Yahoo announced last week that outgoing COO Henrique de Castro would not be replaced. Instead, CEO Marissa Mayer was going to play a more direct role in Yahoo’s ad sales. The news sparked quite a bit of discussion in online circles, but Brian Wieser, an analyst at Pivotal Research Group, has broader concerns.
His open letter to Mayer is one part meditation on leadership in the digital space (a sector dominated by large-scale companies like Yahoo and Google whose CEOs struggle to balance product innovation with media sales and public relations) and one part advice for Mayer, who will now need to lean more on her executives while she becomes “de facto global head of sales.” We thought we’d share Wieser’s lengthly letter to show where the street’s expectations for Yahoo now fall, how Wieser views Yahoo’s fortunes and see what he thinks a modern tech CEO needs to be.
Marissa,
We haven’t met before, but as you may be aware, I have been following your company as a securities analyst for the past couple of years and as an industry participant in agencies and with a venture-funded company for the better part of a decade before that. I’ve even been a user of your company’s service since it was Jerry and David’s Guide to the World Wide Web and maintained an @yahoo.com email address for as long as I can remember. It’s safe to say I’m more than a little bit familiar with your situation as well as the threats and opportunities in front of your company.
Brian Wieser
I listened with interest to your comments this week regarding your decision not to replace your outgoing COO, Henrique de Castro, and to involve yourself more actively into the process of generating revenue for Yahoo. At the time of your appointment as CEO in lieu of Ross Levinsohn, I initially thought you might try to capitalize on Yahoo’s massive user base and establish businesses beyond the “traditional” digital advertising that Yahoo pioneered, perhaps orienting the company more towards e-commerce or other digital services. But your statements this quarter – that you’re not replacing your former COO and that you’ll be more involved with revenue – made clear to me that at least for now Yahoo will remain focused on its core advertising business and that you are aiming to own responsibility for it.
Unfortunately, it doesn’t seems as if the odds are in your favor that current secular weakness driving Yahoo’s results will reverse, but you’ve still got time. The good news is that so long as you are holding onto an asset with wildly varying estimates of value in Alibaba, you have a window of time where investors don’t care much what happens to core Yahoo, which has the potential to be liberating. This is, of course, a critical point. I have learned enough in my time following the industry that we shouldn’t ever rule out that one person can engineer real business transformations. Based on the impressions that people I do know and respect have of you, you may yet prove to be that kind of person. Towards that end, if this is the direction you have decided to move in, the best that your long-term shareholders – some of them clients of mine – can hope for is to see you execute against your preferences as best as possible. It’s in this spirit that I write you to offer some potentially helpful perspective and suggestions.
Most critically, if you are going to aim for successful execution without one central global head of sales, I think you’ll need to immerse yourself in the sales function to the maximum extent possible, and for an extended period of time. Failure to do so will probably create a worse outcome, especially in the highly competitive world of media sales, where your primary competitors each have an individual solely dedicated to this function. Consequently, presuming you will find you need to involve yourself in revenue generation to the degree I think you’ll need to, let’s consider a) some of the obstacles you’ll face b) some myths and under-appreciated truths you’ll encounter and c) the next steps you may want to be mindful of along the way.
The first obstacle will probably be about time and responsibility management. I’m sure you know that taking on even some part of Henrique’s responsibilities means you’ll have to figure out how to partially put aside (or split your time away from) the other functions for which you retain responsibility as CEO, such as risk management, government policy and legal activities, finance, corporate communications, corporate strategy, HR, IT, Yahoo’s relationship with Alibaba and Yahoo Japan, managing your Board’s expectations…oh, and several product functions, too!. You know better than I that there are many capable executives among your senior management team, so let’s take as a given that your colleagues can step up with perhaps a little less oversight and less involvement on your part.
Once that is aside, you’ll be better able to assess the sales functions you’ll need to focus on. If I understand your business structure correctly, a de facto global head of sales and operations needs to be concerned with:
• Vertical sales
• Field sales
• Marketing solutions
• Ad operations and account management
• Media
• Partnerships
• Strategy
Happily, you still have regional business heads (now among your dozen or so direct reports) along with your existing head of partnerships/Chief Development Officer and your CMO/head of media. But oversight of these responsibilities at a slightly more tactical level and co-ordination at a global level is where your new tasks should probably begin. Each of the regional business heads will presumably continue to own sales, solutions and account management functions in their territories (and can probably step up in other areas, too).
However, inserting yourself as de facto global head of sales means the proverbial revenue-buck stops with you (most importantly, your biggest clients will think it does so long as you don’t have a global head of sales). This means that you will need to do fire-fighting on occasion. Your sign-off will be required on more decisions related to exceptional deals on pricing or on a marketing solution than might have been the case in the past. And then you’ll need to explain to other marketers and agencies why they couldn’t get the same arrangement. At the same time, if you don’t make exceptions or provide one-off solutions then you’ll risking becoming even more of a commodity.
More critically, you will ultimately be responsible for establishing or deepening relationships with the biggest advertisers on the planet. Global Chief Marketing Officer relationships probably produced some of your best-paying customers in the past; it would seem likely your dealings with them will cut across territories, as they may otherwise be under-served if regional leaders are only serviced on a territorial basis rather than a global one). Further, as the tenure of a typical CMO (and no less their media directors who will need to be your primary advocates to brand managers) changes with frequency within large companies, you’ll need to get to know a lot of CMOs. For these purposes, as implied above, you will need to compete directly with Facebook’s Carolyn Everson, Twitter’s Adam Bain and Google’s Neal Mohan for time and attention from those CMOs and their global media directors, already a challenging endeavor given the relative appeal of the products each of them offers around the world versus your own. Those individuals can and do delegate, but core to their jobs is being out in the field and being with the clients and agencies as much as possible. And it should go without saying, each of those three executives will be doing their jobs without so much concern for the other functions you have as CEO of a public company.
Perhaps even most importantly, you will have to make these advertisers care about Yahoo once again. Yahoo used to be a really important media partner for large brands. Now, not so much. One thing we found in early 2012 around the time that one of your predecessors was in the process of being removed for resume fabrication was that many advertisers were not upset or angry; the ones we talked to just didn’t care one way or the other! More of your customers should have been at least ambivalent rather than indifferent. It’s ultimately up to you to turn that around.
Marissa Mayer
Now to some myths and under-appreciated truths of the big brand advertising sales business. While of course you gained extensive experience in one area of the advertising industry at Google, what you did there has little to do with what Yahoo historically did well in working with large brands. Google rose to prominence because it built self-service ad products associated with a search engine for which you can take a lot of credit. But the largest brands who spend money with Yahoo primarily expanded their spending with Google because of areas such as YouTube and with Google’s display businesses rather than in search. Towards that end, this is probably going to be mostly new experience. It’s helpful if we review a few pointers which I’ve found are useful for Silicon Valley-types who seek to make their way selling down Madison Avenue.
· Agency Work and Marketing Is All About Aspiration. Marketers and senior media agency professionals went into their lines of work for a reason. Many of the good ones have a genuine passion about what they do, often tied to a belief in the power of brands to connect with and influence people. Others love to be part of the (pardon the Google-y word) zeitgeist and know that the world’s really successful media campaigns become part of it. They know that ultimately they are going to spend half of their time coming up with a cost effective way to put “dots on spots” and the other half of their time justifying it to their client or their client’s boss, but balancing the illusion with reality is key. Know that when you hear someone in the media agency world speaking in “aspiration-ese” it’s because it’s a way to put off staring at a spreadsheet or completing another tedious request that the client’s procurement department has provided.
· The Role of Media Sales Is to Make the Agency and the Client a Hero. Here’s a tip that I picked up on during my own brief stint in a pseudo-ad sales role: the agency account manager and their day-to-day clients are presented with hundreds if not thousands of great things they can do with their money in a year. The challenge they face is how to socialize ideas through the marketer’s organization, where there may be dozen of indirect influencers and decision-makers (some of whom are based in different global regions) involved in a marketing choice. It’s impossible to socialize more than a few big changes or big initiatives (look at how many big pieces of legislation get through the US Congress as an analogy for why this is). The agency account lead and the day-to-day client may only have a chance to push through a few big ideas in the course of a year, and so what they do push had better be good. If you go to the media agency and their client by focusing on what you can do to make sure your big strategic (and perhaps high value to Yahoo) initiative can make the client a hero, you’ve got a better chance of getting prioritized. This means a lot of time with them and probably a lot of budget from marketers. Right now, each of Facebook, Google and Twitter are probably able to make marketers and their agencies into heroes far better than can Yahoo.
· ROI Doesn’t Necessarily Mean What You Think It Means. Your former colleague Nikesh at Google used a phrase during yesterday’s earnings call, which reflects a view we commonly hear out of Silicon Valley: “Advertisers’ ROI Don’t Lie”. I’m afraid I don’t quite agree (the notion that ROI is in some way infallible may be because some outsiders didn’t get their own memo with the point on agency and marketing work being all about aspiration) . The reality is that most big brand advertisers – the customers you need to focus on – like to talk about notions of “return on investment”. This phrase, incidentally, doesn’t necessarily mean a financial return as an investor might think about it; it might be a euphemism for brand lift or something else. Some may even reference a tool they have which produces ROI analyses. Dig below the surface the next time an advertiser talks about this and get a sense of how they built the tool. Then think about all the simplifications that had to be made to get the model to work. And the variables that were excluded because they were too noisy. And the variables that were excluded because they were unknown. Oh, and the general absence of regular or full-scale A/B testing where the brand attempts to go dark on their media campaign for half a year in order to do a more believable test. What you get for many brands is a rule of thumb-based that helps inform or justify the decisions the brand probably wanted to make in the first place. They may have just established the tool to placate their procurement department (them again!).
· Relationships Matter. Did I mention the importance of relationships above? Good. You can’t over-emphasize this. Another reason that relationships matter, in my opinion, is that it’s not a matter of if, but when a mistake will be made at your client’s expense or a favor to go above and beyond will be required on their behalf. Trust that a sales person will sweat the details and that nothing goes wrong and all goes right underpins the buyer-seller relationship. Even in a world of programmatic trading, relationships will still matter, because you won’t be the only vendor with a “programmatic premium” product on offer. And things will still break and need to be fixed, and that’s where sales relationships will matter even more.
OK, so all of this sounds difficult to manage (which it is), especially given the time commitments you’ll still have in your day job as Yahoo CEO. Stumbles will probably occur in some areas as your time is endlessly stretched. But the good news is that the more you immerse yourself, the more you’ll become better informed around some key strategic choices you’ll have to make, such as:
· Build or Buy More Ad Products. Probably the first thing you’ll notice when you get a closer whiff of your clients’ media plans is that they are buying a lot of other properties with ad products that you probably don’t have much of (such as video of course, but you knew that already). The simple outcome here is that you’ll get a better sense of what kind of product range or feature enhancements to your existing products you will need to be more competitive when fighting for RFPs from agencies, and you’ll know whether it’s a buy or build situation more clearly than you would have before.
· Automate All Sales Like Demand and Federated vs. More Of The Barbell. You probably read about Demand Media basically eliminating their traditional human sales people this week in order to focus primarily on selling programmatically. Federated Media (which made news this week selling its content sites to Lin Media and separating its programmatic business) basically did the same thing last year. More publishers will probably go this route, but is it right for Yahoo? You’ll hopefully get a more nuanced sense of the pros and cons of such a choice if you immerse yourself in the conversations that your clients and their agencies are having on this topic. From this, you will likely have a better feel for how aggressively you should push your clients into programmatically accessed inventory for the tonnage they need. It’s my view that they’re going to do it anyways, so why not chase the market share, even if there is a race-to-the-bottom-endgame from it all? But you may find you don’t agree, and in fact, that a balanced offering helps sustain the overall relationships you need.
· Orientation of Marketing Solutions. Perhaps related to the point above, you’ll want to think about how aggressively you want to push into marketing solutions for your clients vs. focusing on media inventory. This could push you in at least two different directions. First, you may find that there is an opportunity to focus on marketers’ needs for engagement with narrowly defined environments both on and offline. If you and your team can manage your relationships with the marketers better than your competitors, you’ll get budget share by (for example) entering into different build / partner / buy situations with print publishers or other kinds of media owners. It could alternately push you into marketing technology, where you might build or partner with products that help marketers use more technology to bridge the data they have in their own enterprises with the management of relationships with customers or prospects.
· Consolidate to Gain Market Share, And Attempt To Gain Pricing Power. It seems every year or two there is a call to combine portals, such as yours, AOL’s and / or Microsoft’s MSN. I’ve been on the record in the past saying this is probably a good idea for the industry in that you would have a media vehicle that would be more essential than the portals are separately, at least so long as unique audiences could be maintained or expanded. Such a vehicle could probably set some standards or pick some winners in the ad-tech space, too. Homepage take-overs are still valuable tactics, and the depth in certain content verticals that might follow from a combination may allow for premium pricing that is not otherwise achievable. But all of this kind of inventory is readily being commoditized, so once again, you’ll have a better sense of whether or not there is incremental value in consolidation from deeper ongoing involvement in sales.
Overall, if you can invest yourself as much as possible into revenue generation for Yahoo, you’ll see the real problems that digital advertising media owners (other than Google and Facebook) face, and with nuance that few CEOs can ever appreciate. You’ll probably come out of it with a clearer view on the right strategies to evolve the company (I’m guessing it won’t involve selling more “native” advertising that are really just banner ads which run across devices) and with luck you’ll be able to execute on them to turn the company around. But it will take an extended time frame, perhaps more like two years rather than one.
Separately, it should go without saying that once Alibaba launches its IPO, investors will very quickly begin to focus on appropriate valuations for the Yahoo’s core business. This may lead to extra noise and distractions for you, your management team and all of Yahoo’s employees, which may lead to further problems we can’t really anticipate. But I’m sure you can tune it out if you need to. Real change will require dedication and focus on a vision that you’ll surely refine with your new responsibilities.
Of course, if it doesn’t work out so well early on, or if other pressures call, you could step aside and bring in another heavy-hitter global sales executive (this time you’ll have clients you can trust to tell you who they would want to see in the role). But that would be another disruption that really wouldn’t serve the company well if you start down this path.
To amplify a point from above, if you only partially invest yourself into ad sales and don’t fully own it, or don’t do it for long enough, it may seem to your clients that decision-making is paralyzed, or that their relationships don’t matter as much as they should. Yahoo was once regarded as one of the top sales teams on Madison Avenue in part because they were so flexible and advertiser-friendly (which meant finding a way to get stuff done). If lines of command aren’t firmly in place and if those lines aren’t adequately responsive, it can all fall apart. Alternately, maybe it plays out that one of your existing team can gradually step up and take on all of Henrique’s old responsibilities without a hitch?
Regardless of what path you choose to take, I would emphasize as a parting point that if you’ve decided your business will rest on advertising, knowing advertising sales as well as you know product management will be critical. Many of my clients will be counting on your success, and on their behalf I wish you the best of luck.
Best regards,
Brian Wieser, CFA
Senior Research Analyst
Pivotal Research Group
