The Crux of Marissa Mayer’s Problem at Yahoo

by Jonathan Berr | July 17, 2012 12:24 pm

The Crux of Marissa Mayer’s Problem at Yahoo

The media honeymoon for new Yahoo (NASDAQ:YHOO[1]) CEO Marissa Mayer[2] is in full bloom. Too bad it’s not going to last.

Mayer, who is pregnant[3] with her first child, will also have to deliver for shareholders and Yahoo’s cantankerous board of directors. That’s not going to be easy because Mayer has never been the CEO of anything, though she does serve on the board[4] of Wal-Mart (NYSE:WMT[5]). Still, turning around Yahoo will be a monumental task given the company’s history of poor management.

Mayer’s first statements about her new job raise a plethora of questions. For instance, will Yahoo continue with a strategy that I believe is futile — trying to be all things to all people by offering everything from fantasy sports to email to stock quotes? No website being developed today would offer such a broad array of services.

What about additional job cuts? The company seems bloated. Yahoo generates $353,977 in revenue per employee and $39,958 in net income. The industry averages are $11.3 million and $2.18 million, respectively, according to statistics compiled by Reuters.[6]

Eventually, Mayer, who was instrumental in Google’s (NASDAQ:GOOG[7]) rise to prominence, will have to explain what she means by such vague statements as her pledge to Yahoo users to create[8] “something valuable and delightful that makes them want to come to Yahoo every day,” or her desire to innovate[9] “in some of the verticals like finance, sports, video and messenger.”

But Mayer’s toughest challenge lies with the question of content.

For years, the Sunnyvale, Calif., company has had an uneasy relationship with publishers. On one hand, Yahoo is their friend and sends them traffic through links on its popular website. It has formed content-sharing agreements with Walt Disney’s (NYSE:DIS[10]) ABC News and Comcast’s (NASDAQ:CMCSA[11]) CNBC. At the same time, Yahoo competes for those same eyeballs with original content at its popular verticals such as Yahoo Finance and Yahoo Sports.

The key question the new CEO faces revolves around the creation of original content.

In the coming weeks, Mayer will have to clarify how important original content is to the Yahoo user experience. Google News, which she was instrumental in creating, is strictly a collection of links — it doesn’t have any articles that you can’t find elsewhere.

Even though advertisers are willing to pay higher rates for original content, Google can afford to avoid original content because its revenue comes from search rather than the display advertising Yahoo relies on. The problem is that Yahoo’s share of that market is slumping.

Facebook () overtook Yahoo as the market share leader in display advertising in 2009 and has widened its lead ever since. The latest comScore data shows[12] that Facebook had 31.2% share of display ads versus Yahoo’s 10.1%. As advertisers’ reluctance to be associated with the pioneering social network evaporates, Facebook will continue to gain business at Yahoo’s expense.

For Mayer, this creates a dilemma. Advertisers won’t be impressed by more content partnerships that lead to the dissemination of articles that are widely available elsewhere. But adding more original content may alienate publishers that are also Yahoo partners and will increase costs.

In the end, Mayer will have no choice but to add more original content because that’s what rivals including AOL (NYSE:AOL[13]) and Microsoft’s (NASDAQ:MSFT[14]) MSN have chosen to do. That strategy isn’t easy to execute and will take time. Unfortunately, that’s one luxury Yahoo’s new CEO doesn’t have in abundance.

Jonathan Berr does not own shares of the listed companies. Follow him on Twitter @jdberr.

Endnotes:
  1. YHOO: http://studio-5.financialcontent.com/investplace/quote?Symbol=YHOO
  2. CEO Marissa Mayer: http://investorplace.com/2012/07/yahoo-taps-googles-marissa-mayer-as-its-next-ceo/
  3. Mayer, who is pregnant: http://investorplace.com/2012/07/kudos-to-yahoo-for-hiring-a-pregnant-ceo/
  4. she does serve on the board: http://investorplace.com/2012/07/where-are-the-women-board-members/
  5. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  6. according to statistics compiled by Reuters.: http://www.reuters.com/finance/stocks/financialHighlights?symbol=YHOO.O
  7. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  8. Yahoo users to create: http://www.nytimes.com/2012/07/17/technology/marissa-mayer-hopes-to-brighten-user-experience-at-yahoo.html?_r=1&hp=&adxnnl=1&adxnnlx=1342533721-ETb5MMQp5ipprkDrt8RyLg
  9. her desire to innovate: http://www.ft.com/intl/cms/s/0/70b6115a-cfb5-11e1-bfd9-00144feabdc0.html#axzz20tMUhIE4
  10. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  11. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  12. comScore data shows: http://www.comscore.com/content/search/cse?q=yahoo&cx=006838696978854705156:gvzzufutdk8&cof=FORID:9;NB:1&ie=UTF-8&searchSubmit=Search
  13. AOL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AOL
  14. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT

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