Kiss Yahoo's traditional display advertising business good-bye.
Yahoo's revenue from display advertising has declined for five consecutive quarters. Making things worse, the company's newish, so-called native Stream Ads appear to be cannibalizing sales of the more lucrative premium ads. But that's kind of the point, to hear Yahoo's head of the Americas Ned Brody tell it.
"I have a problem as a brand, which is everybody thinks they know Yahoo," he said. "They think they know it because they used it in 1998. When you go and look at Yahoo.com/food, it doesn't look a lot like 1998. When you see Stream Ads, it doesn't look like 1998."
Nine months after acquiring Tumblr for $1.1 billion, Yahoo is using the microblogging service to create a new kind of native ad, an early version of which can be seen on its month-old Tech and Food "digital magazines."
Yahoo's new native ads aren't too different from the sponsored content deals that others like BuzzFeed, Quartz and The New York Times offer. An advertiser creates, or pays Yahoo to create, an article that is distributed on Yahoo properties.
But it won't only be articles. Advertisers can create what are basically evergreen microsites -- Tumblr sites with their own domain name -- that use Tumblr's publishing tools to custom-design a page's layout and publish individual posts that can then get blasted across Yahoo's network.
"We will develop that content for you, with you. We will create a package, which will drive traffic to a page for you. We will take the things that actually get lots of traffic and ingest them back into Yahoo on an earned basis," Mr. Brody said. "We get paid for developing [the content] with the client. That payment includes a package of development, distribution, traffic. And they then own all the content."
Mr. Brody was unable to share examples and said the program is only in the testing phase. "We didn't mete out this product until CES," he said. We talked to Mr. Brody about the state of Yahoo, which he joined in September from AOL.
Advertising Age: Yahoo CEO Marissa Mayer said she'll be taking a more active role in the ads business with COO Henrique de Castro gone. What does that mean?
Ned Brody: It's important to understand Marissa has always had a very active role in the advertising business at Yahoo. I think what's happened is people sort of say, "Oh, now that Marissa's getting more involved…" -- I think what that really means is she's spending a lot of time, and has been doing so, with me and with clients to understand how we can tailor our products to fit their needs.
Ad Age: I'd heard that in the last few months of 2013, Yahoo sales reps all of a sudden got a lot more talkative with agencies.
Mr. Brody: It's both sales reps and senior people, though. The timing was coincidental with my arrival, but everyone from [senior VP-mobile and emerging products] Adam Cahan and Marissa and [chief development officer] Jackie Reses have been out now meeting with advertisers and spending time with them. We had a significant increase in the number of advertisers that came to campus and spent time with us, which we call our "Wow" events. The access to senior executives at Yahoo has really gone way up, and that's been by design and led by Marissa.
Ad Age: Ms. Mayer has made a point of saying that Yahoo's turnaround is a multi-year process Yahoo's display business keeps declining. Why are the display numbers down?
Mr. Brody: It's an important point what Marissa said when she got here. She said first people, then product, then revenue. And it is a multi-year process. I believe a third of the company is new, over the last 12 months in terms of people. You've seen the launches of all these things from the weather app to the food and tech channels to stream ads. All of those are brand-new products. And they've actually resulted in the metrics for Yahoo going way up. We now have 800 million users. We went up from 150 million mobile users at the end of 2012 to 400 million mobile users now. There's a 14% increase in time spent on home page. The turnaround has really begun to take steam in the product side.
Ad Age: Do better products mean Yahoo's display numbers will come back?
Mr. Brody: No one ever said that that display number you're looking at is the way for revenue to grow. Revenue is a portfolio of lots of different products: Stream Ads, programmatic ads, search, mobile. And with any portfolio, you have businesses that are continuing to grow and you have things that actually don't grow as quickly. Look at the market in general. The core display businesses of the market are actually declining, while things like native and programmatic are growing.
Ad Age: A year ago the number of ads Yahoo sold went down, and Ms. Mayer and Yahoo CFO Ken Goldman that was intentional. Now a year later, the number is going up. Why the change?
Mr. Brody: The goal was to take off ads that weren't performing and decreased the consumer experience and replace them with a fewer number of more effective ads. If you see things like ads sold going up, it's a measure of sell-thru, not of more ads being added to the pages.
Ad Age: Is it problematic that Stream Ads have driven down the ad pricing?
Mr. Brody: They are a new product. People forget they're only about six months old. So we've been getting more and more demand on [them], and the way this market works is that pricing is a function of demand benefits. The more people that end up buying ads, the more the price goes up because you have people outbidding each other. In the last six months, we've been getting more customers onto this product, and you're seeing an improvement in the product's performance and pricing.
Ad Age: Are you considering selling Stream Ads on non-Yahoo sites?
Mr. Brody: We like to keep our product plans pretty tight. At the end of the day, we're in a network business. All of our products have become network. Whether or not we take Stream in that way remains to be determined.
Ad Age: Yahoo Tech and Yahoo Food launched last month as digital magazines with new native ad units. Are these serving as a pilot for other Yahoo properties?
Mr. Brody: What happened is that the ability to tell stories has actually decreased with some of the focus on programmatic. The interesting thing about Tech and Food is they're very glossy sites. But really what they are is a combination of elements: highly graphical ones, some of which are actually sponsored stories from our partners, some of which we do ourselves. The most interesting thing about them; do you know what platform they are?
Ad Age: Tumblr, right?
Mr. Brody: Correct. So what we've done is if you go to Tumblr and look at some sites, what you will see is that platform has allowed customers to tell really rich, engaging stories. For example, Yahoo.com/food is a Tumblr-powered site. Think about the difference between a brand's Facebook page and what you could do with the Tumblr platform.
Ad Age: What about video? Katie Couric was a big hire, but her first interview posted last month without a big brand sponsor. Why aren't you selling that content at a premium?
Mr. Brody: Have you ever noticed when a new radio station launches, it launches with no ads. You build audiences, and then you monetize. We're trying to build a video business starting with consumers.
Ad Age: I've heard their frustrations about trying to buy video from Yahoo and being told that there isn't enough supply. When will Yahoo make more video inventory available?
Mr. Brody: We've signed large deals, for example, with Starcom. There are video deals we have signed. We manage the ad load very carefully. You talked about the very conscious decision to reduce ad load on the pages. We've managed ad load on video as well. Certainly from the revenue side, I would love to see more ads on our videos. But do I think that's the right long-term strategy? No.
Ad Age: You've mentioned search a few times during this conversation. Re/code has reported that Yahoo is planning to bring back search technology in a big way. What's the thinking?
Mr. Brody: Search is an amazing product, and search needs to continue to evolve for consumers and for advertisers. I think we're committed to figuring that out.
Ad Age: Figuring that out but still in partnership with Microsoft? Or will we see Yahoo make a big independent play?
Mr. Brody: We are committed to figuring it out.