What Yahoo *Should Not* Do
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Written By Peter Hershberg | December 11, 2006 | Share This
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Now that their re-org has been announced and Panama is scheduled for a March release, there’s been much discussion about what Yahoo should do next. Rather than add to that list, I want to point out the one thing they absolutely should not do – attempt to compete with Google for syndication across content sites.
I’ve read that suggestion in any number of places over the past week or so, most recently on John K’s Got Ads? blog. John suggests that, among other sound recommendations, Yahoo “get serious about distribution deals. Win the next 5 from Google. Focus on entertainment content, news, mobile, games.” But I’m more inclined to agree with Dave McClure, who thinks that the key to Yahoo’s immediate success lies solely in its ability to improve monetization, not in its ability to sign new partners.
The most recent estimate from Merrill Lynch suggests that Google makes $.11 on every domestic search, while Yahoo only generates $.04. Panama is, of course, intended to help close that gap. But until that happens, there’s very little chance they’ll sign a syndication partner of any real value and an even slimmer likelihood that they’d even be able to make the deal work.
Here’s why:
Yahoo Publisher Network has yet to make any kind of an impact on the market. One of the main reasons why it hasn’t taken off is because Yahoo has not been able to figure out the supply/demand equation. Simply put, they’ve got substantially more supply than there is demand at this stage. Adding new inventory without a significant increase in a) the volume of advertisers in Yahoo’s system and b) the CPC’s they’re paying for inventory, would actually hurt new and existing YPN publishers. The limited number of advertisers in the system would be spread across an even greater number of impressions, thereby increasing the amount of remnant inventory being served. In the end, this would result in a decline in ad performance and a lower revenue share for YPN publishers. Many existing partners would likely switch to AdSense or a competing network over time.
That argument aside, I can’t see a scenario where Google allows any of its competitors (Yahoo, MSN, etc) to win a single “major” syndication deal. Google has the currency (in both AdSense rev shares and hard dollars) to win every time. They’re close to having a monopoly on contextual advertising and there’s no reason why they’d let a competitor enter the space. If nothing else, competing for these deals in the short-term is a waste of Yahoo’s time. Even worse, losing another one to Google would be yet another shot to employee morale.
Don’t get me wrong, I’m not suggesting that Yahoo abandon its ad network altogether for the time-being. But I do think it’s important that they take a “phased” approach to chipping away at Google’s dominance. If Yahoo’s going to be successful over the long-term, its gotta start with fixing the monetization engine first.
Topics: Advertising: Distribution, Yahoo! |
Thanks for the link Peter. My main point is that Yahoo could become a great ad network. It sells the most quality banners right now, and it should do everything to extend that. It has the most data about users, and it should leverage that more. It has a great salesforce as well.
It could sell banners on a lot more places (if it had more distribution), and it would have a unique value since Yahoo has a lot more demographic / behavioural info about users than anyone else.
So yes, Yahoo definitely needs to improve both search and search monetization, but it can also do something bigger and different from Google.
I think Yahoo realizes most of this, and is planning to do some of it. But Yahoo’s problem is a huge gap between thinking and doing. They tend to over-think, and act far too slowly.
They need to enter the fray.
Good point, John. I agree that Yahoo could differentiate itself by leveraging user data across a display ad network. Google would have a hard time competing in that area (”secret” CPM ad network notwithstanding).
But as you noted, it’s all about the execution . . .