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Mayer's Vision for Yahoo: Small Deals, More Ad Automation

No 'Giant Pivot' But Better Execution for Struggling Portal

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Yahoo slightly exceeded analysts' expectations when it announced its third-quarter earnings on Monday, but the financial results were the undercard to the main event: Yahoo CEO Marissa Mayer's first public articulation of her plan for Yahoo, which hired her back in July to breathe new life into a portal that 's been treading water for years.

Revenue for the quarter excluding traffic-acquisition costs rose 2% to $1.09 billion from $1.07 billion, slightly beating estimates of $1.08 billion. Net earnings per share were 35 cents, up 66% from 21 cents in the year-ago period, excluding the $2.8 billion windfall that came from selling the company's shares in Alibaba. Analysts were expecting 25 cents a share.

In a continued troubling sign, display revenue excluding traffic acquisition costs was flat at $452 million vs. $449 million, though display revenue in the Americas region registered modest growth of 4%. Yahoo Chief Financial Officer Ken Goldman said the gain could be attributed to increased direct sales. That said, remnant inventory sales were hurt by decreased available ad impressions related to less email usage, he said.

As recently as 2008, Yahoo held 18.4% market share in the U.S. display-advertising market, according to eMarketer. By the end of this year, that share will be down to 9.3%.

Search revenue excluding costs paid to partners increased 11%, to $414 million from $374 million.

But the spotlight was really on Ms. Mayer and what she would say about Yahoo's path forward. In laying out a high-level summary of her plan, Ms. Mayer said that the company is not embarking on "a giant pivot," but that she will instead largely focus on "improved execution" and improving Yahoo's products and services related to what she called the four "daily habits": search, email, home page and mobile. She said it take several years for Yahoo to achieve what she would like to see: higher-than-industry growth in all of its major focuses. Here's an overview of Ms. Mayer's comments on how Yahoo under her will compete in those areas and others:

Search: Ms. Mayer said Yahoo is working with Microsoft to fix the so-far-failed search alliance between the two. Microsoft is still providing Yahoo with a revenue guarantee, which expires in April, because Yahoo isn't seeing the rewards of the alliance that were initially envisioned. Yahoo CFO Ken Goldman said finding another company (Google) to partner with on search would be a "worst-case scenario." As for search on mobile devices, Ms. Mayer said, "There's going to be a few large players in the mobile-search space. And I think Yahoo should absolutely be one of them." Interestingly, Ms. Mayer didn't mention the Yahoo search app, Axis, which launched before she was hired -- perhaps signaling that it's not a big part of her vision.

Mobile: "While we've made progress,Yahoo hasn't capitalized on the mobile opportunity," Ms. Mayer noted, to no one's surprise. "We've underinvested in mobile front-end development." She said she envisions a day in the not-so-distant future in which at least half of Yahoo's tech employees will have to be focused on mobile. She said the focus is a "coherent mobile strategy" that eliminates most of Yahoo's 75 mobile sites and apps to focus on the best ones. In an answer to an analyst question, Ms. Mayer said she thinks that it's an advantage that Yahoo doesn't have its own mobile operating system so it can focus on creating and distributing the content and utilities (email) to users across all different operating systems.

Ad tech: Ms. Mayer reiterated what she had her executives talk to Ad Age about in September, that Yahoo is staying in ad tech and investing more in its technologies and platforms such as the Right Media ad exchange and Genome audience-targeting platform. One of the phrases she repeated often was "audience-based buying," noting that advertisers have a growing appetite for it and that Yahoo has to continue to invest in its technologies which help automate ad buying. "Advertising partners that I talk to love the audience-based buying that Yahoo enables," she said.

On the home page: Ms. Mayer said Yahoo will look to increase the personalization of both the content and advertisements on the home page, the former of which Yahoo has been talking about since at least February. "We just scratched the surface of personalization," she said.

Acquisitions: Do not expect any billion-dollar deals. Ms. Mayer recalled the acquisitions she had a hand in at Google -- about 20 of them -- and said the ones that were most successful to date usually cost in the double-digit millions to low hundred millions. For that reason, Yahoo will look for "smaller-scale acquisitions." In talks with the startup and VC community, Ms. Mayer said there's a feeling that entrepreneurs are now "excited about potentially selling their company to Yahoo."

Content: While she conceded that she is "very product-focused," Ms. Mayer noted that a critical feature of great products is differentiation. She said original content associated with Yahoo sites such as OMG and Yahoo Screen are "interesting and important pieces of differentiation" that will see continued investment. But she didn't sound nearly as excited talking about original content as a differentiator as she did about investments in technology. Ms. Mayer also highlighted user-generated content as an area for improvement within Yahoo. "Yahoo Answers is an undervalued property at the moment," Ms. Mayer said of the Q&A site that is often ridiculed for its low-quality answers.

User data: Ms. Mayer laid out the uphill battle Yahoo is facing in trying to create cohesive profiles of users that interact with various Yahoo properties. "We have almost one system per vertical," she said. "What that means is it's actually hard to have a coherent view of a user ... what they like, who they are, what they've responded to." She offered no timeline on when Yahoo will be able to move all that information on users from different properties into one system, but said doing so is necessary because there's "tremendous potential in the ... user data" -- something Yahoo executives have been boasting for years.

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