Will Yahoo Gemini Be A Valuable Native Advertising Asset For Verizon?
In Feb 2014, Yahoo announced Gemini — its unified marketplace for mobile search and native advertising. It looked promising and Yahoo seemed eager to streamline its ad business.
And recently, Verizon (largest wireless operator in the US) bought Yahoo’s core internet business for $4.8 billion. Previously, Verizon had already acquired AOL for $4.4 billion.
The message is clear…
Verizon is serious about digital advertising and it’s betting on growing digital content for improving its presence.
With the slowing traditional communication business, these huge investments make sense. In the future, Verizon has to shift from users (standing at 112.6 million in the first quarter) to advertisers as its client base.
But will Verizon be able to compete with the current kings of online advertising, Google and Facebook? Can the AOL/Yahoo ad tech and traffic be monetized well enough to take on these behemoths?
Let’s analyze what this acquisition means for native advertisers and if Verizon stands a chance in the advertising industry as it currently stands.
The ad technology capabilities that were available to Verizon before the Yahoo acquisition
Before we come to Yahoo, let’s look at a key component of Verizon’s previous acquisition, AOL:
AOL had previously made a series of investments totaling $638 million. The ad tech assets acquired included Adapt.tv, Gravity, Convertro and Vidible.
These complementary ad tech pieces are incredibly useful to advertisers for segmenting and targeting audience on the smaller screen. With AOL’s revenue growing to $856 million from selling ads for third party sites, the ad tech business was doing great.
A Verizon spokesperson mentioned how this AOL asset fits into their strategy, “We do expect AOL’s advertising technology capabilities to be central to expanding our [over-the-top] video and IoT services.”
The AOL platform was touted to even fix the broken delivery on mobile with more data and context.
Although AOL also possesses huge content assets in Huff Po, TechCrunch and Engadget…
Its failed attempt with SugarString makes it doubtful if Verizon had special publishing plans with AOL.
But Verizon (sort of) was thought to take on Facebook and Google by leveraging its data and AOL’s automated ad inventory.
A year forward, advertisers aren’t exactly clear how Verizon is combining its data with AOL ad products. Yet we’ve heard the news of Verizon acquiring Yahoo.
How do Yahoo/AOL/Verizon fit together?
Yahoo and AOL are web 1.0 rockstars.
And even with their fading relevance and overlap between their audiences, Verizon will become the biggest web network after this merger.
Besides having 1 billion users (with 600 million on mobile), Verizon has cited Brightroll, Gemini, and Flurry as valuable assets justifying its acquisition of Yahoo.
With the coming together of their huge datasets and ad technologies, here are 3 predictions:
1. Yahoo/AOL will present integration challenges
Given that they sell the same stuff to advertisers, the integration of Yahoo/AOL will be a challenge. There are overlaps and unnecessary redundancies in many of their business teams.
As the deal closes in Q1 2017, Adexchanger speculates layoffs and consolidation of Yahoo’s sales force. Robert Peck, an analyst at SunTrust Robinson Humphrey had earlier said that 40% of Yahoo’s sales and administrative staff from its 9,000 employees could be laid off.
Yahoo inventory might get sold programmatically with the help of AOL.
2. They could track users better, but will they be allowed to?
Mr. Wiener points out interesting details in the combined partnership of these 3 companies:
- Verizon knows where you are,
- Yahoo and AOL know who you are (in many cases).
Therein lies the massive location-based advertising and internet of things (IoT) opportunity we talked about in the previous section.
But how can Verizon leverage this data without upsetting its customers?
Especially given that Verizon has recently paid a $1.35 million fine for tracking web browsing of its customers through “supercookies.”
Now, with its mammoth reach on the internet, Verizon has to handle user data with utmost care (privacy concerns on the internet are already soaring high).
Even a few consumer complaints can result in a massive backlash and Verizon getting hammered by the FCC.
3. Yahoo’s problems with monetization
Yahoo’s ad technology has been below average…while Tim Armstrong has made a name for monetization at AOL.
So you can expect Yahoo’s content and reach to be leveraged with AOL ad tech. While, the Yahoo ad technology might be dropped altogether.
Everything is a speculation at this stage. But Armstrong did say “Theoretically, we want to have fewer, simpler, bigger platforms for customers. At a high level, that is one of the things we are going to spend time on.”
The AOL One solution promised ‘multiple advertising technologies in a simple, open and intelligent solution’ anyway.
Now that we’ve had an eagle’s eye view of the Verizon acquisition, let’s zoom into the opportunities and challenges with the prominent native advertising offering by Yahoo — Gemini.
Yahoo Gemini only allows Owned-and-Operated properties
Yahoo and AOL together account for 2.2% of digital ad revenue globally. This is nowhere close to Google at 31% and Facebook at 12%.
Further, Yahoo Gemini has taken an owned-and-operated only (O&O) stance.
That means networks such as Native Ads are not allowed to sub-syndicate and resell Yahoo’s services to advertisers and our publishers.
Can such a private ad marketplace actually tackle giants in Facebook and Google?
Let’s look at some numbers to find out.
In 2014, Google made 68.3% of its revenue from advertising over business websites. But 21.2% of revenue came from advertising over Google’s network member websites. And the split has been almost the same since 2001.
Image from: revenuesandprofits.com
Facebook has also been aggressively pushing its audience network to mobile web placements.
So it’s difficult for Gemini to win against Facebook/Google with solely O&O properties.
Now there are two potential counter-arguments that you might have to support Yahoo Gemini’s O&O stance.
1. The exclusive access to O&O helps in reducing fraud and increasing quality of ads
Yep, with ad fraud expected to cost $7.2 billion in 2016 that makes sense. Also, AOL and Yahoo have been previously touted to contribute to this fake traffic. And Yahoo was already on the radar for compromising ad quality and non-human traffic.
Image from: kalkis-research.com
With O&O, Yahoo gets more control and can work towards higher quality/performance. It might restore confidence to buy their ad inventory.
But it’s difficult for Verizon/AOL/Yahoo to keep up with the huge audiences that Facebook and Google have. Especially given that both of these giants accept resellers and are serious about combatting ad fraud themselves.
- Facebook shut down Atlas after finding a lot of valueless inventory. Further in its testing, Facebook found that native and video ad formats were providing significant value.
- Google has a dedicated anti-fraud team.
2. Yahoo had planned to open Gemini beyond Owned-and-Operated
What if Yahoo can fight ad fraud and scale Gemini at the same time?
In Jan 2016, Yahoo opened programmatic native ads on the BrightRoll Exchange. They would then be accessible beyond Yahoo’s O&O properties.
Tod Sacerdoti, Yahoo VP of display and videos ad products (as well as CEO/founder of BrightRoll), said that opening native beyond Gemini and O&O is the “next step in the journey” of integrating BrightRoll’s programmatic offering into the broader core assets of Yahoo.
Yahoo’s market share is already too little and maybe by the time native is opened beyond Gemini it will be too late.
AOL and Yahoo are technology companies as well as publishers
Did you note that we didn’t focus on the huge content portfolio that Verizon has created for itself with AOL/Yahoo?
That’s because it puts Verizon in a rather tough spot.
See, content is a tricky business — it’s costly (Yahoo lost $42 million on 3 original shows) and it’s notoriously hard to scale.
Google and Facebook house world-class engineers. But Yahoo transitioned from a media company to a technology company only recently (and failed maybe?).
Facebook and Google have both crafted terrific business models where they don’t have to do content production. They have “found extremely profitable and clever ways of skimming the cream off of the creativity of others.”
It will be interesting to see if Verizon wants to foray into the complex content game as well.
So was the Verizon acquisition of Yahoo justified?
In terms of valuation…
Analysts predicted Yahoo’s valuation between $4-$8 billion. And Verizon has achieved a great reach and decent revenue by acquiring both AOL and Yahoo under $10 billion.
But will Verizon be able to merge these two fading stars successfully into an attractive deal for advertisers?
It’s hard to imagine…
Unless Verizon has planned another major acquisition (think Twitter/Pinterest) up its sleeves.
What do you think: Is Yahoo Gemini underappreciated? Will Verizon rise as the third advertising platform after Facebook and Google?