Direct Marketers and Brand Advertisers Just Don’t Mix

Why can’t Yahoo get it right?

In recent weeks, headline stories at advertising-related publications have trumpeted Yahoo’s latest business model. In his most recent conference call with investors and analysts, new CEO Terry Semel said that the company will continue to develop revenue streams beyond advertising, working to customize direct marketing services to companies and increase consumer subscription services.

This sounds great. But if you’ve been following Yahoo, you’ll quickly note that this is exactly the same speech that the company has made regularly in every quarterly earnings announcement since mid-1998. Yet advertising revenues still account for more than three-quarters of Yahoo’s overall revenues. Despite its best intentions, the company has not become a direct marketer.

Although the news from Yahoo is not all bad (especially in comparison with erstwhile competitors, such as Excite), it also speaks to a persistent problem among Web advertising and marketing firms: The transition to direct marketing has not proven easy.

Three years ago, Yahoo made a small acquisition that was supposed to be a big part of its direct marketing plans. The company bought Yoyodyne, which was an innovator in direct marketing promotions on the Web. As direct marketers, my Yoyodyne coworkers and I were sold on a tantalizing concept. Yahoo had realized that there was something to this direct marketing thing. The sleeping giant had finally awoken.

At the time, the leaders at Yahoo laid out a vision that included three primary businesses, of which advertising was only one. The three were (you guessed it): advertising, paid subscriptions, and direct marketing.

Yahoo’s subsequent troubles with integrating direct marketing capabilities into the overall advertising mix are echoed across the Internet business: The sophisticated early leaders are plagued with problems, and start-ups too numerous to mention are failing outright. Most notably, DoubleClick has led the field in experiencing growing pains (witness the privacy-related scrutiny it endured) as it tried to graft direct marketing onto its advertising capabilities.

A number of the problems are self-inflicted. Yahoo’s problems were probably similar to those of any big company attempting to change direction quickly. At most big companies, inertia is a difficult burden. When 30-odd direct marketers were brought into a 700-strong organization steeped in the ways of brand advertising, it’s understandable that the philosophy of the larger group dominated, and the direct marketing values were subsumed.

In addition to the twin hurdles of overcoming its brand advertising culture and dealing with a corporate structure that was not designed to easily incorporate company-wide direct marketing initiatives, Yahoo may have been dealing with a larger problem. Despite the focus of strong managers and despite the acquisition of a group of incredible direct marketers, Yahoo’s problem may be explained by a very simple notion: Perhaps brand advertising and direct marketing don’t mix.

In the offline world, media companies are very rarely found in both the brand advertising and direct marketing camps. Television broadcasters tend not to be the same people as the cataloguers. Efforts to bridge this gap, such as NBC’s effort with NBCi, haven’t exactly sizzled.

Direct marketing may just be a different way of looking at the world — a view that is inconsistent with the worldview of a brand advertiser. As a direct marketer, I tend to think that brand advertisers are artistic, creative types, while direct marketers are more devoted to the science of marketing and the raw truths we see in numbers.

Of course, I could be reading the numbers in this earnings report upside down.

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