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Archive for October, 2010

Ad Position: Do You Need to Rethink Your Assumptions?

Thursday, October 28th, 2010

No wacky stories this week – just numbers.

Below I share the result of a bid increase (ad position) test, with the goal being to find out whether that slightly increased average ad position on a core keyword generates enough volume at a reasonable ROI to justify the more aggressive bid.

Did the Auction Change Significantly in 2008?

Bidding to ROI has always been a paid search marketing staple, but in higher ad positions, many of us have resisted throwing more money at keywords. Long-ingrained habits had us avoiding ad position number one because it was often prohibitively expensive, given the apparently similar visibility of the number two or number three ad slots.

But was that stance empirically based? The only way to really learn the click volume and ROI impact of higher ad positions is to occupy those positions by upping bids.

Moreover, it’s easy to misread the true meaning of an average ad position of, say, 2.7, especially in the current auction. Depending on the other contenders in the auction, time of day, geography, competitors’ daily and monthly budgets, and other factors, your ads might still be showing in ad positions five, six, or lower more often than you might think.

It gets even more complex. Quality Score affects not only ad rank today, but “eligibility” in the auction. Bid more, and your resulting Ad Rank powers through any situational weakness, overcoming (rank-wise) competitors who might rank well only under ideal conditions.

Furthermore, we typically fail to appreciate the CTR gap between higher and lower ad positions. Our opinion that average ad position 2.7 is “OK” volume-wise might only be a guess. But 1.9 might be a lot more “OK.” In our real-world test below (average ad position before: 2.7; after, 1.9), CTR increased 22.2 percent between the first and last test period, and clicks increased 34.5 percent. Was 2.7 really “OK” if the business is seeking growth?

Finally, depending on the scenario, conversion rates can be higher or lower out of different ad positions. In certain cases, higher-position ads actually convert better than expected, offsetting some of the increased cost of the clicks.

So, don’t be surprised when you see the Google AdWords bid simulator predicting increases in clicks for bid levels well above your current bid, even though you may already be up there in a lofty average ad position of, say, 2.1. For our test keyphrase, the simulator shows impressions leveling out above a certain bid, but clicks keep ramping up at higher bids, indicating a higher and higher proportion of ads are served in the mega-CTR zone of ad positions one and two.

To find out the real-world impact of bid and ad position increases, simply raise bids by a significant percentage above your current bid, and compare all the key metrics week to week: actual CPC (cost per click), ad position, impressions, CTR (click-through rate), total clicks, conversions, CPA (cost per acquisition), and ROAS (return on ad spend), on a specific keyword or phrase.

Case Study

We ran this test for the (fictitious to protect confidentiality, but data is from the real world) phrase match “jumbo blue gumballs.” There are four test periods: baseline, bid increase number one, bid increase number two, and bid increase number three.

Bid Test: “jumbo blue gumballs”
Baseline Bid Increase No. 1 Bid Increase No. 2 Bid Increase No. 3
Dates April 7-13 April 14-20 April 21-27 April 28-May 4
Avg CPC $1.39 $1.48 $1.86 $1.84
Clicks 394 460 495 530
Impressions 18,199 20,361 20,207 20,050
CTR 2.16% 2.26% 2.45% 2.64%
Conversions 39 49 52 59
Avg. position 2.7 2.3 1.9 1.9
Conversion rate 9.90% 10.65% 10.51% 11.15%
Cost/conversion (1 per click) $14.08 $13.85 $17.67 $16.50


The test results were eye-opening. An unsuccessful, cautiously-managed business certainly couldn’t laugh off a 32.3 percent increase in CPC on a core keyword. Here, we saw that despite increasing bids, after “bid increase No. 3,” the actual average CPC fell slightly instead of rising. Moreover, CTRs, conversions, click volume, and conversion rate all increased, while the increasing CPA leveled off and actually decreased slightly in the last period despite our higher bids.

ROAS (return on ad spend, not shared here) leveled off slightly, but only slightly. The end result in this case – at least for now – is a 51.3 percent increase in conversions based on an aggressive stance toward the auction resulting in a rise in average ad position from 2.7 to 1.9. (The last two periods were both 1.9 “on average,” but volume was still higher in the final period.) The ROAS is fully acceptable and the CPA isn’t running out of control. The revenue increase is close to proportional with the 51.3 percent increase in conversions, and associated profit increased significantly. Not only that, but there is a dramatic increase in new customer acquisition, which may lead to re-orders as customers for “jumbo blue gumballs” have a significant lifetime value.

Clearly, we’re not finished yet. Our last bid increase didn’t even increase the actual average CPC. Our latest increase (today) on the (undisclosed) maximum bid is only 9.5 percent, and I’d expect only a 5 percent or so increase in the actual average CPC. I’ll blog elsewhere about the progress, but in the meantime, the clear takeaways sync up with the assessment in the first part of this column: depending on the keyword, there is more upside potential in click, conversion, sales, and profit than you might think, in the seemingly trivial space above those 3.2, 2.7, and 2.5 average ad positions. In your line of business, on core keywords, you might even want to know how the economics of 1.8 differ from the economics of 1.5.

I don’t blame you if you just drifted off. But if you’re a certain type of business owner, you just zeroed in on the part about “51.3 percent increase in conversions.” Wide awake yet?

This column originally appeared at ClickZ on May 7, 2010. Reprinted by permission.

What Gives with the Monster Funding Rounds?

Saturday, October 23rd, 2010

Talk of Twitter potentially giving some thought to raising as much as $200 million (that’s one hundred times what many Series A rounds raise) made me wonder about the monster-raise trend and tech startups that have raised way more than you’d expect as they progress towards maturity (Zillow, Facebook, and a few others).

To the layperson, when a successful company says they have “most of the money from their financings” still in the bank, it means they don’t need to go out and raise more money, especially amounts that far outstrip the amounts raised to date. Surely, in most cases, too much dilution is bad for the founders and early stage investors. Why not stand pat and enforce financial discipline for a bigger payoff down the road?

There are approximately four (seven, if you count related items) potential explanations that stand out. With Twitter, we’re left to wonder, “which is it?”.

1. If someone wants to overpay to play in your sandbox, let them! Facebook was able to sell several small chunks of their company early on for very generous valuations nearly in line with the type of valuations they might reach at IPO three to four years hence.

2. Before an IPO, a “mezzanine” round may be raised to insulate the company against any potential instability that might arise in the lengthy process leading up to that IPO, and to introduce a bunch of players who may be needed as part of that process of raising much larger sums of capital.

3. Deserving, successful company insiders and employees need a breather from financial uncertainty, to take some risk off the table. They get to sell some of their shares in the transaction, gain partial liquidity, so they can relax and focus on business. Early investors are diluted, but commit no additional cash while gaining a massive insurance policy against changes in investor sentiment that might make it difficult to raise a similar amount later to keep on fighting.

4. They’ve reached scale, and the cost is huge, and they wildly miscalculated the huge gap in managing the time lag between reaching scale and reaching profitability.

4a. Related to that, scaling up has, in particular, led to massive overhiring and recruitment of A+ level talent — signing bonuses, unsustainable salaries. The company is practically begging for massive rounds of cuts, severances, and “writedowns” of big quarterly losses three years down the road, even if it does turn the corner and become successful. IPO investors beware!

4b. A lack of scale and diversification are somehow hurdles to the company growing into the business model it’s shooting for. No home run means no company. Big bet, or go home. There is no middle ground.

4c. There’s a huge chance their chosen business model isn’t going to monetize as expected, because it hasn’t so far.

Going “this big” is VC investing in its purest form, in a way. The Big Bet. Rather than being a comfortable scenario, it’s either a huge idea that pays off, or just a huge, costly, unprofitable failure. (Companies can be both at different times, obviously. MySpace was a hit, then a flop.)

All of Explanation 4 is a strong possibility for Twitter. There remains considerable risk mainly because not all that many tech companies have made it all that big with an advertising model. Google did. Yahoo did. Facebook will. Yelp seems healthy. And a handful of others. For everyone else, that doesn’t make it a high-probability model.

The Jeep Grand Cherokee Has Unstoppable Power…

Sunday, October 17th, 2010

… or does it?

Large brands are doing more with paid search and targeted text ads nowadays, so naturally I get curious when I see the copy in an ad that shows up in my GMail account, as one just did for the Jeep Grand Cherokee.

As a professional in the business, of course I am a busybody, and I wonder what the strategy is, and whether there are any holes in it.

To pick holes in a big agency, big brand paid search campaign is often child’s play, of course. There tend to be so many moving parts to doing it well, and so many missing meetings (where the plan isn’t properly discussed), that you get a sort of “default mode, good enough” effort that is presumably better than nothing.

For example, the Grand Cherokee ad takes me to a nearly empty default page for the vehicle. No text, no content, no flash, just the main identifier and the navigation, and big page of white space. Nice! One click later, on “vehicle home,” and I’m on the real page, attractively laid out square buttons for the full vehicle lineup, and a big, thirsty, attractive Flash promo with production that looks like it cost a bunch. Me, I would have taken users to the costly page that actually had content.

And then there was the curious matter of the ad copy. The text ad tells me that this vehicle has “Unstoppable Power”. I looked high and low for any references to this benefit/catchphrase in any of the copy on the website, or elsewhere online. Nada. The closest I got was the more realistic description of the Audi R8 V10 in a car review.

So was the copywriter freelancing? Looking for the ad copy that might somehow perform best? Talking with someone in the client organization, but not others? Looking at the website or other ad materials, or not? It’s hard to know, but it’s not hard to gather that all the parts aren’t working in sync.

When traditional agencies and in-house ad teams still:

  • “Produce” websites and pages, but never test them;
  • Continue to speak the language of media buying, but then make offhand comments about ROI and performance to their search marketing pro in the hopes they’ll work harder, without explaining how we’re all going to work together to achieve which goals;
  • Budget $50,000 or $500,000 for search promotions for “bursty” scheduled tests, but don’t tell anyone the test is coming up, or make provisions for relevant landing pages for what are being termed “promotions”;

…It’s safe to say the left hand still doesn’t know what the right hand is doing. And that certainly seems to be the case with the Jeep Grand Cherokee ads.

And who will take ownership of that problem?

In Canada, the answer is pretty simple. Few take ownership of important conversations that need to be held across the chasm of new professional / traditional agency / big company client / IT, etc. But that may not be the individuals’ fault. You’d have to be a little bit crazy to challenge the incentive system in the current culture, to stick your neck out beyond your formal role. (Although to do so is divine. Read Linchpin, by Seth Godin.)

But why did the ad copywriter dream up their own creative not in keeping with anything the client is doing?

There are two potential answers: the charitable, and the less charitable version. I’m ruling out the possibility that somehow the rogue ad copy that has nothing to do with anything the client has said or done at any level was somehow approved all the way up the chain.

[BTW, in general, I do approve of rogue copy, especially when performance is on the line and your metrics are meaningful. It's the only way to get anything done.]

1. Charitably, the ad copywriter is actually a search marketing professional who could bring a load of insight to the task, so without formal authorization, they began tinkering. In essence, because they were bored and not challenged enough. Trying to run some kind of test is better than nothing. It’s those kinds of people that need to be given more seats at more tables, and more scope in their careers in general. If not, they’re going to work for your competition, or start their own company, and you’re lunch.

2. What I fear, though, is that scenario I went over in 2008 in Winning Results. Ad agency folk are trying to port over their former lives into the digital space. They long to win awards or to think creatively or to generate impressive sounding taglines or whatever it is they do. Unfortunately they’re stuck in a tiny little ad space where no one will ever win an award. They still, for some reason, feel like the user responds to tagline-style “creative”. Imagine how far you’d have to be down the food chain in the traditional agency world, to be given a performance marketing job that you don’t know how to do, not be given access to any insight or any decision-makers. A job where you’ll have an infinitesimal chance of winning an award. But you do it anyway, hoping to get promoted out of that hellhole into some animation producer job. And you nod and agree whenever a partner at the agency vaguely refers to the awesome brand lift of running confusing, “integrated” campaigns which appear to include the search “buy” they stuck you with. Your role itself makes the other agency people vaguely uncomfortable. Your social calendar starts to contract. You begin a relationship with 425 Twitter followers and sadly boast through Foursquare about the bars and cafes you’re at.

And that’s precisely the difference between them, and us (a post-Chaos-Scenario data-driven digital marketing agency). And it’s the difference I try to highlight whenever I sit down with a performance-oriented prospect to look at their campaign goals.

In our world, that little task of optimizing an ad or a bid, or pushing back on a landing page test, or diving deep into Analytics, or understanding the auction’s workings, or whatever… doesn’t put you low on the food chain. It’s the highest form of art. It’s what we respect each other for. And even the partners or CEO’s of this world, or whatever they should be called, can shake off the cobwebs and make a campaign sing… hands-on.

That key difference, then: We know what we’re doing. They don’t. We care. They don’t.

I’m not Don Draper, and I know it.

For some reason, “they” still think we’re living in 1964. I don’t even wish we were.

Enjoy tonight’s season finale.

Google Price Index — A Shining Example of Socially Useful Data

Wednesday, October 13th, 2010

In 2008, in the requisite “predict the future” chapter (12: Online Targeting, 1995-2015 — Fast Start, Exciting Future) of Winning Results With Google AdWords, I had the good fortune to write/predict as follows:

“It is far from out of the question that these trends will deeply alter the way that public policy is made. Today, for example, measures of inflation may be led by an arbitrary government-led data-gathering process. With enough committed members, a measure of ‘true’ inflation as experienced by peers would not be that difficult to arrive at based on a willing constituency of participants willing to log purchases over the long haul. It’s not a matter of whether such data revolutions are possible — they are, in nearly every field — but more a matter of how they will be implemented, by whom, and how they might be used to better our lives.”

This week, Google’s Chief Economist Hal Varian revealed that the company is working on a Google Price Index,

Clearly, the Google Price Index is a blunt, early-stage tool, but a great, shining example of how real-time and broader-based data can give us more accurate measurements of, among other things, key social and economic indicators.

Varian noted that the US data show a “very clear deflationary trend,” whereas similar data in the UK shows a “slight inflationary trend.”

Of course the key to social policy oriented data is, in part, interpreting it correctly, especially here given the beta style methodology. Deflation is common and pervasive in some categories, and the Internet is still a rapidly evolving buying platform that doesn’t account for the lion’s share of retail sales today.

And even if all signs pointed to deflation, pushing one or two policy levers may not help unwind the spooky dynamics already set in motion by the rise and fall of certain asset bubbles.

Five Edgy Paid Search Techniques That Aren’t Black Hat

Tuesday, October 5th, 2010

In a previous column, I expressed skepticism that black hat techniques are relevant to the world of paid search. This time, let’s look at some aggressive techniques that are worth considering – and aren’t necessarily black hat. Let’s call them “edgy.”

Confusion in “hat” debates in PPC arose when some players began calling “edgy” techniques “black hat.” If you’re worried about the cool factor, let me testify that everyone in marketing looks sexy in cowboy hats, whether they’re black or white.

Edgy techniques involve pushing normal campaign management routines to the limits, or inventing new ways to achieve goals outside of the “prescribed” optimization techniques. You may not find these in a Google AdWords certification course.

Surely, you wouldn’t overpay for car insurance if having a contact or a bit of insider knowledge gave you a better discount than your less-savvy neighbor who just tried to haggle with his agent over the phone? That’s business.

Edgy techniques include:

  • Competitive intelligence: Many tools provide additional research opportunities beyond what was once seen as the norm. Two of the best-liked are AdGooroo and SpyFu. Brand name sector research can also come from the likes of comScore and Hitwise; it’s expensive, but may be worth it.
  • Multiple account serving: Google doesn’t want to leave revenue on the table for no good reason. So the rules here have become more flexible. If you have two distinct lines of business that overlap on some keywords, chances are you could show up twice on the page for the same keyword. At one time, Google prohibited this. Here’s a key distinction: it’s black hat if you do it for cookie-cutter businesses that are almost entirely the same, while trying to avoid detection by Google. Eventually, Google will detect it – no matter what you do. It’s as simple as a competitor ratting you out or a Googler making a few purchases. Do it that way, and you risk losing all credibility with Google. Another approach is to work with Google. Under Google’s formal (evolving) policies, there are permitted uses depending on the degree of overlap.
  • Dynamic landing page titles and other forms of automation: If you want to build gigantic accounts and do any number of things to try to improve user response on more granular landing pages, no one is necessarily stopping you. It can work for some businesses, not so much for others. Depending on how unwieldy that same strategy makes your actual account, as measured against your spend and importance in the grand scheme of things, Google is either going to become annoyed with the ambitious scope of your account, or not. Users are either going to convert better, or not. Either way, it’s not necessarily black hat. Before creating more bulk, though, consider whether your business model and strategy have enough meat on their bones to warrant the mega-build, mega-automation approach.
  • Large keyword lists: Avoid the temptation to benchmark the size of your keyword list in the aggregate. Quality campaigns are driven by the logic of their campaign and ad group structure, not the sheer number of keyword variations – but you should be striving to grow your list, within reason. In days gone by, black hat abuses of the fact that it’s free to add keywords were largely driven by affiliates and click arbitragers, who would happily bid low on any potential keyword imaginable, regardless of relevance. That led Google to change many rules, and to institute caps. But former black hat use of big keyword lists doesn’t take away from the fact that you might have a high number of SKUs or a desire to get very granular in the geography of your account setup. In such cases, your account might surpass a formal limitation on the number of campaigns or keywords. If it’s being done for legitimate reasons, ask Google to waive the cap. Just keep your priorities straight.
  • Saying you’re the best when you’re not: Yikes, you can’t even do that. There are guidelines that steer you away from making false or unverifiable claims in ad copy. But of course, there are hundreds of ways to tell a compelling story in ad copy: some bogus, some merely aspirational. Knowing the difference is essential. If you’ve never even read “All Marketers Are Liars” by Seth Godin, which explores the mindset needed to build brand equity by telling a better story, then what are you doing “black hatting around,” staring Google down at every opportunity, when you could be just doing better marketing?

This barely scratches the surface of edgy techniques that may come into play as competition heats up.

Of course, black hats and black-hat-friendly loopholes haven’t vanished.

For example, what if a competitor pretends to be located in 50 cities so they can run geo-specific campaigns? If they “shade” the rules, is it black hat, gray hat, or just annoying because now you have to decide whether to follow suit?

This leads to a broader conversation you’ll have to have with yourself, beyond any single example. With the recent proliferation of paid search advertising features and ad formats, there are tons of settings, tactics, and “things to watch” that can lead the curious search marketer to wonder “what would happen if…”

When a company sees its competitor doing something strange or deceptive, it feels like it may need to jump on board. With some of the tactics, your gut will tell you they’re harmless enough, so you might as well just keep exploiting it until the publisher closes the loophole. In other cases, your gut will tell you that you don’t really want your business to be seen jamming promotional language into the anchor text for AdWords Sitelinks, to take one example. Some businesses are image-conscious; others just want leads.

Because not all businesses are as image-conscious as others, the enforcement burden on companies like Google will continue to grow. Despite rapid evolution in ad formats, it’s unlikely that Google will allow any serious departure from what made it successful in the first place: a commitment to protecting searchers from “shouty” and unwelcome advertising, as well as from “spammy” and deceptive offers.

This column originally appeared at ClickZ on June 18, 2010. Reprinted by permission.

Yahoo: The Sloan of the Digital Age?

Monday, October 4th, 2010

Yahoo sells online advertising. That’s what they do for a living, first and foremost. They sell that advertising against content, both aggregated and unaggregated, and against various popular apps, like Yahoo Mail.

They came second in search. Yahoo Mail looks like it may be overtaken by GMail someday. They haven’t created a browser, haven’t created an operating system, never triumphed in video despite being well positioned to do so, and failed to position themselves to win in local and mobile, as their main competitor, Google, moved with lightning speed and ambition on maps, street view, and other audacious plans.

Back in 1999, when we created (The Guide to Portals), Yahoo had the lead or leadership momentum in things like search and mail. They were *the* portal in the minds of digerati (who felt MSN and AOL were lame), when that seemed important. And yes, that may still prove in the light of history to have been Yahoo’s high water mark.

But it’s certainly not all that complicated to describe what Yahoo is, and what it could be, even to this day. Even when their own people (CEO Carol Bartz) appear stumped when asked “what the company is,” or when seemingly treasonous memos from VP’s circulate (the famous “peanut butter manifesto” from Brad Garlinghouse, accusing the company of spreading itself too thin).

Both Bartz and Garlinghouse have taken a constructive outsider’s “tough love” view of how the company became bloated and confused in the process of doing what it does well. Too many years of taking insiders’ claims at face value led to an inflation of titles and the creation of too many meaningless positions.

When Bartz dropped one of her famous f-bombs in a very public interview in May, some people couldn’t believe she’d be allowed to lead a company with such a foul mouth, and one that airs dirty laundry in public to boot:

There were engineers in almost every country, and way too many product people. We had one product management person for every three engineers. We had a lot people telling engineers what to do but nobody f***ing doing anything. Excuse me. I knew that would slip out one of these times.

But wasn’t Bartz right? On one hand, Yahoo needs to be wary of chasing the cult of engineering-driven startup culture. They aren’t a startup, and they aren’t Google. But on the other hand, a lot of engineers are there, and a lot more need to be added. And inexplicable bloat in non-engineering supervisory positions around the world has to be addressed before Yahoo can move forward. Bartz is frustrated because Yahoo is a great company that spends too much time tripping over itself.

(There may also be some oversimplifications in Bartz’s methodology, to be sure. If her marching orders are “classic turnaround” vintage, her regime might potentially make international operations even less efficient by failing to nurture growth in these markets, subjecting country managers to stifling cost controls, just to show short term financial progress to the board.)

That these tough-minded managers can recognize the problem and turn things around should actually be a sign that there is hope. The “everything is great and I bleed purple” stuff is fine for morale, but…  they only work as long as the key management problems with the company are addressed.

When things are turned around, what will Yahoo actually do?

Actually, that’s something of a silly question, in that it is already doing an awful lot — and serving an awful lot of advertising against it. It needs to continue to do that.

Your mileage may vary, but personally I have some relationship with a variety of Yahoo products, services, and content areas. Others, I have largely mothballed. I don’t use Yahoo Mail very much anymore, because GMail became a standard, along with related apps like the Calendar. But I’d consider going back to it, for privacy reasons based on the “single overlord adoption threshold.” I don’t use Yahoo Finance anymore, because I find Google Finance easier to use. I do like Yahoo Sports. I use Flickr less than I used to, but I still use and like it.

I’m sure you have similar stories.

Originally I had considered titling this column Yahoo: The Canada of the Digital Age, for some good reasons. Canada, many of us think, is now looking relatively good as a place to live and work. It’s got no warm beaches, no Hollywood, no Obama, and no 500-year-old buildings. But the country weathered the financial crisis better than most; employment is strong; government is not particularly corrupt; and it three large cities are considered some of the most livable in the world. At a certain point, you realize you were sitting on more than you realized.

But I settled on the idea that Yahoo is like the Sloan of the Internet (yes Sloan is Canadian). In ‘The Rest of My Life,’ Sloan writes:

Am I gonna settle down
Am I gonna be
Someone who has to take
The rest of my life
To settle down?
Then I guess you caught me
Lying to myself
What kind of fool
Doesn’t think about it?

At a certain point, then, you can consider scouring the world for new and better experiences… or you can just go with the relationships you’ve already got.

The job ahead for Yahoo isn’t to convince users that they’re better than Google in every respect, or even in most respects. It’s simply to keep being themselves. Digital content and apps simply aren’t a winner-take-all market. Maybe you don’t want to be second to eBay in auctions or second to Amazon in books, but being the #2 ‘digital nation’ in users’ minds, that alternate place you go to also (other than Google), has a long future ahead of it, if Yahoo plays its cards right.

Here are a few ways that Yahoo can sharpen the edges around its existing identity and corporate culture so that everyone internally is on the same page as to the company’s unique Yahoo-ness:

  • First, do no harm. Yahoo has a unique opportunity to actually out-good the “Don’t Be Evil” leader, Google. It can start by noticing where the leader has crossed the line from bleeding edge to being a major invader of privacy. When Google reached critical mass, offering office software, mail, chat, phone services, desktop search, and much more, they theoretically took control of your whole digital footprint. Yahoo can come back and offer the promise of an alternative. Not one that is perfect; simply one that is less creepy.
  • Get the right people on the bus, by adding clarity to what Yahoo’s definition of ‘talent’ is. A crisper sense of mission is going to be needed to tie into the long term plan to begin attracting top talent again. But if Google is beginning to talk about its next mission statement in terms of being an “innovation company,” Yahoo must decide whether to chase this, or to become a very solid execution company. There is an awful lot of mileage you can get out of analyzing customer feedback and metrics for a company with as large an audience as Yahoo. Innovation can be soft innovation and progress can be towards recognizable goals within the universe of what is already important. Finding the next great thing? That shouldn’t be on the radar and there should be no 20% time, come up with new apps, type of culture at Yahoo… sorry. Big breakthroughs, if they are needed at all, should be achieved mainly through acquisition.
  • Build on legacy. Yahoo’s brand is powerful. Consumers actually trust Yahoo more than both Google and Microsoft, mainly because Yahoo is a fun company that hasn’t tried to take over every aspect of their lives. Yahoo can build on what are essentially benign relationships dating back as long as 15 years.
  • Stick with core products. Losing hope in Yahoo Mail, Flickr, etc. would be a bad move. Consumers are ripe for alternatives to the Borg-like leaders of the world.
  • Bold acquisitions to create lock-in opportunities. At the end of the day, the Portal Wars are about monopolistic media models 2.0. We’ve always said that around here. That’s why Yahoo can’t fully win unless they acquire channels they can exploit. Even if this means acquisitions are actually mergers and they become quite dilutive for existing shareholders. And part of the long-term logic involves giving things away to reap more lock-in advantages. Yes, the combined Yahoo 2.0 giant that I envision may have to raise an awful lot of money with a debt offering to be able to afford this, but the additional attention and loyalty assets they need are locked up in a variety of mid-sized companies that should consider selling out at this time. Deep subsidies or giveaways on products like domain names and handheld devices (read: Yahoo should acquire GoDaddy or Research in Motion) are part of the scenario here. In the future, Yahoo should also be pursuing partnerships with hotels, cities, airports, media companies, malls, and other touchpoints in consumer and business life.
  • Keep selling those ads and don’t hide that part of your culture. Yahoo will have to continue innovating around maximizing ad yield. Advertising is simply a poor business model for 95% of the companies that try to make a go from it. But they have the scale and the technology to do well here. Since that’s covered, plenty of business relationships with agencies and partners will be needed to keep Yahoo on the radar as the type of magnetic, positive publishing company that advertisers and their partners want to do business with.

Yahoo’s culture has always been very different from Google’s. It’s time for them (and us) to reaffirm that this is a good thing, because it gives users and partners an alternative.

A couple of years ago, I walked into the lobby of a mid-sized advertising agency, as they were kind enough to offer a boardroom for a trade association meeting. Lo and behold, in a waiting area, I saw two beautiful, overstuffed Yahoo-branded recliners. Perhaps a gift for doing business with Yahoo, probably in its core area of display ad sales. The total value of the furniture had to be in the neighborhood of $1,600. But it wasn’t just the largesse that struck me, it was the brashness. Google distributes small gifts to its partners and advertisers at holiday time – a beer fridge worth around $95 would be a typical fun, but modest, reward. They wouldn’t be caught dead doing some of the stuff Yahoo has done over the years. It’s just a cultural difference. And the thing about it is, both cultures have a place in the industry.

To quote Sloan, “you’d have to be a fool not to think about it.”

Yahoo: Digital Punching Bag of the Week

Friday, October 1st, 2010

Even when there is no particular news of note, opinions can get heated about our dear old friend Yahoo.

Should Yahoo and AOL merge, so they can do a better job of being digital age media companies facilitated by technology? Henry Blodget thinks so (without rancor), and has been saying so for years. We at Traffick also argued for a Yahoo-AOL merger 2.5 years ago.

Beyond pockets of support, there is mostly negativity for Yahoo in the press and blogosphere. Yet last week, I pointed out that from a strictly financial standpoint, and based on other objective measures, Yahoo looks like it has weathered many storms relatively intact. It’s not Silicon Valley cool, it has too many executives (even when bunches of them “depart,” supposedly leaving a “void” in the company), and it definitely isn’t Google. Those are known knowns, and yet the blog commenters keep piling on. The taunts, however, are largely subjective.

Take Yahoo-bashing ringleader Michael Arrington’s gratuitous rumormongering about the supposed unwillingness of the Yelp management team to take $750 million to wind up working at – ugh! – Yahoo, instead of Google. Yet if Google’s $550 million offer was so great, they’d already be working there. More likely, both offers would have dried up in the middle of due diligence, based on question marks about Yelp’s financial performance. It’s just as likely that all offers on the table were heavy on earn-out responsibilities. The avalanche of anti-Yahoo comments on Techcrunch don’t necessarily reflect Yahoo’s business prospects or user base’s tastes, any more than most of us digerati could make sense of why AOL was so strong for so long.

Pro-Google journalist Kara Swisher spun this week’s “wave of executive departures” at Yahoo with a banner headline screaming that it was a “major meltdown” for the company. Hmm, really? Or it could be a major cost saving.

To make sure we got the point, Swisher followed up with this whirlwind of invective somehow masquerading as journalism:

Um, we are deep in the second year of the Bartz regime, and there appears to be no iPod-like save in sight, and it’s a little long in the tooth to keep using the turnaround excuse for all that has not yet happened under her command.”

“Which is to say, stock with a pulse and real growth across all metrics, as Facebook and Google (GOOG), to name a few, are showing.

“In addition, it was Bartz herself who handed over a lot of the responsibility for the revival of Yahoo to Schneider.”

1. Huh? Did Carole Bartz promise to roll out an iPod-like second coming for Yahoo?

2. Well, handing that much responsibility “over to Schneider” must have been a bad idea!

Anyway… I’ve always found that the majority of journalists focus far more on executive moves than most practitioners. Executives are people who do lunch; business models are boring. Yet when business models that scale massively are already all but built, are any but a handful of executives truly indispensable?

To be sure, many of us have often asked ourselves why Yahoo does seem to have such a revolving door of high paid top management and middle management jobs. Certainly it has operated much akin to the political changing of the guard under a new presidential administration, with housecleanings taking place to reflect new priorities and management styles once a new CEO takes the helm — and Yahoo has had too many CEO’s in the past decade.

But might it also be that you can boil it down to the fact that second-tier, overpaid executive type people really like money and the security it can buy, but they don’t completely like the jobs they have to work at to get that money? If you pay them enough to be semi-retired after five years (especially with a buyout package provision that gives them an incentive *not* to perform at their best), chances are they just might feel secure enough to go try something new and different… or just easier. Many former Yahoo execs go onto startups — not out of greed, but out of boredom. That calculation might be different if they needed to stay with the mother ship a few years longer to build up that cushiony nest egg.

Internally, and in terms of recruiting talent, Yahoo’s challenge is certainly to find some new-found mission it can be passionate about, so fewer people get bored. But it’s all relative! Bored, compared to where? Out there in “corporateville,” there are worse gigs. Far worse. Paying much less. With much more frustrating challenges. Yahoo is OK, compared to a lot of companies. Just not compared with how some people perceive life to be at Google, Facebook, LinkedIn, or Twitter.

More to come on this. My next post on this is entitled “Yahoo: The ‘Sloan’ of the Digital Age?”

Stay tuned.


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