Yahoo Follows AOL and Pitches Agencies On 'Programmatic' Upfront Deals

Portal Seeking $5 Million Spend Commitment for Home Page, Category Pages

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AOL isn't the only big portal throwing a so-called "programmatic" upfront.

Yahoo has been quietly pitching agencies in recent weeks on a way to buy Yahoo premium ad inventory – such as its homepage and category pages – through an automated system in exchange for an upfront commitment of $5 million, according to sources briefed on their plans.

Advertisers tend to use their "programmatic" budgets to buy ads through auction-based technologies in real-time. But AOL and now Yahoo are trying to popularize the notion that marketers should commit those budgets in advance for better rates and access to proprietary technologies.

AOL is throwing a programmatic upfront presentation during Advertising Week. Yahoo's approach is more subtle and the pitch is coming in private meetings. Sources said COO Henrique De Castro has not been present in these meetings, but it's part of his strategy to reverse ad revenue declines at the company.

Yahoo declined to comment on the talks, but in an emailed statement a spokesperson said the portal is "continuing to build on our programmatic capabilities to make it easy for advertisers and publishers to do business."

Creaky technology
Reaction to the pitch has been lukewarm; advertisers want to do business with Yahoo and they want to buy premium inventory, but they are balking at the price tag and have concerns about Yahoo's creaky and dated technology.

"My response [to Yahoo's pitch] has been: Listen, we want to buy premium inventory from you. We want to buy it programmatically. We want to use our own technology; we don't want to use your crap," said one ad exec involved in the talks and who asked not to be identified. "So far they've been fine with all that. Now it's just a negotiation of how big is that commitment, and then can they sell that through the organization."

Yahoo has long embraced the notion of upfronts. During its heyday nearly a decade ago it held upfront presentations in New York City; later it enthusiastically embraced the "Newfronts" for online video.

Defensive move
The move toward programmatic upfronts is defensive: as advertiser budgets move toward automated systems, publishers like AOL and Yahoo have to find a way to capture them as they've done in the past with direct-sold inventory. By getting advertisers to commit programmatic budgets up front, Yahoo and AOL can retain some control over sales and pricing. But only if it works.

Right now advertisers can't bid specifically for the Yahoo or Yahoo sports home page and don't know that they have gotten their hands on that premium inventory until after the ad runs. The system is a way for Yahoo to offload any unsold, or remnant, premium placements in order to at least make some money.

But there are also questions whether Yahoo's technology can accommodate these kinds of deals. Yahoo has let Right Media age from being the dominant ad exchange when the portal acquired it in 2007 to a shell of itself today, even after CEO Marissa Mayer's public commitment last fall to reinvest in the platform.

"One of the challenges is how they funnel Yahoo owned-and-operated [inventory] into RMX," a second agency exec said. "I don't think it's changed in five years. As much as they talk about upgrading, from what we're seeing the infrastructure is outdated."

In order to reverse sales declines, Yahoo needs to win over advertisers who are flocking to automated ad buying technologies. The real-time ad market is expected to grow nearly 74% to $3.34 billion this year, according to eMarketer. Meanwhile, Yahoo's display revenue in the second quarter dropped 11% year-over-year to $423 million, and eMarketer has estimated that this year Yahoo's share of U.S. display ad spending will fall by 14% year-over-year to 7.9%.

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