Yahoo Wins Over Users, but Not Advertisers
YAHOO is the granddaddy of all-things-to-all-people Web sites. And the concept still shows surprising life: Yahoo has users, in spades. But it has failed dismally in translating popularity into strong revenue growth.
Context & Ripple Effects
Yahoo's problem is no longer relevance but conversion. It still commands one of the largest audiences on the web — an all-things-to-all-people portal with a loyal base and 15.9 percent of US search in May per comScore — yet that scale has not become revenue. The company bet on new advertising technology to close the gap back in December 2008, and three years on the gap persists.
The timing is awkward internally: chairman Roy Bostock publicly backed CEO Carol Bartz at the June 2011 shareholder meeting just as questions about execution mounted, following a rough stretch that included the December 2010 product missteps that damaged user confidence. Meanwhile Yahoo is fighting for engineers it keeps losing to rivals and retooled Yahoo Mail against Google and Microsoft in May to defend its core audience.
First-order effects
- Advertisers keep routing budgets to rivals that can tie spend to intent or social data, so Yahoo's large page-view base monetizes below what its traffic alone should command.
- Bartz's turnaround case rests on fixing that monetization gap; with the board's public backing from June 2011 now attached to it, another quarter of weak ad growth puts her position directly in play.
Second-order effects
- Pressure to show revenue forces Yahoo to shop non-core assets — analysts' rumored billion-dollar valuation for its Hadoop business makes open-source infrastructure an obvious candidate even though nothing is confirmed.
- Defending audience becomes a defensive arms race: the May Mail relaunch against Google and Microsoft signals Yahoo spending engineering effort protecting log-in traffic rather than building new ad inventory.
Third-order effects
- If portals cannot convert reach into ad dollars, investor logic drifts toward sum-of-the-parts — valuing Yahoo by its stakes, patents, and assets rather than its operating business.
- Talent flows compound the structural slide: TopProspect's data showing Yahoo losing the engineering war means the company most needing product reinvention is least able to hire for it.
The trend: Web portals are being repriced from audience businesses into collections of undervalued assets as brand-based display advertising loses out to targeted platforms.