million deal that closed last week. Microsoft has busily added network businesses like DrivePM from the aQuantive deal, ad exchange adECN and those in emerging media like video games and mobile, and struck a deal to sell ads on Facebook.
"Scale is going to really, really matter," said Joe Doran, general manager of ad planning at Microsoft. "There's going to be room for only two really broad ad platforms."
The shift from portal-centric strategies comes hand in hand with the rise of user-generated content and social networking sites like MySpace and Facebook redirecting consumer Web behavior away from marquee sites, according to analysts. MySpace alone produced nearly 4 billion page views in July, per Nielsen//NetRatings.
"The rate of growth for lower-grade inventory is significantly greater than premium inventory," said Kevin Lee, chairman of Did-it.com, a New York digital shop specializing in search marketing.
Yet the portal is not going anywhere soon, said Todd Teresi, svp of display marketplaces at Yahoo. Instead, it will continue to serve a key role in collecting a trove of behavioral data about consumers that can then be used to target advertising to them when they leave Yahoo's gates for other sites. In this way, he said, a visitor to Yahoo's hybrid cars' area could then be shown a hybrid car ad when perusing MySpace.
"The roots of everything that enable Yahoo to create this sizable monetization engine ultimately comes down to the portal," he said. "Without that ability to target people, delivering relevant ads isn't possible."