A foundering Yahoo exposes flaws in media unit strategy

Yahoo CEO Marissa Mayer dreamed of a media business that combined the best of both worlds: an in-house editorial staff that would publish pieces that command attention, and a vibrant social network whose users would create content themselves at no cost to the company.

Together, she hoped, they would revive the flagging tech giant’s share of worldwide advertising revenues. Yet so far, neither has.

As Yahoo announced layoffs of nearly 1,600 global employees on Tuesday, the Sunnyvale firm revealed that it would cut editorial products — a sign its attempt at developing a news and lifestyle brand has not paid off. And in a closely watched earnings call, Mayer avoided talking about the financial performance of Tumblr, Yahoo’s foray into social networking, which came up short of its revenue projection of $100 million.

Mayer still believes in Yahoo’s future as a content hub — both for editorial pieces and user-generated posts. But as the embattled CEO tries to turn around a company that some investors want to sell, Yahoo’s struggles in media offer a glimpse at a difficult road ahead.

“If she can’t get this to work, it showcases an absolute failure for Marissa,” said Rob Enderle with advisory services firm Enderle Group.

Attracting eyeballs hasn’t been a problem for Yahoo. Hundreds of millions visit the site simply to check their e-mail. But persuading those users to stick around — and maybe click on an ad or two — has proved challenging.

Well-paid celebrities

Since she became CEO in 2012, Mayer has seen news as a way to build engagement and attract advertisers.

In 2013, Yahoo hired longtime TV anchor Katie Couric, one of several high-profile — and high-cost — hires that were intended to turn Yahoo into a news destination.

In 2014, it created digital magazines, meant to raise the company’s profile among users and brands. Personalities including former New York Times gadget guy David Pogue and cosmetics guru Bobbi Brown brought star power to new editorial properties. They joined a growing team of journalists and content creators who wrote for Yahoo digital magazines on topics like beauty, tech, parenting, health and travel.

These projects marked a major investment in editorial content at a time when the news and publishing world was experiencing declining revenue. Mayer said such spending was vital for Yahoo’s future.

“It was really more about raising that journalistic standard, getting our name out there as people who participate in news and participate in the dialogue in ways than just republishing content,” Mayer said at a conference in New York last year, according to Women’s Wear Daily.

Analysts agree that original content is a wise play for Yahoo. But some were baffled by its costly focus on established talent. Rather than signing Couric to a reported $10 million annual contract, Yahoo, they say, could have gone cheaper and won far more attention by recruiting YouTube stars who bring a built-in digital audience of young people that the company desperately needs.

Couric and Pogue “are names that really would not attract Millennials in large volumes, and let’s face it, that’s where the readership market is, and that is where the ad market is,” said Randy Giusto, a vice president and lead analyst at research and advisory service Outsell.

Limited Millennial appeal

Yahoo tends to draw older consumers. Just 19 percent of Yahoo’s home page audience is younger than 30, according to Verto Analytics.

Couric’s Web interviews have brought traffic to Yahoo. One of her most-watched clips drew 5 million video views, while others drew 1 million to 2 million views, according to the Wall Street Journal. But her appeal to younger viewers was so limited that Snapchat yanked Yahoo from its popular Discover feature and replaced it with Buzzfeed, according to Fast Company.

Neil Doshi, an analyst with Mizuho Securities USA, said he would be “thrilled beyond belief” if Couric or any other well-compensated celebrities were laid off.

“They built the content and hoped people will come, and unfortunately, that has not really happened,” Doshi said.

Yahoo does own one thing that is popular with Millennials — the blogging platform Tumblr, which it acquired for $1.1 billion in 2013.

Tumblr was supposed to help Yahoo increase advertising revenue in a media world reinvented by Facebook — one where users themselves create the content that attracts eyeballs and advertisements.

Despite Tumblr’s growing audience — and the fact that Millennials are particularly coveted by advertisers because of their higher disposable incomes — Yahoo has struggled to make money from the platform.

Last year, Tumblr and Yahoo sales staffs were combined to sell ads across all of Yahoo’s properties. When Tumblr confirmed Friday that it had missed its revenue projection for 2015, it also announced that Tumblr would again be staffed with its own dedicated sales force. Enderle says this shows that Yahoo made a mistake in integrating sales teams, when it really should have kept the original Tumblr sales team in place.

“The good people that you had in the company leave,” Enderle said. “The end result is you lose a lot of sales.”

Analysts say Tumblr is growing, but its smaller audience compared with its social media rivals may have played a role in its missed revenue projections.

Tumblr has an audience of 600 million users compared with Facebook’s 1.59 billion monthly active users. And while both social media sites can tailor ads to users based on gender, interest and location, Facebook gathers far more data on its users. This can make it more appealing to advertisers seeking to create ads that are designed for specific groups of users.

On Tumblr, marketers can run ads in the form of sponsored posts or videos, and pay the site’s users to create ads through Tumblr’s Creatrs Network.

But by courting too many native ads — content that is written by advertisers but resembles normal posts — Tumblr runs the risk of alienating its users, analysts said.

“Tumblr, you monetize it too much, (people will) stop using it,” said Venky Ganesan, a managing director with Menlo Ventures. “They want to see content on the page, not ads.”

Mayer isn’t giving up on media content.

After announcing the job cuts and a sweeping restructuring last week, Yahoo says it plans to improve its standing by focusing on three platforms — Tumblr, Yahoo Mail and Search — and four editorial categories — sports, news, finance and lifestyle.

“Digital content is our differentiation,” Mayer said on a call with investors on Tuesday. “People come to Yahoo because of our distinct voice through original content, aggregation and personalization.”

The company continues to invest in its sports content, in January launching the Vertical with Woj, a basketball news site led by prominent sports writer Adrian Wojnarowski. Couric has a new video series on U.S. cities that are reinventing themselves. Analysts believe sports, finance and news on Yahoo continue to be strong categories for content.

But some say that Yahoo attempting to fix itself is just biding time for an eventual sale.

The company said it would pursue three plans: improving the core business, spinning off its core business and Yahoo Japan stake, and considering offers from buyers.

“At this point, there is no way out,” said Ganesan, who thinks Yahoo should be sold. “The clock’s run out. The game is over.”