Nine months into Marissa Mayer’s tenure, it’s clear Yahoo is once again relevant and interesting in Silicon Valley. Mayer is happy to tout things like a tripling in resumes received, a halving in the rate of people leaving and even the return of former employees to the fold. All the good news, however, can’t disguise the grim reality that the display advertising business — those banner ads that run along the top of nearly every page on the internet — has been going nowhere at Yahoo for a long time and that’s a trend Mayer hasn’t been able to reverse. Unfortunately for her and Yahoo, this isn’t just a failure of execution; it also represents the decline of the format that has fueled free content on the internet since the beginning.
Consider the numbers: Yahoo sold $402 million worth of display ads last quarter, a decline of 11%. The display business has been going more or less nowhere for the past 3 years, but it’s definitely trending down. By comparison, revenues at Google, which relies very little on banner ads sold through its DoubleClick network, will have doubled revenues over the same period when it reports tomorrow. Changing times Over at Digiday, they recently recounted the story of the birth of banner ad back in 1994. The web was barely out of the cradle and Hotwired, the web property of Wired magazine not travel site Hotwire, decided to run advertising to try to pay its own way. The ad, for AT&T, asked: “Have you clicked here? You will.” And 44% of those that saw it would do just that. These days, though, instead of 44 in 100, only about 1 in 1,000 will actually click on an ad. And a significant part of the reason is that we all get bombarded with too many of them. In the U.S. alone, 1.1 trillion display ads are shown online each quarter, enough for each of us to receive 4500 of them — about 50 every day. And we generally know where on the page they’re going to be which has led to a new syndrome dubbed “banner blindness” — the ads are there, but many of us just tune them out. It’s like the commercial skip button on your DVR, but you don’t even have to press it; your brain does it for you. The problem here isn’t just Yahoo’s. More than half of the newspaper websites in the country now charge for some or all of their content after mostly trying to run their sites for free, supported by advertising. While a lot of that has been motivated by the rapid decline of their print businesses, the fact is that the online side just hasn’t delivered enough growth to offset those declines. But the other side of the problem is that the promise of online advertising has only been realized in a small way. While the ads on search pages do fantastically well (and explain why Google is so valuable), the generic display ads you see when you’re reading an article or playing a game haven’t delivered on the promise of the technology behind them. How’d they know I want that? A great deal of the ads you see are targeted directly at you because somehow you’ve tipped off an ad network that you’re shopping for a car, or just had a baby or want to vacation in France. The problem is once they latch onto this information, they can’t let go. You might have been looking at vacations in France because your friend is going, but the ad networks just won’t know. You might be interested in a car, but when you’re participating in a heated discussion in a book-club forum, you can’t be bothered with info on a lease deal. So again, you just tune out the advertising, which simply isn’t good news for the advertiser — nor for the middleman who is trying to sell you those ads. Part of the solution is to run fewer ads, so that the ones that are left on the page are more visible. The theory is that they’ll stick better in your mind even if you don’t click on them and generally will become more visible so that you do. Yahoo gets this and has been trimming the quantity of ads you see. It hasn’t yet found the right pricing for those that remain to make up the difference, but this is unequivocally a move in the right direction. ”In terms of the user interface, changes we made in terms of reducing the number of ads; we have seen that that’s actually increased user engagement,” Mayer said. The next step for Yahoo — and other content publishers — is to follow the lead of other trendsetters in online advertising to try to start growing again outside of display in a world where consumers are exhausted from seeing too many pitches. Facebook and Twitter, for example, runs ads as part of the feed. This so-called “native advertising” is fueling Facebook’s growth on mobile particularly after its own display business began to see slower growth last year. It’s the first stage in moving the ads away from where people can easily ignore them. The next stage is making sense of what’s on the page you’re viewing to bring relevant advertising to you when you’re more likely to be receptive to it. It’s a harder problem to solve when you aren’t explicitly searching for something, but it’s part of the next frontier for Yahoo and others if they themselves want to remain relevant.