Magic formula eludes Yahoo!

Unable to emerge from Google’s shadow and facing a drop in profits, the Web provider has recruited some experienced hands to try to plot a revival in its fortunes. Nathalie Kilby reports

Yahoo! appears to be facing a tumultuous time. Just as analysts digested its decline in profits despite a hike in revenues, it was announced that chief marketing officer Cammie Dunaway leaves the company next week.

Dunaway’s departure follows a number of high-profile exits from Yahoo! in the US and the UK. In June, Yahoo! founder Jerry Wang returned to the shopfloor to replace Terry Semel as chief executive.

In the UK, recent exits include Stephen Taylor, Yahoo! European regional vice-president managing director of search (MW September 8), commercial director Blake Chandlee, who left to join Facebook, and Miles Lewis, head of agency sales.

For many observers, such high-profile defections spell trouble, although Interbrand chairman Rita Clifton cautions: “To build a brand on a business-to-business level, strong management teams are essential. But someone like Blake Chandlee leaving is not the same as Tom Ford leaving Gucci.”

Yet Dunaway, who joined in 2003, is credited with building the brand. Indeed, her work had appeared to be paying dividends: while net income for the quarter was $151m (£74m) compared to $159m (£78m) last year, marketing revenues rose 13% to $1.54bn (£756m) in 2007 compared to $1.37bn (£673m) in 2006, and ad spend rose to $877m (£430m) from $697m (£342m) last year.

The results are promising, but Yahoo! has had to fight its corner. Earlier this year shareholders rebelled over poor performance and its seeming inability to step out from Google’s shadow, prompting Yang to return to turn around the company he founded in 1994. And advertising is where he has focused.

Yang quickly sought to catch up Google, acquiring online advertising business Right Media for $680m (£342m) and Blue Lithium, the behavioural targeting business, for $300m (£150m). Together, the services will give advertisers a broader offering at a time when Google is bolstering its armoury with ad-serving platform DoubleClick.

Yet Clifton says Yahoo! always plays second fiddle to Google. “There is something about Google: the mythology and powerful magic behind the brand. It’s got distinctive branding, great innovation, young confidence and the smell of success. Yahoo! has been around for longer but it does not feel like it.”

Indeed, Yahoo! is an online old-timer. Founded by Stanford University students David Filo and Yang, the site started life as “Jerry and David’s Guide to the World Wide Web”. “Yahoo!” allegedly emerged as an acronym for “Yet Another Hierarchical Officious Oracle”, but the founders insist they chose Yahoo! because of its meaning of “rude, unsophisticated, uncouth”, from Jonathan Swift’s Gulliver’s Travels.

In 1996, Yahoo! UK & Ireland launched, the following year Yahoo! Mail was rolled out to rival MSN Hotmail and in 1999 Yahoo! rolled out travel and sports portals, and acquired community site Geocities.

As Google remains the dominant force in the UK search market, MSN and Yahoo! have focused on display deals and brand partnerships, such as launching co-branded portals. “Yahoo! is trying to build its offering for advertisers. It is very open-minded, forging partnerships and third-party strategies [such as with social networking site Bebo], but it’s looking for more assured income and less risk,” says Clifton.

BLM Quantum managing director Dan Clays agrees: “It’s not losing its edge, but it’s not done much to grab headlines. Yahoo! has retained a confident approach to trading in the UK, but still struggles.”

He adds that Yahoo! appears to have made few inroads with search while MSN is gaining ground, albeit with single digit growth. Indeed Hitwise ranks Yahoo! UK & Ireland at 13th place compared to MSN UK’s sixth place and Google UK’s top place in terms of share of visits in the month to October 13. It is also outranked by the major social networks.

“Yahoo! needs new ways to engage people,” says Clays. “Previously the brand’s strength, for advertisers, was a richer experience based around professional and syndicated content. Now, the battleground has shifted and Yahoo! has to fight on two fronts – a battle against other quality content and against user-generated content.”

The acquisition of Geocities, in hindsight, is seen by many as missed opportunity and many doubt whether buying Facebook would help boost Yahoo! anyway.

After all, acquisition does not always mean success. When Yahoo! last featured as a Marketing Week Brand Benchmark (September 1, 2005), it had pinned hopes of further growth on Kelkoo, which it bought in 2004 for £318m. Yet, last month it revealed it was considering selling the comparison site.

Over the past year, Yahoo! has focused on building relations with advertisers and launching new ad platforms, including mobile, but observers say the focus must now be on users. The company is looking to consolidate its £2.5m advertising account into one agency, so this may be its chance to make a splash.

As Clifton says: “Yahoo! needs to have both eyes on both audiences – advertisers and consumers. It needs to have a clarity of vision about what the brand stands for. Yahoo! doesn’t have the personality that Google does.”

Net gains/losses 2007

Yahoo! 

  • Third-quarter results
    Net income $151m (£74m) compared to $159m (£78m) for Q3 last year Revenues up from $1.58bn (£776m) in 2006 to $1.77bn (£870m) Ad revenues rose 13% to $1.54bn (£756m) in 2007 compared to a $1.37bn (£673) for the same period in 2006, but ad spend also rose to $877m (£430m) from $697m (£342) last year 
  • Acquisitions
    Right Media and Blue Lithium 
  • Staff departures US
    Cammie Dunaway, chief marketing officer; Terry Semel, chief executive; Wenda Harris Millard, senior sales executive; CTO Farzad Nazem, chief technology officer; Lloyd Braun, head of entertainment and media; and Dan Rosensweig, chief operating officer 
  • Staff departures UK
    Stephen Taylor, European regional vice-president and managing director of search; Blake Chandlee, commercial director; and Miles Lewis, head of agency sales

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