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Wednesday, September 24, 2008

APT, AOL - alphabet soup for Yahoo!

There were two interesting news items about Yahoo! today and I thought I'd pass them on and provide my opinion.

Talks with Time Warner?

The Yahoo! board has reportedly approved moving forward with talks with Time Warner (TWX) to buy AOL.

This is certainly good for Time Warner. AOL is a premier web property but, much like Yahoo!, its potential seems to remain unfulfilled. It is unlikely Time Warner can unload the Internet access business on Yahoo! so that millstone will remain around CEO Jeff Bewkes neck for the time being.

The more interesting question is whether Time Warner would be willing to sell Platform-A, their online advertising network. This is also unlikely as that division is one of the largest ad networks on the web and is profitable as well.

My fear is that the new board will drive Yahoo! into a bad deal. AOL is a virtual duplicate of Yahoo! only, in my opinion, not quite as good and not quite as deep in terms of what it offers. What possible benefit would Yahoo! derive from adding AOL to its properties? It would just be a huge distraction when management needs to focus on the properties it already owns.

Is Carl Icahn a one trick pony whose only tactic is to engineer mergers and acquisitions? If this is what's being pushed on Yahoo! by the new board members then we can expect to see the stock in single digits soon. Keep a close eye as this will provide a wonderful shorting opportunity (as long as Yahoo! isn't on the SEC's do-not-short list yet).

New Ad Platform --

Today was also the debut of APT, Yahoo!'s new ad platform.

Yahoo! is taking some cues from Google's wide-open advertising products. Much like AdWords, APT provides online tools for advertisers to control campaigns, measure results, etc. Much like AdSense, it provides a way for publishers to easily monetize their inventory of ad slots.

APT, however, is more oriented toward banner ads. This has traditionally been Yahoo!'s strength whereas search ads have traditionally been Google's strength.

In the Google world, it's all about keywords. Advertisers bid on keywords and, if their bid is high enough, their ads are shown on web pages or search result pages where those keywords are displayed.

APT works the other way around. APT can show an advertiser available inventory and provide anonymous data on visitors to the pages, including behavioral and geographic information. This allows advertisers to more accurately target the most likely customers. The promise of more highly targeted ads is higher rates for publishers and, as the owner of the platform, Yahoo!

As an added bonus, there are features to support cross-selling and rate card tools.

Yahoo! also indicates that they will make their APIs available so other software developers can build new functionality around the platform. Custom reporting is an application that comes immediately to mind.

What Yahoo! is doing is attempting to define the next generation ad platform by extending the capabilities we have seen in some of the other big platforms maintained by companies like DoubleClick (now owned by Google), ValueClick or Tribal Fusion. Putting all the tools online combined with data on the characteristics of the traffic for specific web pages is actually a pretty powerful concept.

Yahoo! is opening APT initially to newspaper publishers the San Francisco Chronicle and San Jose Mercury News. It is expected APT will bring on other partners, advertisers, agencies, and ad networks in a phased roll out. Eventually it will be expanded to include search and mobile ads.

Yahoo! tried to jumpstart their advertising momentum by developing Panama which was supposed to make their search advertising competitive with Google. We know that didn't pan out. There is a risk APT won't pan out either but it's a good idea and I wish them luck with it.

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