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Why Yahoo! still matters: Advertising Age November 17th

NEW YORK (AdAge.com) — Its Google search deal is history, Microsoft is no longer a suitor, and a combination with Time Warner’s AOL is theoretical, at least for now. Its stock has gone from an all-time high of $33.63 in October 2007 to $10.34 as of Nov. 12 of this year. And yet Yahoo is a lot more valuable in the eyes of Madison Avenue than it is in the eyes of Wall Street, thanks to an important but oft-forgotten point in the debate over how old and stodgy the traditional portal model might be: Size still matters.

Chrysler CMO Deborah Wahl Meyer.
Chrysler CMO Deborah Wahl Meyer.

Photo Credit: Carlos Osorio

“Advertisers are looking at where’s the traffic, volume and value is today. And today is very positive for advertisers at Yahoo,” said Chris Moloney, chief marketing officer at Scottrade, which in August was the top online-ad spender, according to TNS Media Intelligence. “Google is considered to be the 800-pound gorilla of the internet but it doesn’t have content the way Yahoo does. It receives a massive volume of traffic.”

Just ask Chrysler. Recently, the automaker’s chief marketing officer, Deborah Wahl Meyer, talked about using NBC, Fox and Yahoo as the media pillars of a big campaign to push the automaker’s 2009 Dodge Ram truck. She said she thinks of Yahoo “almost as a fifth network.”

Indeed, according to Chrysler, a home-page buy on Yahoo is worth 75 TV ratings points — the equivalent of four 30-second spots in a hit prime-time show such as ABC’s “Desperate Housewives.” To promote the Ram, Chrysler bought not just Yahoo’s home page but also those of MSN and AOL.

“We needed to go wide and build awareness, but we have to be smart about serving the right content to the right consumer at the right time,” said Susan Thomson, director-media at the automaker. That’s why it also used Yahoo’s behavioral-targeting technology to craft 30 different ad units that could be served up based on behavioral habits. “To us as a partner, yes, [Yahoo] is valuable,” she said.

Wall Street shrugs
You wouldn’t know that looking at the company’s stock price, down almost 65% in the past year. Factoring out the past two months, when everyone’s stock price plummeted, it was still off 45% from November 2007.

But Aimee Reker, senior VP-global director of search for MRM Worldwide, said if she were in the financial-analysis space, she’d rate it a buy. “It’s undervalued,” she said, noting that not only does Yahoo have scale, it has scale against its own content. Indeed, for all its recent efforts, Yahoo missed the boat on search and social networking, but it remains the dominant player in online display advertising.

“Yahoo has the greatest scale and the greatest potential as a brand builder in the online world,” said Rob Norman, CEO, Group M Interaction. That doesn’t mean it is guaranteed success at a time when the online display market will be challenged in 2009. J.P. Morgan’s Imran Khan last week dropped his growth estimate for the category to 6% from 16%. How that will affect Yahoo depends on how advertisers react.

If, for example, among the top 500 brand advertisers in the market for home-page takeovers on AOL, MSN and Yahoo, a few start buying one or two rather than all three, then Yahoo probably wins in that it takes share in a flat market. But if advertisers flee to smaller sites, such as iVillage, Martha Stewart Living and CondeNet or video sites with smaller, more-engaged audiences such as Hulu and ABC.com or to ad networks, Yahoo could have trouble.

Recently, a few buyers have grumbled that Yahoo hasn’t been bringing the sharpest ideas to the table. One buyer on an auto account lamented that when he had lots of money to spend for an upcoming first-quarter campaign, the big idea Yahoo brought back was a banner buy. It didn’t win the business.

Math problem?
Part of Yahoo’s choice, Mr. Norman said, is whether to play to its strengths in display advertising or attempt to out-Google Google and the ad networks. “The dominant gene in Yahoo is to think of advertising as a math problem — machines talking to machines,” he said. “If you reduce it to a math problem, we go to Ad.com.”

Weighing on Yahoo is that even growth of 6% may be optimistic. Optimedia CEO Antony Young said online display spending among his clients overall will be flat in the fourth quarter. In a low-growth or flat market, Yahoo’s best-case scenario would be to take share from both its online and offline competitors, including TV, newspapers and radio.

“I think they will be more successful in competing for general advertising budgets,” Mr. Young said. “In recessionary markets, strong brands … are lower-risk buys from the client perspective.”

That could also help Yahoo compete against others gobbling up portal dollars, such as MySpace. News Corp.’s social network has made huge strides in the past year in tapping entertainment dollars and rivals Yahoo in terms of reach, but social networks are still considered experimental.

Joanne Bradford, Yahoo’s new revenue chief, is optimistic that the company will come out of the recession in a stronger position than its competitors, mainly because it has so many assets. “Yahoo has more levers to pull in this market than any competitor,” she said. (Of course, Ms. Bradford knows one competitor — MSN, which she used to run — very well.)

Successes
Consider, for a moment, Yahoo’s recent achievements: Its Olympics site, Yahoo Olympics, dominated the games in August, bringing in more visitors in the U.S. than NBC and Microsoft’s NBCOlympics.com. In September, Yahoo Video overtook MySpace TV as the second-ranked video site to Google’s YouTube. Some of its recent content initiatives have borne fruit. Its original entertainment show “Primetime in No Time” is getting a million views a day. Its business show, “TechTicker” on Yahoo Finance is getting 450,000 views a day, which compares favorably with CNBC. The first intimate photos of President-elect Barack Obama and his family on election night appeared on Yahoo’s photo-sharing site, Flickr.

And there are pockets of innovation at Yahoo that excite advertisers, such as mobile — an area where “Yahoo is pushing the envelope in ways Google’s not,” said Daina Middleton, senior VP-director of Sunao at Moxie Interactive. Another bright spot is its Yahoo Consumer Direct service, a partnership with Nielsen and Wal-Mart that helps trace web ads to in-store sales.

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How high can the price of a click go? Ad Age piece today

The Google-Yahoo partnership has theoretical implications for the search market and, by consequence, for the whole advertising market.

It’s reasonable to speculate that a successful test will lead to a growing role for Google in delivering advertising in response to Yahoo search queries. In the event this transpires, there will be a de facto consolidation in U.S. search.

Conventional wisdom asserts that there is an inherent commercial democracy in paid search. The party who bids highest and who achieves the highest quality score, comprised of price, relevance and likelihood to click, wins. And in a competitive market the price is capped by the incremental cost of the click to the advertiser in search engine A vs. search engines B, C or D and the total volume of clicks that the advertiser wants, needs or can afford.

In the world that existed before search engines, the “cost per” world was dominated by direct-response print, TV, mail and telesales channels, which offered abundant competitive choice and price/volume equations generated by that choice.

For many advertisers search is the best value in the market and made relatively better as audiences, and attention to other channels, fragment and the use of do-not-call and other commercial blockers rise. This explains the rise of search and the re-allocation of budgets from other channels.

Inevitably, the per-click price of search will continue to rise if other channels deliver less volume and efficiency, and, if not capped by internal competition in the market, they will rise to a fraction below the costs of non-search channels.

ABOUT THE AUTHOR
Rob Norman is CEO Group M Interaction Worldwide. His interest is in the effect technology has on changing consumer media behavior and its implications for the biggest companies in the world. His blog is On Demand.

Ultimately, the cost will rise to that marginal point at which the channel is no longer profitable for advertisers, in turn reducing the available cash for paying staff throughout the supply chain and reducing budgets for innovation and new demand-generating goods and services.

In a de facto monopoly situation, this sequence of events happens more quickly. A monopolist can rapidly test the price elasticity of the market and arrive at a moving “one penny less” price pretty quickly. An auction monopoly is no different from any other monopoly in this regard. Simply moving the reserve price for the lot in question reduces the number of bidders until only one man is standing.

Somewhere a line needs to be drawn to protect the market. We are seeing already the impact of rising commodity prices around the world and the impact oil prices have on the general economy when supply is controlled by a narrow group of producers. While it may seem trivial in comparison with oil, grain and rice, the price of advertising response is firmly embedded in the cost of goods sold on a manufacturer’s balance sheet and any such rise affects factory-gate pricing and the ultimate well-being of consumers.

This comment has nothing to do with the role of agencies in the value chain but everything to do with the costs of goods on which we all depend. Google is, of course, the potential monopolist, and it would be utterly churlish not to applaud the innovation and commercial acumen that has driven its success as a business, as a partner to other businesses and as a service from which consumers derive value. However, a monopoly is a monopoly — even if arrived at by totally fair means — and all monopolies require regulation to protect wider economic and social interests.

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The confluence of influence

Noise in our business is dominated by the latest technologies and applications from a disparate range of companies with one thing in common namely an unimpeachable view that their view of the world is often the only view and always the right view.

In terms of weight of press Google and Apple dominate and everyone else is either an imitator playing catch up or one of the old guard leaning back on the ropes trying to make it look like the latest punch did not hurt. What you got Joe?

There’s nothing wrong with this until it starts to effect how marketing and media decisions are made. Too much noise can equate to inappropriate emphasis and allocations of time, effort and money chasing news induced dreams.

Today, we are at a tipping point. Broadcast media still delivers massive albeit declining audiences, millions still consuume print and radio, almost everyone who wants to be online is online and, soon enough, everyone who wants to be an active or passive participant in social media will be. In all cases the numbers are huge and by inference so is their influence on decisions people make on what to think and what to buy.

As a consequence we have a confluence of influence that is unprecedented and as a result a complex but delicious opportunity for integrated and interactive marketing in which consumers are stakeholders and participants as well as ‘audiences’.

With the opportunity comes what might be the defining  challenge for communication planners and traders; the simultaneous need to achieve intra-channel and cross-channel optimization  with an increasing amount of data available in real time.

The answers are  of course technical but they are also philosophical and for the agency community the two are of equal import; critically a confluence of influence requires a confluence of consideration in planning.

There is simply no primacy between the broadcast, the addressable and the social and agency and client structures need to recognize that truth before they have a reasonable chance of solving the puzzle it presents.

 

 

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