Monday, April 16, 2007

Yahoo's coup

While the new, far-reaching strategic alliance with a dozen newspaper companies is a major coup for Yahoo, the advantage to the participating publishers is far more modest.

The juiciest part of the deal, by far, is that publishers will assign thousands of their well-placed, well-paid account representatives to sell ads for Yahoo, giving the mega-portal unprecedented access to the most feet on the street in each of the markets served by the newspapers.

But what’s in it for the newspapers? We’ll mull that in a moment. First, here’s why they’re shouting “Woo-hoo!” at Yahoo:

Local advertising is the Holy Grail of future growth for the likes of Google, Yahoo and, to a lesser extent, such online publishers as Microsoft, AOL and a few other contenders. Until now, none of the digital biggies could find a cost-effective way to crack this market. The Yahoo deal will show them how.

The online advertising revenues of Yahoo and Google to date have grown primarily through the sale of the keyword ads adjacent to the results of almost every search. Merchants buy these ads at slick, self-service web sites that involve zero human interaction.

While self-serve keyword advertising has grown explosively to some $6.7 billion in 2006, no one believes this pace will last forever. So, all the big online media companies have been trying to crack the local advertising markets dominated by the traditional print and broadcast media.

But the online companies have barely any sales representatives to match the thousands of people newspapers employ to sell everything from ROP advertising to Sunday inserts to used-car ads. And the delectably profitable economics of online publishing make it impossible to hire enough people to come close to matching the number of ad reps in place at every newspaper in the land.

In a single brilliant stroke, Yahoo solved this problem by gaining access to the combined sales forces of such publishers as Belo, Hearst, McClatchy, Media News and eight others. Better still, the deal will prevent Google and others from gaining access to the same sales crews. Even better, from Yahoo’s point of view, the publishers will bear the full expense of the sales effort.

So, Yahoo essentially will spend nothing to lock up the largest, most experienced and best-connected local sales force in every market participating in the program.

And what do the publishers get? A share of the revenues from (i) ads they sell to local merchants, (ii) classified advertising they sell into HotJobs and Yahoo Cars, (iii) any ads Yahoo sells to national advertisers and (iv) the ads appearing in the Yahoo search boxes soon to be added to their pages. Note: Some of the publishers participating in the alliance may not be selling Yahoo job or auto ads because of prior relationships with CareerBuilder, Monster or Cars.Com.

Another appeal for newspapers is that Yahoo News will point additional traffic to their sites, which ought to enable both parties to increase their traffic, page views and advertising inventory.

Without a doubt, all of these elements do create new value for newspapers struggling to adapt comfortably to the digital realm. But they could have done a lot better for themselves, if, for example, they had the foresight years ago to have gotten together to create their own search company or aggregated news site. Instead, they are forced today to rely on the kindness of Yahoo.

Newspapers still have ample opportunities to create innovative print and digital products to endear themselves to their readers, non-readers and advertisers. The danger of the Yahoo deal is that publishers might mistake the resulting revenue boost as being the franchise-saving new media strategy they had been hoping for.

It is not.

2 Comments:

Anonymous Toby Dayton said...

Thanks for the excellent commentary on what has become a gigantic horse race sweeping the classifieds space. I could not agree more with you that these print/online partnerships heavily favor the online side of the equation. While the reasons for the imbalance are numerous and have been well covered, one of the biggest is how badly the sales forces of daily papers struggle to make a case for the value proposition they bring to the market. Not only is that value proposition itself deteriorating because of declining readership and the rapid emergence of better online alternatives, but newspapers are not at all skilled in selling value to begin with. They've been monopolists for so long that they have never had to innovate, never had to create compelling, cost-effective products and services, and never had to deliver superior customer service. They've been decimated so badly in this new environment that they are essentially throwing in the towel with these deals in the hope that they don't become totally obsolete. I agree with you that it'll take a lot more than a tiny sliver of new revenue that their sales reps are probably incapable of generating anyway.

2:20 PM  
Anonymous Steve Bowers said...

Given how inept Yahoo is with their own business, I fully expect disaster from this desperate union.

8:30 PM  

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