Advice for Yahoo’s Jerry Yang

Terry’s out, and Jerry’s in.

This week, Yahoo announced that Jerry Yang, one of Yahoo’s founders, has replaced Terry Semel as CEO. Based on Wall Street’s reaction at the time I’m writing this column, investors don’t think Yang is the right person for the job, or even an improvement over Semel. The financial press is skeptical, pointing to Yang’s managerial inexperience (he’s 38) and the fact he’s an insider who supported strategies implemented under Semel’s watch.

Many within the PPC (define) advertising industry are divided as to whether Yang is the right person for the job. Part of the management shakeup involves Susan Decker, who moves from CFO to president. A key question is whether Yang is sufficiently motivated and has enough leverage to make significant changes. As CEO, you have a tremendous amount of leverage if the employees respect you. I believe most Yahoo employees respect Yang as an entrepreneur and someone who has had vision in the past and can again. He’s motivated by pride in his creation, not just because he and cofounder David Filo own a 10 percent stake in Yahoo (currently worth some $3.8 billion). It was their baby when they founded the company, and they’ve stayed and remained active in Yahoo’s business.

But I think they and others have missed the opportunity in search, the core of their business and the core of why Yahoo was founded as a human-powered directory.

Today, some advice for Yang, Decker, and the rest of the Yahoo executive team. This advice is not only my opinion, but an amalgamation of the opinions of many within the search and display advertising industry who have shared their thoughts.

Invest in Search

Essentially, many folks I’ve talked to on LinkedIn and other discussion boards fall into three camps. Camp A says Yahoo should give up on search and focus instead on display media, continuing to acquire and aggregate properties. Camp B (of which I’m a member) believes search is a critical catalyst for any media company or network. The level of targeting it provides, as well as the automated ad management systems (such as future versions of the Panama API (define) and Right Media for display advertising) will be key to maximizing revenue and yield in the future. Camp C thinks Yahoo should be sold to another company because the problems can only be solved through a total cleaning of the executive house.

Regardless of the fact my firm manages search and exchange-driven media, the primary reason I’m in favor of Yahoo hanging onto and investing in search is because it has so much display inventory that could be better targeted with voluntary user-profile data. For example, Yahoo’s entire e-mail banner inventory is currently used for internal promotional banners or sold as B-grade or remnant inventory to advertisers whose banners get pretty annoying after the hundredth impression. Wouldn’t it be nice to see relevant advertising based on searches you did in the last few hours or days? Yahoo Messenger could be ad-supported in the same way. Yahoo Answers is really all about searching for information using humans, a model that was key to the Yahoo launch in 1994 and could be used to better target ads today.

Yahoo has an opportunity to bring advertising relevance to a much higher level by transitioning the behavioral targeting it’s already embraced in the CPM (define) based ad world to the performance-marketing side of the business: the Yahoo Panama Direct Traffic Center (DTC).

Yang shouldn’t be afraid to fire a bunch of people, including senior managers. Sure, there’s a talent shortage. But based on the feedback I’m hearing, there are a few bad apples in the organization who are more interested in politics and protecting their personal interests by saying no or simply not responding to requests (internal and external) than they are in creating a killer company. Being big doesn’t mean you can’t be an innovator.

Yang and Decker should meet with their search advertisers personally. They’ll find we’re a diverse bunch with diverse needs. We range from local businesses to million-dollar-a-month spenders, from in-house big spenders to those who have assigned search marketing responsibility to SEM (define) or Madison Avenue agencies. They’ll start to recognize those advertisers who will be long-term players in the auction-driven media markets. By understanding winners’ needs, they’ll be able to focus development and support efforts where they belong. They must decide who the innovators are and offer them opportunities to influence product development and participate in beta tests. They should select beta test clients instead of asking them to pay for the opportunity to be offered betas.

If their most sophisticated clients ask for changes in advanced match (better match-type control) and match-driver and report we need control over the syndication network, even if “ordinary” advertisers aren’t providing that feedback — listen. In an auction, the more sophisticated advertisers have the staying power to keep spending and will be the ones most likely to try new modes of targeting, such as behavioral.

Yang and Decker have many challenges ahead that require some hard decisions. Yahoo is a great company and under the right leadership can accelerate back into a leadership position, instead of being relegated to follower status.

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