Yahoo was done in by arrogance

Company's inability to grow revenue can be traced to inflexibility with advertisers

Yahoo will report third-quarter earnings after the market closes on Tuesday.

Trust me, they'll be bad. While analysts generally expect the struggling Internet pioneer's display-ad sales to be, at best, slightly higher than in last year's Q3, don't be surprised to see them come in lower.

That, of course, will put even more downward pressure on the company's share price and market value, and at the worst time possible -- when Yahoo is trying to find a buyer for the entire company (or parts of it).

It's easy to point to the Yahoo board's rejection of Microsoft's $31-a-share offer made back in 2008 as a flash point of foolishness, and there was the ensuing bluster and buffoonery of the Carol Bartz era.

But a fascinating article in the Wall Street Journal reveals that Yahoo for years was inflexible toward advertisers and indifferent to their needs.

This, more than anything, might be the reason Yahoo has been unable to grow revenue -- not its lack of focus and not its lagging technology (though neither of those helped).

From the WSJ:

To reverse its fortunes, Yahoo has been bending over backwards to please its largest ad clients, according to ad executives. ...

[W]hen Yahoo and ad agencies disagree on how many people viewed a particular ad on its sites, Yahoo has been willing to bill the agency based on the agency's numbers rather than its own—something it seldom did before, according to agency executives. "Historically Yahoo was a company of 'No's' and they are slowly becoming a company of 'Yes we can,' which is very refreshing," said David Cohen, an executive vice president at Universal McCann, a media-buying agency owned by Interpublic Group of Cos. ...

Yahoo is also more proactive with its largest advertisers, agency executives said. In prior years, ad agency executives said, Yahoo billed itself as the best place to reach a wide audience and often waited on advertisers to call...

It doesn't take much to read between the lines here. Yahoo for years acted as if it had the upper hand over advertisers because of the huge amount of traffic on Yahoo sites. If you wanted to advertise on Yahoo, you played by Yahoo's rules. If you didn't like it, well, there are a lot of advertisers out there smart enough to know that Yahoo is the best place to advertise on the Internet.

Until it wasn't the best place, something that happened gradually as first Google and then Facebook began grabbing ad dollars that once used to go to Yahoo. Now those companies continue to healthily grow display-ad revenue, while Yahoo barely treads water.

Craig Atkinson is president of advertising company Omnicom Media Group's PHD unit, which the WSJ says "oversees annual ad spending of $4 billion to $5 billion for companies including Starbucks Corp. and Gap Inc."

Yahoo ad executives are in full outreach mode these days, Atkinson tells the WSJ, promising that they are "willing to do what we have to do to win the business." The trouble, as far as many advertisers are concerned, is that it's too late.

While [Atkinson's] advertiser clients still view Yahoo as a way to reach and target "enormous audiences," it's no longer a "must-buy."

It's hard to see how Yahoo can once again become a "must buy." Right now it's more of a "must sell." And that's not going to get any easier as the company continues its downward spiral.

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