Yahoo posted its Q2 results this week, with revenues increasing 15 per cent year on year to hit $1.2bn. However, soaring traffic acquisition costs (TAC) meant it operated at a loss ($22m) during the quarter, a trend indicative of wider issues everyone in the advertising business needs to address, the painful transition to mobile.
Despite operating at a loss, the results did show some positive signs for Yahoo. A breakdown of its revenue-split demonstrates that Yahoo is shifting the dial when it comes to increasing the amount of money advertisers are willing to pay for ad space.
For instance, revenue generated by its ‘MaVeNS’ (mobile, video, native and social ads) increased to $399m during the quarter, compared to $249m 12 months earlier - with mobile ad units generating the bulk of that total. Although, ‘non-MaVeNS’ revenue (that from standard desktop search and display ads) declined from $742m a year ago to $725m during the reporting period.
This demonstrates that advertisers appreciate that digital audiences’ consumption patterns are beginning to change. Web audiences are increasingly spending more time on mobile compared to desktop, plus their media consumption patterns are beginning to reflect those of TV viewers with the rise of video-on-demand. Additionally, ‘banner blindness’ is spurring the native advertising economy.
As audiences transition to mobile, catching their attention (i.e. pay attention to their marketing messages) comes with an increasing premium. However, generating audience-size, plus ad units that won’t annoy them, comes at a cost. This is where Yahoo (indeed all ad-funded businesses) finds difficulty.
Compare the surging acceleration of its TAC ($44m to $200m) over 12 months, to its overall increase in advertising revenue ($1.1bn to $1.2bn) during the same period. Yahoo CEO Marissa Mayer did note that the “price-per-ad” increased 10 per cent during the company’s earnings call, crediting native and video with this increase.
However, she also went on to highlight how this required a heavy investment, particularly with the transition from desktop to mobile. In particular, she noted that it will take time to “train our algorithms and build out our marketplace, resulting in pricing pressure and reduced revenue per search [which is still half of Yahoo’s business].”
Under questioning from investors, she also noted how the integration of its recently acquired technologies (its video advertising unit Brightroll, mobile analytics units Flurry) together into its Gemini advertising solution also spurred TAC. These investments are crucial to the future of Yahoo, particularly with the shift towards using programmatic media-buying technologies.
So as we can see, Yahoo (and indeed all publishers) faces dual pressure points: developing ad products that won’t turn audiences (which are increasingly consuming media on smaller screens) away; and in turn convincing advertisers to pay more money for that.
In the short term the required investment is high, although the rate of increase should subside, and with the input of quality data on audiences the price advertisers are willing to pay for these ad units should increase at a subsequent rate.
The true paint point is in the interim, and convincing advertisers (and investors) that it will pay dividends.