{"id":19331,"date":"2016-11-18T16:45:30","date_gmt":"2016-11-18T21:45:30","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/4-transformations-in-digital-advertising-that-every-marketer-should-know-you-wont-believe-number-3\/"},"modified":"2016-11-18T16:45:30","modified_gmt":"2016-11-18T21:45:30","slug":"4-transformations-in-digital-advertising-that-every-marketer-should-know-you-wont-believe-number-3","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/4-transformations-in-digital-advertising-that-every-marketer-should-know-you-wont-believe-number-3\/","title":{"rendered":"4 transformations in digital advertising that EVERY marketer should know. You Won\u2019t Believe Number 3!"},"content":{"rendered":"

“Jerry and David’s Guide to the World Wide Web” was founded in 1994.\u00a0 Four years later, it was the most popular homepage on the internet, had ~55% market share of web searches, and had changed its name to “Yahoo” [1].\u00a0 However, Yahoo would go on to have a slow, painful death\u2014from its peak valuation of $125 billion before the dotcom crash in 2000, Yahoo went on to rebuff a $45 billion buyout offer from Microsoft in 2008, and ultimately was sold to Verizon in 2016 for $4.8 billion–less than 4% of its value in 2000.<\/p>\n

Where did Yahoo go wrong?\u00a0 A lot of places, it turns out\u2014but more broadly, the rise and fall of Yahoo perfectly illustrates four key shifts in advertising digitization\u00a0over the past decade.<\/p>\n

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  1. Traditional to Digital Advertising<\/u><\/strong><\/li>\n<\/ol>\n

    Yahoo survived the dot-com crash and emerged as one of the largest and most profitable internet companies of the era.\u00a0 The reason is because Yahoo was a pioneer of web advertising, which consisted of banner ads on its news sites and sponsored listings on its search pages.\u00a0 Ad sales at the time were driven by ad agencies, which manually created ads on behalf of brands and managed the distribution of those ads to reach their target audience.\u00a0 Yahoo formed deep relationships with agencies through its high-traffic, high-quality web properties\u2014the self-described \u201cTimes Square of the Internet.\u201d\u00a0 These relationships allowed Yahoo to capture $1 billion in ad revenue out of the $8 billion total digital advertising market in 2000 (~13% share) [2].\u00a0 As total advertising dollars continued to shift from traditional to digital media, Yahoo capitalized on these agency relationships, growing to $7 billion of revenue by 2008.<\/p>\n

    Unfortunately for Yahoo, subsequent transformations in digital advertising proved more difficult to navigate.<\/p>\n

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    1. Desktop to Mobile Traffic<\/u><\/strong><\/li>\n<\/ol>\n

      Yahoo\u2019s core strength was in its display properties\u2014homepage, search, mail, news, sports, and finance.\u00a0 These products were designed with a focus on desktop computers, and Yahoo failed to adapt as mobile traffic grew from almost nothing 2008 to over 50% of total traffic in 2015 [3].\u00a0 Yahoo was one of the last internet giants to embrace mobile\u2014only within the past couple of years has the Company invested meaningfully in app development, and revenue languished as a result.<\/p>\n

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      1. Local to Social Media<\/u><\/strong><\/li>\n<\/ol>\n

        At the same time, the nature of user behavior on the internet was shifting.\u00a0 While Web 1.0 was characterized by user consumption<\/em> of content, Web 2.0 brought a shift towards user production<\/em> of content via the rise of social media.\u00a0 Yahoo made a half-hearted attempt at a social product, launching Yahoo 360\u00b0 in 2005, but it never gained traction and was shuttered in 2009 [4].\u00a0 Over that time period, US ad spend on social media had already grown to $1.5 billion and was one of the fastest growing segments of digital advertising\u00a0[5].<\/p>\n

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        1. Managed to Programmatic Advertising and Real-Time Bidding (RTB)<\/u><\/strong><\/li>\n<\/ol>\n

          Perhaps the most crushing blow to Yahoo\u2019s market position was the transition in the digital advertising industry from managed to programmatic advertising.\u00a0 Managed ad campaigns consisted of advertisers deciding, for example, that they wanted their ads shown on Yahoo\u2019s homepage every day for a month, perhaps during an important sale or because they wanted to associate with the Yahoo brand.\u00a0 Programmatic advertising and RTB shifted the purchasing process such that advertisers could know a user\u2019s demographics and behavior in advance of showing the ad, and could thus target users based on who<\/em> they were, not just where<\/em> they were browsing.\u00a0 This democratized digital advertising\u2014no longer did websites need brand cachet in order to be valuable to advertisers, they simply needed the right sets of eyeballs, and could sell those eyeballs through Google.\u00a0 This drastically reduced the bargaining power of Yahoo compared to smaller internet properties and diminished its technology leadership since Yahoo lacked strong programmatic technology compared to competitors like Google, facebook, and AppNexus.<\/p>\n

          What Should Yahoo Have Done?<\/u><\/strong><\/p>\n