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Jerry Yang's do-or-die ad play

Yahoo CEO looks to save his job with a new display advertising strategy.

By Devin Leonard, senior writer
Last Updated: September 24, 2008: 5:02 PM ET

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Embattled Yahoo CEO Jerry Yang hopes a new ad platform will bolster the company's bleak prospects - and his own.

NEW YORK (Fortune) -- At a glitzy press conference in New York on Wednesday, embattled Yahoo (YHOO, Fortune 500) CEO Jerry Yang unveiled an ambitious new online advertising service that could be his last chance to preserve his company and keep his job.

Introduced by actor Jon Hamm, star of AMC's award-winning drama "Mad Men," about Madison Avenue in the sixties, Yang said the long-awaited new service - an online marketplace for display advertising - will be called APT, a word he said fit since it describes "someone who is able to learn quickly and easily."

Yang said the new service would be simple to operate and leave customer sites with more time to sell their ad inventory. More important, he insisted that APT would radically alter the online advertising business. "Our new platform is a game changer," Yang said. "We believe it is revolutionary."

APT will enable Yahoo to share display inventory online with newspaper publishers like the San Francisco Chronicle and the San Jose Mercury News, both of which are already using the service. Yang claims that Yahoo and print publishers will be able to bundle and sell these ads at a higher price using Yahoo technology that can target specific audiences. Eventually, Yahoo hopes to also sell search ads on APT. Yahoo and the publishers will share the revenues from these transactions.

"We sell lots of ads at low rates," said William Dean Singleton, CEO of MediaNews Group, owner of the San Jose Mercury News. "If we could sell more ads at higher rates, you wouldn't be hearing all this talk about the woes of the newspaper industry."

A high-stakes move

APT seems more intended to counter gloomy talk about Yahoo's future than to rescue newspapers. The company faces a host of challenges after takeover talks with Microsoft (MSFT, Fortune 500) fell apart earlier this year. Since mid-July, Yahoo's share price has fallen 16% to about $19. That's 38% less than the $31-a-share offer that Microsoft made in February.

Yang has been faced with the defections of top Yahoo executives and a growing chorus of skepticism about his strategy. APT is unlikely to change the latter. Margaret Clerkin, head of the invention unit for WPP's Mindshare, was surpised by the hype surrounding the launch of the new service. "I wouldn't call it groundbreaking," she said. "It's an ad network. It's the same thing Platform A is doing. It's the same thing 24/7 [Real Media] is doing."

"Anything that makes sellng display ads easier is worthwhile," says David Hallerman, senior analyst at eMarketer. "One of the may reasons paid search has done so well is it's relatively easy to buy. Display isn't."

But Hallerman adds that Yahoo is rolling the service out just as the economy is headed south and marketers are pulling back on their ad spending: "We are at a point where a lot of ad money is being pulled off the table."

Yang needs better results fast to mollify his shareholders and employees. In March, the company vowed to grow revenues from 2008 to 2010 by 25% annually, to $8.8 billion. But it's not clear how the company will meet its own aggressive targets. Yahoo's revenues grew only 8% last year.

Yahoo is banking on a deal with Google (GOOG, Fortune 500) to improve its numbers. As part of its effort to fend off Microsoft, the company announced a deal in June with Google that would effectively outsource much of its search operation.

The agreement calls for Yahoo to run Google ads next to its own search results in exchange for a cut of any ad sales generated. Yahoo predicts the deal would generate $800 million in annual revenue.

The deal, however, is not a fait accompli. The Justice Department, with the encouragement of Microsoft and the Association of National Advertisers, among others, is investigating its antitrust ramifications and could move to block it.

Meanwhile, Yahoo's share of the display advertising market is slipping. Last November, according to comScore, Yahoo was the number one display ad publisher with 19% of the market. But in June, Yahoo's market share fell to 10%, giving News Corp (NWS, Fortune 500)'s Fox Interactive Media, owner of MySpace, the lead.

Hallerman says Yahoo charges considerably more for its dispay ads than MySpace. Stilll, the dip is worrisome for Yahoo because display advertising generates an estimated 50% of its revenues.

Even before today's announcement, some analysts had all but written off the new service. On Sept. 10, Bernstein Research analyst Jeffrey Lindsay wrote that he wasn't swayed by Yahoo's plans to create a "one-stop shop" for display and search advertising. He says search and display ads are rarely sold together. Lindsay fears that Yahoo will end up selling both at a discount.

He argues that investors would benefit more if Yahoo sold its search operation to Microsoft. Yahoo's unwanted suitor made such an offer this summer. But Yahoo turned it down in July.  To top of page

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