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Jul 17, 2013, 11.32 AM IST | Source: Reuters

Falling ad prices stresses doubt over Yahoo turnaround plan

The price the company charges per ad slid 12 percent 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.

Falling ad prices stresses doubt over Yahoo turnaround plan

Marissa Mayer's plan to resuscitate Yahoo seems a simple one: get back the eyeballs, sell more ads and charge higher prices. But the chief executive's plan seems to have run into a major snag.

Also Read: Mayer still waiting for her Yahoo moment

The price the company charges per ad slid 12 percent 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 publisher's salesforce. Ads offered by exchanges also allow marketers to aim ads in real time at specific audiences, such as by gender or age.

Yahoo's ad focus has, however, centered 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 Google's DoubleClick exchange, which is considered the industry standard.

Google, the world's No.1 Web search engine, will report its second-quarter earnings on Thursday.

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

During Tuesday's 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 Yahoo's ad exchange becomes more competitive, the broader trend of programmatic advertising will continue to pressure its business.

"Programmatic advertising technology continues to have a downward bias to pricing in display advertising and I don't expect that to improve anytime soon," said UBS analyst Eric Sheridan.

One Year Mark

Mayer took the reins at Yahoo in July 2012 after a tumultuous period in which the company churned through several CEOs and many of its top executives and engineers jumped ship.

She has revamped key products such as mail and the Yahoo home page and jumpstarted acquisitions. Last month, Yahoo closed its USD 1.1 billion acquisition of popular blogging service Tumblr.

Yahoo's stock has surged roughly 70 percent since Mayer took the helm but much of the gain has come from stock buybacks and from Yahoo's Asian assets, including a 24 percent 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.

Yahoo's share of the USD 17 billion US display ad market is expected to decline to 7.9 percent in 2013, down from a 9.2 percent share last year, while Google's share is expected to grow to 17.6 percent. Facebook is likely to expand its market share to 16.5 percent, research house eMarketer estimates.

"This core business is going to be ugly for quite some time before it gets better," BGC analyst Colin Gillis said of Yahoo.

"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."

READ MORE ON  Marissa Mayer, Yahoo, ad, Google, Tumblr

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