Yahoo aims to more deftly blend ads with content

CALIFORNIA: To Marissa Mayer, the chief executive of Yahoo, fashion magazines like Vogue and InStyle have achieved the holy grail of advertising.

"The ads in those magazines are as interesting as the photo shoots and the articles," she said in an interview last week at the company's Silicon Valley headquarters. "I miss the ads when they are not there. I feel less fulfilled."

This year, her goal is to start making the ads on Yahoo just as compelling and just as integrated with the news and information people seek on her company's websites and mobile applications.

One early example: Recipes from Knorr, the soup brand owned by Unilever, are sprinkled around regular articles from Yahoo writers, food magazines and blogs on Yahoo Food, the digital magazine the company started about six weeks ago.

Mayer, who oversaw Google's signature search products for several years, also hopes to develop new search tools and ads geared to mobile users - the company's first steps to innovate in its original business since 2010, when it began a 10-year deal to outsource search to Microsoft.

"We're not sure that a list of links that people have to pick through is the right experience on the phone, and we're going to start to play with context, applications, other ways to address those search needs," she said.

Better, more useful ads would certainly make Yahoo's 800 million monthly users and its legions of advertisers happier all around.

But for Yahoo, much more is at stake. New ad formats that go beyond the company's traditional banner and search ads are its best hope of finding fresh sources of revenue, which it badly needs, after years of decline.

Rebuilding Yahoo's advertising business is an immense challenge that has toppled several previous chief executives.

"They've just hemmed and hawed over the last couple of years, and it doesn't help that they have had executive turnover," said David Cohen, chief investment officer of Universal McCann, an advertising agency that is part of the Interpublic Group of Companies.

Yahoo's rivals are particularly strong on mobile devices, where Yahoo earns virtually no revenue despite the fact that about half its users access its services that way.

Mayer seems undaunted.

"We have had really great success over the course of 2013 in getting in place a tremendous team as well as building and launching new products. And we've got traffic up," she said. Yahoo released popular apps like Yahoo Weather and Yahoo News Digest and new versions of Flickr and Yahoo Mail - though some users were critical of changes to the email service.

"We're very focused on revenue now," she continued. "The path to revenue is really about delivering for advertisers ads that perform in whatever format or setting our users are working in and making those ads really enhancing for the user experience."

In the last few months, Yahoo has laid out several new advertising initiatives.

Some of them make it easier for marketers to use automated programs to buy traditional ads and to take better advantage of Yahoo's data on its users to target their pitches.

However, the company is also beginning to push into two of the hottest areas of Internet advertising: stream ads, in which marketing messages are mixed in with the feed of news headlines and other information, and so-called native ads, which are sponsored articles or photos that resemble regular editorial content.

On Yahoo Food, the Knorr ads, with headlines like "Dear Mac and Cheese: A Love Letter," don't look much different than surrounding articles like "Foods You Didn't Know You Could Fry."

Mayer, who said the digital food and tech magazines had already attracted more than 10 million unique visitors since their introduction in early January, plans to extend the approach to other Yahoo topic channels like news, finance, sports, travel and style.

Yahoo is also using Tumblr, the blogging site it acquired last year, to help brands easily build their own promotional sites with content that can be promoted and shared among Tumblr users. The artificial sweetener Splenda, for example, is dishing up daily ideas for cutting down on calories, such as eating oatmeal instead of granola or using Splenda instead of sugar to sweeten chicken wings.

When stream and native ads are done well, they can be quite effective.

But too many of Yahoo's stream ads are unrelated to the content around it, said Dan Greenberg, chief executive of Sharethrough, a software company that integrates brand content from marketers like Intel, Pepsi and McDonald's into the feeds of publishers like Forbes and Time Inc.

"They've made it native in form, but not in function," he said. "You're going to erode consumer trust."

Mayer also intends to create new mobile tools for consumers and advertisers, taking advantage of a provision in the company's search contract with Microsoft that permits Yahoo to go its own way on mobile.

On Wednesday, the company announced Gemini, a platform that allows advertisers to buy mobile search ads and Web and mobile stream ads through a single marketplace.

Creating new revenue streams from scratch is difficult for any company, although Facebook, which turned itself into a mobile advertising juggernaut in little more than a year, proved it can be done.

After recent meetings with Yahoo executives, "we're encouraged by the kind of direction they're heading in," said Cohen, whose ad agency works with major brands like Coca-Cola, Johnson & Johnson and Chrysler.

So far, investors have also cut Mayer some slack because of the soaring value of Yahoo's stake in Alibaba, a Chinese e-commerce company.

But Yahoo's own financial performance has been disappointing. Revenue fell 6% last year, and a key measure of the company's operating profits fell 11%.

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