6 Feb

Why Yahoo’s core advertising business is shrinking

WRITTEN BY Samantha Nielson

Yahoo’s core advertising business

Yahoo’s core advertising business continues to struggle, as display ad revenues declined by 6% year on year in 4Q 2013, to $553 million. The price per ad (excluding Korea) decreased approximately 7% compared to 4Q 2012. News reports also stated that the recent departure of Yahoo COO Henrique de Castro was due to his inability to effectively steer the company’s advertising business.

Why Yahoo’s core advertising business is shrinking

In terms of mobile ads, Mayer said Yahoo had over 400 million monthly mobile users in 4Q and mobile ad offerings saw revenue nearly double year over year in 2013. However, mobile revenue is still not material in the context of the larger business, but the growth trend is very promising.

A December report from eMarketer stated that U.S. mobile ad spending is expected to near $9.6 billion in 2013, and Facebook and Google are both major drivers and recipients of this growing market, domestically and internationally. eMarketer had previously forecast that Facebook would remain slightly behind Yahoo in 2013. But the strength of Facebook’s mobile business has pushed the social network past Yahoo, whose share is now expected to decline to 5.8% in 2013, from 6.8% in 2012.

Why Yahoo’s core advertising business is shrinking

Yahoo’s new advertising initiatives

Yahoo launched a unified advertising approach last month that includes a comprehensive suite of web, mobile, and video ad products—across premium and audience-focused display, native, and search. These products are accessible through a new buying platform and are supported by Yahoo’s data and analytical tools, with insights into the daily digital habits of Yahoo! users. The company hopes these investments will bolster its ad revenues in the coming quarters. The new advertising approach aims at cutting complexity and giving advertisers more return on their ad spending. Right Media, Yahoo’s ad exchange platform acquired in 2005, is to be rebranded as Yahoo Ad Exchange, and Genome, which was Yahoo’s audience-targeting platform, will become Yahoo Audience Ads. The company introduced Yahoo Ad Manager and Ad Manager Plus—a new buying platform that gives advertisers direct, hands-on access to Yahoo’s advertising products.

Yahoo redesigned its homepage last year in a move to introduce native ad formats—or “stream ads”—that more closely resemble editorial content on the homepage. In November, Yahoo Image Ads were introduced that appeared within photo slideshows and image-rich environments across Yahoo Sports, omg!, Yahoo Music, Yahoo TV, and more on web, mobile, and tablets. In December, Yahoo announced an expansion of its programmatic capabilities with the integration of MediaMath, DoubleClick Bid Manager, and The Trade Desk, Inc. as launch partners to access guaranteed inventory through its advertising platform. These integrations will help buyers access premium display inventory on Yahoo sites like Yahoo Finance, Yahoo News, Yahoo Sports, and more.

Yahoo search market share is declining

GAAP Search revenue was $464 million for 4Q 2013, a 4% decrease compared to $482 million for 4Q 2012. Excluding TAC,  search revenue was up 8% to $461 million. Paid clicks (excluding Korea) increased approximately 17%, but price-per-click decreased approximately 3%.

According to comScore’s “December U.S. Search Engine Rankings,” Google sites led the U.S.-explicit core search market in December, with 67.3% market share (up 0.6 percentage points), followed by Microsoft sites, with 18.2% (up 0.1 percentage points) and Yahoo Sites, with 10.8%. Microsoft forged a deal with Yahoo in 2009, under which Bing will be the search engine for all Yahoo sites. News reports stated that Yahoo disclosed to the SEC that 31% of its revenue came from this deal with Microsoft. Yahoo is trying to look for ways to end the partnership, as its revenue is declining due to lower search market share. Mayer said on the 4Q 2013 earnings call that the acquisition of Aviate is expected to enhance search capabilities—especially contextual mobile search.

To learn more about mobile and Internet advertising, see Why is mobile advertising a key revenue driver for Facebook?

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