Yahoo turnaround plan hit by falling ad prices

Written by Reuters | San Francisco | Updated: Jul 18 2013, 07:19am hrs
Marissa Mayers plan to resuscitate Yahoo seems a simple one: Get back the eyeballs, sell more ads and charge higher prices. But the chief executives plan seems to have run into a major snag.

The price the company charges per ad slid 12% in the April to June period, six times the decline just a quarter ago a fall that some say highlights how Yahoo has been caught unprepared for the industry shift to automated, programmatic ad buying.

Marketers increasingly prefer to buy online advertising space through automated exchanges, where prices are significantly lower, rather than paying top-dollar for premium ads sold by a web publishers sales force. Ads offered by exchanges also allow marketers to aim ads in real time at specific audiences, such as by gender or age.

Yahoos ad focus has, however, centred on on developing media units that were much better for premium buys, said Shar VanBoskirk, an analyst with industry research firm

Forrester Research.

Yahoo has its own programmatic ad technology with its Right Media exchange. But analysts say the exchange is not as popular as rival offerings, such as Googles DoubleClick exchange, which is considered the industry standard.

For many on Wall Street, the industry shift is one more reason which means Yahoos turnaround remains an open question, especially given that Mayer has said the company remains first and foremost an advertising company.

During Tuesdays post-earnings conference call with analysts, Mayer said Yahoo was bullish on its advertising technology and that it planned to focus on improving various aspects of it in the coming quarters. But even if Yahoos ad exchange becomes more competitive, the broader trend of programmatic advertising will continue to pressure its business.

Yahoos stock has surged roughly 70% since Mayer took the helm but much of the gain has come from stock buybacks and from Yahoos Asian assets, including a 24% stake in Chinese e-commerce giant and potential IPO debutante Alibaba Group. Ad numbers, however, remain dismal. Apart from pricing, display ad volumes and paid-clicks for search ads an important measure of viewers and readers responsiveness to marketing continue to shrink.

Yahoos share of the $17-billion US display ad market is expected to decline to 7.9% in 2013, down from a 9.2% share last year, while Googles share is expected to grow to 17.6%. Facebook is likely to expand its market share to 16.5%, research house eMarketer estimates.

This is just the beginning of the trend, of the drop in the price per ad. You still have a pretty big gap between what you can get direct and what you can get selling on an exchange, BGC analyst Colin Gillis said of Yahoo.