How Behavioral Retargeting Could Save Yahoo

So what happened to Yahoo? Last week, the online giant announced slow ad sales; Wall Street responded by forcing Yahoo stock down 11.2 percent. There's been a flurry of speculation as to what went wrong, with suggestions ranging from launch delays in the Panama ad platform, to a trickle-down from woes in the financial and automotive sectors. And for what it's worth, I think most of the speculations have real validity.

But pointing to any one problem misses a crucial underlying issue that's giving Yahoo trouble. That issue is the disconnect between Yahoo's search engine and the Yahoo Publisher Network. Simply put, Yahoo's hurting because its publisher side refuses to learn from its search side.

My reasoning comes from an examination of what's going wrong at Yahoo, and what's going right. As Majestic Research's John Aiken told the New York Times, Yahoo's search arm seems to be doing just fine. It's the publisher side--which is in the business of delivering graphical display ads--that's to blame for bringing ad sales down. (It's also noteworthy that analysts see Google as still on the rise; Google is much more search-centric than Yahoo is.)



Meanwhile, a recent Reuters story links Yahoo's troubles with the pain that publishers of all kinds--including The New York Times and Dow Jones--are currently feeling . The trend across publishers would imply that Yahoo's problems don't originate with Yahoo. They originate with problems faced by publishers everywhere--including Time Warner, which is busily trying to sell off 18 magazine titles as I write.

What's the reason for the publisher slump? Marketing strategist Laura Ries, president of Ries & Ries (quoted in the Reuters article), suggests that while ad spending overall hasn't dropped, marketers are shifting ad spend "all over the place, because they're looking for something that works." And if they're shifting ad spend away from publishers, then they see the publisher model as something that doesn't work. By keeping their money in search advertising, they're demonstrating their faith in search as a medium that does.

To get the publisher model back on track, then, publishers need to make display ads work as well as search ads do.

How could publishers close the gap with search? There are several avenues that they could take; for now, I'd like to focus on just one. Publishers need to make their ads more targeted.

From the very start, search has been a personally targeted medium. Each searcher typing in a query has a unique question in mind, and a unique Web page and online experience that will satisfy his/her needs best. Both the search engines and search marketers understand this; that's why search's last 10 years has been the story of engines, and search marketers, trying to improve their understanding of who's searching, and of how to reach out to that exact person in the most effective way. Search's personalization methods range from delivering the listings that are most relevant for a precise keyword, to serving up geographically targeted search landing pages.

And search's targeting works wonders, because consumers respond to you based on how relevant they feel you are to them. The more targeted your outreach is, the more personally relevant you can present yourself as being--and the more your customers will respond.

But in stark contrast with search ads, display ads are rarely personally targeted. They're certainly not personalized in print; and they're rarely well-targeted in digital display ads, either. Instead, digital ads are delivered to wide segments of online viewers in the hopes that someone, somewhere, will respond.

There's no reason that the publisher model can't change. And search-style thinking, and search itself, can lead that change. The new method of behavioral search retargeting, for example, uses individualized search data to deliver highly targeted ads to the most conversion-likely customers. Another example of the new targeting is MSN's behaviorally targeted display ads. MSN's display ad targeting isn't search based; but the thinking behind it clearly derives from the same source as MSN's targeting-heavy search platform, adCenter. This kind of fusion of search thinking and display ad presentation will be crucial for the ongoing health of the publisher model.

And Yahoo, which is a clear leader in both the search and publisher spaces, is in a unique position to close the gap. So far, it hasn't gone very far in that direction--hence its ad troubles in Q3 and stock troubles last week. But by letting its search thinking guide its publisher side much more, Yahoo could have better success in Q4--and a stellar year in 2007.

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