Marissa Mayer wants Yahoo to be big in mobile. Meet Aviate

Of the almost 40 companies Marissa Mayer acquired since taking over Yahoo in 2012, artificial intelligence service Aviate — and not Tumblr — may turn out to be the biggest catch.

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Yahoo's Mark Daiss, co-founder of artificial intelligence service Aviate Yahoo

When Marissa Mayer stepped on stage during the Consumer Electronics Show in Las Vegas in January to deliver her first keynote at the high-profile gadget extravaganza, she made sure it was a star-studded affair. There was a faux newscast by Saturday Night Live's Weekend Update team, poking fun at the "CEO of Yoo-hoo," a trio of songs crooned by musician John Legend, and a parade led by Yahoo's biggest talent grabs, news anchor Katie Couric and former New York Times reviewer David Pogue.

But amid the hoopla -- and before she delivered a slew of announcements during her hour-long talk -- Mayer gave the first headline to a little-known artificial intelligence startup. "We're incredibly excited to kick things off today by announcing that we have acquired Aviate," Mayer said.

Aviate's technology takes advantage of Android's open platform to take over your smartphone's home screen and showcase information and apps when they might be the most useful to you. If you check Yahoo's Finance app every morning, for example, Aviate takes note and rearranges your home screen to put that app -- and similar apps -- front and center. Like Google's artificial intelligence service Google Now, Aviate takes cues from personal information and data, as well as your location or the time of day, to surface information and highlight apps at the moment they're relevant.

"Think about how much your phone understands you," Mayer told the crowd at CES. "Imagine what happens when that context becomes part of the search experience."

While Yahoo, a lumbering early Internet pioneer, is in the midst of an attempted turnaround under Mayer, it is still an almost $5 billion-a-year company in annual sales with a lot of resources. Investing in the platform can only add to the net positive for consumers interested in artificial intelligence, as other tech giants like Apple, Google and even Twitter do the same.

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Yahoo CEO Marissa Mayer at CES Screenshot by Richard Nieva/CNET

But Yahoo arguably needs this kind of technology more than those other companies. The race to dominate platforms, from smartphones to smart glasses, is in full swing and Yahoo is behind. While some companies are already on the lookout for the next big platform -- Facebook recently paid $2 billion for the virtual reality goggle maker Oculus -- Yahoo has had difficulty making a dent on the current platforms of choice, smartphones and tablets. That's a problem given that Yahoo's core business, display advertising, is in decline as its hold on consumers seems to be slipping. In February, Yahoo fell to No. 2 behind Google as the most-trafficked desktop Web site in the U.S. for the first time in seven months.

Since Mayer joined Yahoo as CEO in 2012, the company has overhauled many of its mobile properties, from its weather to email apps. But it still doesn't have a pervasive mobile experience, leaving Mayer on an earnings call with investors in January to describe Yahoo's mobile advertising revenue as "not material." By contrast, Facebook, which has also had woes transitioning from desktop to mobile, now makes 53 percent of its advertising revenue on mobile.

That pervasiveness is key. Then, Yahoo will have a mechanism to push its own content to users, including its Finance, Sports and Shopping properties. "If Marissa wants to tie all these apps into one cohesive experience, Aviate becomes critical," said Sameet Sinha, a senior analyst at research firm B. Riley and Co. (which owns a tiny holding in Yahoo).

Most of Yahoo's conquests are guppies -- small acqui-hires or core technological grabs here and there, including the natural language startup SkyPhrase and the mobile video startup Ptch. The exception: a billion-dollar whale, the blogging platform Tumblr, which is Mayer's biggest acquisition to date.

These deals are typically announced via a meager blog post on the acquired company's Web site. So Mayer's decision to give Aviate such prominent billing during her CES presentation seems telling of its value to the company. So is its rumored $80 million price tag -- not the fortune the company paid for Tumblr, but still nothing to scoff at for a one-year-old company still in private beta. Yahoo also typcially kills the products and brands of its acquired companies, while Aviate and Tumblr have been allowed to carry on.

So while the Tumblr acquisition may be the defining status symbol purchase of Mayer's early tenure at Yahoo, it's Aviate that has the most implications for the company's future. Apple and Google both have operating systems. Aviate can give Yahoo an overarching, if subtle, gateway into mobile, something a blogging platform or a nicely designed weather app can't do. So it's Aviate, not Tumblr, that may end up as Yahoo's newest crown jewel.

Pirate mobile

On the fourth floor of building D at Yahoo headquarters in Sunnyvale, Calif. -- the Mobile and Emerging Products floor -- engineers and designers from properties like News Digest and Yahoo Weather sit with their desks in groups. Above them, a few large flags hang from the ceiling, mostly from different countries like France and Malaysia. One flag stands out: the skull and crossbones. If the hackneyed phrase about engineering talent being Silicon Valley gold is true -- and if Yahoo is intent on pillaging it and bringing it aboard the good ship Yahoo -- the fourth floor has the pirate flag to prove it.

Aviate co-founder Mark Daiss, who sits alongside his team, doesn't even have a Yahoo business card yet -- over two months after Yahoo bought his Palo Alto, Calif.-based company. But Aviate has already benefited from Yahoo's growing headcount of startup developers. The team started out with seven people when Yahoo bought it. As of April, there are a dozen people. The new team members, Daiss says in an hour-long interview in a nondescript conference room, came from Yahoo's employee repository -- people from some of the other acquired startups, and some older employees.

Aviate was born in November 2012 when Daiss, a reformed financial consultant now sporting a zip-up fleece and a dusting of stubble, teamed with his cousin Paul Montoy-Wilson, and Wilson's classmate from Stanford University, William Choi. The trio formed ThumbsUp Labs. Montoy-Wilson knew the business of curating apps intimately, having worked on categorization and interface design for Android's Google Play store. Their first project was an Android widget that surfaced different apps on a phone when they became relevant to a user. The team wanted a name that conveyed speed, as well as innovation and navigation: Aviator.

As they continued developing Aviator, they thought it could do more, bringing up relevant information from inside certain apps, instead of just bringing that app's icon to the forefront of the screen. "We had the widget and thought, 'Oh my gosh, what about an Android home screen?'" recalled Daiss. "There's no other interface you touch more in your life than the home screen of your phone."

As they looked at other artificial intelligence products on the market -- including Apple's Siri voice assistant -- they decided they didn't want something with a human element. The thinking: humans are fallible, and they can be slow. And the personal assistant trope can be gimmicky or outdated. (There's a reason Ask Jeeves eventually became Ask.com.) So it was settled. In spring 2012, Aviator became simply Aviate.

2014 (and beyond)

For a company that started out called ThumbsUp Labs, Yahoo may have seemed like a surprise choice as a corporate parent over the social network that has made the thumbs up symbol the official digital seal of approval.

But at the same time Aviate was being developed, Facebook unveiled its own plans for similar technology. In April 2013, Facebook invited press to a glitzy product announcement, with dimmed lights and loud music, reminiscent of an Apple keynote hosted by Steve Jobs. The company unveiled Facebook Home, a software bundle that took over the Android home screen, giving Facebook an omnipresence on the smartphone. The product was also tied into a promotion with the HTC First, with the handset offering Facebook Home preloaded for its users. More than an app, but not quite an operating system, Wired dubbed it an "apperating system."

It was Facebook's biggest push into mobile yet. And it flopped. Adoption never took off, and less than a year later, Facebook has changed its strategic course in mobile. Instead of going all in on Android, it has opted to run a fleet of standalone apps, including its news reader Paper, popular Instagram for photo sharing and its new messaging service, WhatsApp.

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Aviate surfaces relevant apps based on the context of the phone and user. James Martin/CNET

While Daiss is sympathetic to Facebook's homescreen experiment, he's quick to point out why Aviate is different. "Facebook Home is a great product. But it was a product that was very focused on Facebook," he said. "At Aviate, we think there's tons of amazing content that developers are building. And so our phones should be trying to get us to all of these things as quickly as possible -- not just trying to get to one or a few of those products."

So there's Yahoo's approach: Think broadly. In that way, Aviate may be much more of an "apperating system" than Facebook Home ever was. While Apple owns the iOS mobile operating system and Google owns Android, Yahoo needs another way onto mobile devices. Aviate could be that way. If the product proves useful enough for users, Yahoo will have successfully hijacked their operating systems.

"Yahoo needs to find a different insertion point. That's why it acquired Aviate," said Raj Singh, co-founder of Tempo, an artificially intelligent "smart" calendar app. Singh was also entrepreneur in residence at the Stanford Research Institute, or SRI, where Apple's Siri was spun out.

As for Facebook's failure on home screens, Singh thinks Home had the classic misfortune of being too early. "The problem with Facebook is they were first to market," he said. "It goes to the point: If you're not a default app, you're fighting to get a mere percentage point or two [of usage]."

Still, Facebook's foray opened up the market. "When we saw Facebook launch their home screen, we thought, 'Who are the other people that might launch [their own]?'" said Daiss. Considering a possible Yahoo buyout, he thought, "There were just so many synergies there. And some already thinking about what a home screen could look like for Yahoo." Which begs the question, asked by other tech observers as well: Could Aviate become Yahoo Home? For now, Daiss said, there are no plans for rebranding.

In an analysis of Aviate's value to Yahoo, Search Engine Land's Greg Sterling even suggested slapping a Yahoo search bar onto the interface to drive traffic in that area. Daiss balked when I asked him about that possibility, saying his team preferred to focus on contextual search. This makes sense for the product, but it may also speak to just how much Yahoo is allowed to innovate in the search arena. Two years before Mayer took charge, then-CEO Carol Bartz inked a 10-year search partnership between Yahoo and Microsoft's Bing search service, outsourcing the back end Web crawling capabilities of Yahoo's home page to Microsoft, while Yahoo remained free to handle the user interface.

Either company can try to end the deal as early as next year, but even so, Aviate's approach exploits a loophole: the search agreement only covers queries based on keywords, so contextual search is fair game.

The product also offers opportunities for monetization -- paramount with Yahoo's core businesses lagging. While Aviate surfaces existing apps on a phone that it thinks are relevant at any given moment, it also suggests related apps from the Google Play store. If you plug headphones into your phone, for example, Aviate not only brings up apps like Spotify that you may have already downloaded, but also suggests other music apps. That functionality is rife for sponsored suggestions. "If something can tie together your life, there is significant opportunity there to monetize each step: In the morning, stop at this place to get coffee, then this gas station," said Sinha, though he said he doesn't know of any financial analysis that's been done to speculate the opportunity.

Daiss said there are no plans for making money directly off Aviate yet, but that could change in the future. Indeed, it was a part of the company's thinking from nearly the beginning. Cameron Teitelman, who founded the Stanford incubator StartX, in which Aviate participated, said lead generation was a big part of Aviate's business plan, as it developed over the 11-week program.

To be fair, for Yahoo to fully reap the benefits, Aviate has to be a true utility, and the product hasn't yet reached that level of indispensability. Granted, it is still in private beta, but Aviate doesn't have the ability to read through a user's messages or email to pop up relevant info, like driving directions to an appointment it knows you have. That functionally is in Tempo, offered by Singh's company, and in Apple's recently announced CarPlay. Google Now also has the ability to sort through a user's search history to predict what he or she might want.

Daiss said it's a long-term game. "We have ideas to last us the next five years."

Yahoo would not make its mobile chief Adam Cahan available for this story, but in a January blog post announcing the Aviate takeover, he touted the startup's importance to Yahoo's mobile strategy. "We hope to make Aviate a central part of our Android-based experiences in 2014 (and beyond)," he wrote.

That's integral since Yahoo isn't the only big tech company trying to disrupt mobile operating systems through app discovery. Cover, a startup that makes a similar product to Aviate that's focused on Android lock screens, announced this week that it was being bought by Twitter. And while it's not as in your face on the home and lock screens, Apple has also recently begun experimenting with app discovery in its App Store, outside of its top and featured app charts.

While Yahoo has promised to remain hands off while Daiss and Co. build out their vision, it's also true that Yahoo is under pressure to appease its investors. The company's stock has been goosed in the last few years by its stake in the successful Chinese e-commerce giant Alibaba, which plans to go public later this year in the US -- a move that will see Yahoo investors get their pay day. While the stock price shot up in January to over $41, it has hovered in the mid-$30s and below during the early part of April. On Wednesday, it traded a little above $34.

Time is ticking for Yahoo to discover something shiny and valuable on its own. For now, it's got the pirate flag waving to show it's out there in mobile waters, looking to score treasure.

 

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