“Sale” of its search venture to Microsoft in the direction of ex-CEO Carol Bartz by Yahoo, is deemed as a matter of great value. As a matter of fact, it is a major flaw which cost the search engine in many areas- reliability, profits and ability. But many of the institutional investors and financial examiners are not in agreement with it. Ex- manager of PayPal, Scott Thompson who is Yahoo’s new CEO, might be making almost same error with display advertising.
According to Wall Street Journal, Yahoo and Thompson may drift away from the crucial advertising business of the firm. And, this drift would be towards substitute profit channels like “commissions and fees”. WSJ has said- “[Thompson] has made clear, however, that Yahoo’s nearly single-minded focus on its existing websites and online-advertising sales hasn’t worked, and that the “market” places little value on the company’s core online-ad business . . .
In the past few weeks, Mr. Thompson has held intimate lunches and large-scale gatherings with Yahoo employees in which he has told attendees that he plans to divert more time and resources to Web services aimed at capturing future revenue, rather than trying to manage the profit margins of the company’s current services . . .”
The posting quotes- “nearly $1 billion from transaction-related fees on its auto, travel, shopping and other sites, where it takes a commission from the sale of products or services”. This is instance of the classification of profit channels which Thompson looks for to developing.
The post might be resting on guesswork but a fundamental reason is clearly evident. Thompson executed a business segment at eBay which earned profits from transaction fees i.e. PayPal. Also, it seems that he didn’t have ample concern with agency or advertising world.
Most of the people favored him due to his good acquaintance of consumer products and backdrop of technology executive. Yet some were there who were worried about his short of experience. Yahoo earns major profit from advertising.
Thompson assured of making use of information gathered by Yahoo for creating increased profits through different steps. He told at the earning discussion of 4th quarter in Yahoo that he aims at controlling client information for enhancing and customizing client understanding, in the whole of Yahoo and also ads- “One of the most important ways we will focus on optimizing the customer experience and advertising performance is by using data. We can use data to render the experience exactly the way you want it, to create uniquely relevant experiences and everything from content to the layout of the page, to the flows between pages, and then, of course, the advertising. . .
If there’s one thing I want you to take away from today, it’s that our data may be Yahoo!’s single most underrated, under-appreciated and underused asset. And we intend to leverage that data. We’re getting after this with a real sense of urgency. I believe that data will be the key component for driving innovation at Yahoo! and it will be the cornerstone of the next generation of Yahoo! products and customer experiences . . .”
In this meeting, Thompson was of the opinion that ad business of Yahoo is very important. But WSJ (Wall Street Journal) differs in opinion and expresses that he deems ad business to be sluggish and would turn to various different options to increase profits.
Although it is indeed intelligent to “diversify” profits for boosting increased fee and commission based revenue options yet it would be an error to overlook main display ad business of Yahoo. If Yahoo thinks its ad business would execute on ‘autopilot’ then it is treading the mislead path. What would happen if the display ad business is ignored? Profits are sure to decrease to an extent where it would only increase and marketers would drift their focus and money towards other platforms and places like Facebook and Google’s Display Network.
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