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Memo to Jerry Yang: How to make Yahoo great again

While technology will play a big role in your company's future, you shouldn't discount the strengths you already have as demand for online brand ads grows.

To: Yahoo CEO Jerry Yang
From: Stefanie Olsen, CNET News.com
Re: Getting your company back on track

Now that Yahoo appears to be on its own path, it's time for the company to find in its past what could again make it great.

Contrary to popular opinion, the key to the future isn't becoming a technological marvel to rival Google. Instead, Yahoo should home in on what made it special before the dot-com bust: The Yahoooooo! (cowboy twang inserted) of yesteryear.

Yahoo was an Internet media pioneer. The company built or bought every massively popular feature on the Web today--think Broadcast.com (video), Launch (music), and Groups (social networks). It also developed an advertising engine that could deliver on the dream campaign of any marketer with the data to back up that promise. You could argue that Yahoo failed to take advantage of many of those assets in recent years, but the shortcomings haven't been in vision, they've been in execution.

So how does Yahoo move forward? It needs to rebrand itself an Internet media company, quit chasing Google on Web search, and get damn good at selling brand advertising to Madison Avenue once again. And it has to get it done before Google figures out how to turn the creative ad process over to robots. Does technology play a role in that future? Of course. But the emphasis should be on technology that makes ad sales possible, not ad sales that make the technology possible.

"Yahoo was basically built for brand advertisers before brand advertisers came online in a big way. Now that they have come online, Yahoo has to have better technology to allow for better targeting and scale," said Rishad Tobaccowalo, CEO of the futures-consulting company Denuo, a unit of advertising agency holding company Publicis.

Yahoo certainly has been selling technology, but not in the way Tobaccowalo is talking about. Earlier this year, executives started beating the drum about getting back to the technology roots with new products like advanced e-mail, mobile-search technology, and a universal log-on for Yahoo members across services like Flickr, Mail, and Address Book.

Those initiatives are worthwhile, but Yahoo should be selling a bigger story to Madison Avenue, particularly as Google tries to build a division for selling brand advertising alongside search. Sure, Yahoo has advertising platforms like Panama, but the company still isn't reaping the full value of its media network. Quite simply, it isn't showing the swagger of its younger years among advertisers. (Note: avoid the cockiness that turned some advertisers off in the early years.)

Ad executives say Yahoo should combine Web search and brand advertising, and sell marketers a new package on the Web. "No one has properly integrated their platforms of search and display advertising. Even though Yahoo has integrated those ad sales teams, no one is treating it as a 'solution,'" according to an entertainment advertising executive who asked to remain anonymous.

That means Yahoo and its rivals are missing the chance to up-sell marketers on more ads, with better use of historical Web data. "The interactive promise is that you take this great amount of data and bake it into a pie, but that's not happening," the executive said.

Despite its talks with Google, Yahoo could easily stay independent on Web search. Several major advertisers have said the company's search marketplace performs almost as well as Google's. More importantly, Yahoo and Microsoft counterbalance Google's dominance and pricing power in the market.

Dan Farber/CNET News.com

No doubt, search is essential to the Web economy, but the next major phase of growth for Internet advertising will come from major brand advertising. If smart, Yahoo should be in the cat bird's seat with a network that reaches half a billion people worldwide annually.

In 2007, U.S. online advertising spending was at $21 billion, up a whopping 26 percent year over year compared with a 7 percent decline in newspaper advertising or 3 percent drop in radio ads, according to data from PricewaterhouseCoopers and the IAB. That spending is still only around 9 percent of the $469 billion spent on advertising in the United States across newspapers, television, radio, and direct mail.

The gap between what the top 100 U.S. advertisers spend online is even greater. In 2006, the most recent year of data on ad spending from research firm TNS, the biggest brands in this country put only 3.1 percent of their ad budgets online.

One reason is that agencies and advertisers are slow to follow audiences. Last year, people devoted about 29 percent of their media hours on the Internet, but advertisers spent only 8 percent of their budgets on the Web, according to a January report from Forrester Research. In contrast, people spent about 37 percent of their media time watching television; and with roughly equal measure, advertisers spent about 36 percent of their budgets on TV.

Newspaper ad spending was out of whack in the reverse. People devoted 8 percent of their media time to reading the paper last year. But advertisers spent 20 percent of their budgets on the medium. Put another way: advertisers are spending an average of $288 to reach a household via the Internet, vs. $818 via newspapers.

But that is changing quickly, advertisers say. Brand advertisers are quickly trying to figure out their online strategies and how they can reach the most people with the fewest number of media outlets. And they need companies like Yahoo and AOL more than ever, because portals like Yahoo can help brand advertisers reach hundreds of millions of people much like a TV audience.

Brand advertisers have a problem with search because it has inherent limits in inventory. Search makes more sense for direct marketers. Brand advertisers want video and engaging content that they can wrap their logos around, and that content online is now with the television networks and the YouTubes of the world.

Yahoo certainly has engaging content. Among the top most visited Web sites, Yahoo's audience spent an average of three hours and 12 minutes with the site in March, according to Nielsen Online. AOL's audience spent nearly four hours on its site; and Google's visitors racked up only one hour and 15 minutes. Microsoft: 44 minutes. YouTube: 50 minutes.

Brand advertisers also want the reach without the uncertainty of a social network, where their brands can appear in an unsavory context.

"A lot of the newer sites like MySpace and Facebook prove that not everything that's important can be monetized, because they haven't proved to be major places for advertising yet," said David Hallerman, senior analyst at eMarketer. "People equate declining importance of portals with non-importance, but portals are important for brand advertisers because they get their most valuable reach and that's not going away."

"That's why we're so far from the end story on Yahoo even with Microsoft bowing out," he said.

Despite recent proclamations of a technology focus, Yahoo has always been a media company, or a cultural curator to the Internet. Its historical talent has been in aggregating content from across the Web and creating compelling destination sites around news, finance and entertainment that keep people coming back. Technology was more of the engine, rather than the driver.

Yahoo was also one of the first companies to promote a data-mining group designed to use all those virtual tracks people left across its network to pinpoint how, when and what type of brand advertisements they would respond to next. Of course, Google came along and proved more immediate value in search.

Now it's time for Yahoo to pick up the brand advertising story once again, helping to lift up pricing of sponsorships and branded campaigns.

Yahoo's former sales chief Wenda Harris Millard, who's now the IAB's chairperson and president of media for Martha Stewart Living Omnimedia, said it well at a recent IAB event: "We must educate one and all about the value our digital offerings provide marketers and not trade our advertising space like pork bellies."

In short, Jerry, it's all about the ads.

"Yahoo will rebound in a different form. They have to decide who are they talking to and what value they are adding. They still have a sales force plugged into agencies and Panama that seems to be working. It also has a new open model," Tobaccowala said.

"Everyone in Silicon Valley has a strange self-esteem problem, if they don't think they're hot, they think they're not," he added. "My sense is that internal Yahoo people don't think they're hot in this game."