impact of adblockers on yahoo's advertising revenue by siddhesh patil

Business Analytics Capstone Framework for Strategy

Siddhesh Patil

14th May 2016

Problem Statement

Problem Statement–Describing the problem Adblockers present to Yahoo

The online advertising space today is synonymous with cost-effective sales, customer profiling based on browsing habits, increasedbrand awareness of brick-and-mortar stores and so on. In addition to this, online advertising helps publishers grow and maintain thefree-content ecosystem on the internet by acting as their important source of revenue. This advertising industry also happens to be themajor source of revenue for technological powerhouses like Google, Facebook and Yahoo who rake in billions of dollars by providing thetechnology behind serving these ads to various advertisers and publishers.

However, an increasing popularity and adoption of Adblockers is having a negative impact on advertising revenue of Yahoo and Googlealike. This project, focusses on Adblockers impact on Yahoo’s advertising revenue. To begin with, the usage of Adblockers affects threestakeholders: publishers who publish free content on the web, advertisers who advertise on websites, and the ad-serving companies.

1. With diminishing revenues, it becomes difficult for publishers to create free content on the web. Publishers rely on revenue fromad-clicks to compensate for website hosting and miscellaneous expenses. When Adblockers are employed, ads don’t get displayedat all to users (unless you pay to whitelist them, which we will discuss later in strategy part) greatly affecting their revenue streams.The alternate to this would be creating mandatory or opt-in paywalls to support the creation of free content. However, this maybacklash and visitors might altogether stop visiting the site or find cheaper alternatives.

2. Secondly, with Adblockers in place, advertisers would soon realize that their ads outreach is limited to a few technologically naïvepeople. Advertisers would fail to understand a sea of prospective customers and would be unable to provide tailored offers andservices to them. Cross-selling and upselling would be limited to the competency of in-store sales personnels. Brick and mortarstores would also have to rely on the expensive and not-so-effective way of billboard advertising to create brand awareness.Moreover, there would not be any concrete means to measure effectiveness of such ads and justify the marketing investments.

3. With low revenue to publishers and insufficient customer outreach, the revenue streams of Yahoo’s advertising space would take ahuge hit as there would be a radical shift from digital advertisement to the good old traditional advertisement. This may lead to adomino effect where Yahoo might undergo internal organizational restructuring leading to huge layoffs. Extreme scenarios wouldinclude Yahoo shifting its focus from digital online advertisement industry or in worst cases, selling off/merging the onlineadvertising part of the company.

Problem Statement–Describing the problem Adblockers present to Yahoo

To get around this problem, we first need to address the surge of Adblockers. A customer survey has found some predominant reasonswhy people have come to loathe online advertising and embrace Adblockers on desktops and mobile devices:• Increasing obtrusive content• Invading privacy by tracking preferences without permission• Irritating pop-ups• High bandwidth and battery consumption• Long page-loading times

With this capstone project, we will address these issues faced by internet users and find a common ground where not only thepreferences of these users are accounted for but also the interests of the advertisers are protected. Subsequently, we are going to comeup with strategies which will help Yahoo counter the negative repercussions of Adblocker usage and talk about the anticipated effects ofhaving them in place.

Strategy

StrategyDescribing the proposed strategy

By understanding that increased adoption of Adblockers has been linked to consumer complaints of irritating pop-ups, high bandwidth, battery usage and longer page-loading times, my strategy advising Yahoo on the issue of Adblockers would take different approaches depending upon Yahoo’s willingness and financial position:

Long-term strategy

1. First strategy would involve radical changes to Yahoo’s current ad serving strategy. This would shift Yahoo’s focus from display and search advertisement to native and pre-roll advertisements. Most of native and pre-roll advertisements are immune to the effectsof Adblockers. This would significantly help offset the current loss of revenue resulting from Adblockers. For this strategy to take effect, Yahoo would have to work closely with its publishers and advertisers alike to make sure their web page structure and content nicely aligns and fits with the content of native advertisements. Yahoo would also have to work on making its contextual advertising technology robust to align with the changing business strategy.

2. Second approach would be to develop an in-house team of software developers helping Yahoo create ad-light web pages, not just for mobile but desktops too. Yahoo can research in technologies which would make loading the current web pages faster and simultaneously making sure ads are displayed completely and correctly.Additionally, Yahoo can be an active supporter and contributor to the current Accelerated Mobile Pages (AMP) project. This will allow Yahoo to educate and help transition publishers to create ad-light web pages (web pages using AMP format) from their current HTML format. It will also help train advertisers in creating visually appealing and lower bandwidth consuming ads (lesser graphics).

StrategyDescribing the proposed strategy

Short-term strategy

1. If creating and developing an in-house developer team proves a lot expensive and time consuming, Yahoo can acquire companies or startups working in ad blocking/ad security domain. This, if done right, would help in instant gratification in terms of expertise, knowledge and deployment of enhanced ad-serving technologies. Alternatively, Yahoo can get in joint venture with such companies sharing profits in exchange for their technological expertise.

2. A quicker alternative would be paying the Adblocking softwares to whitelist Yahoo ads. This would be the last strategy I would advise Yahoo as embracing this would be digressing from providing the whole better customer experience initiative. However, thiscan be adopted while Yahoo is researching new ad-light ad-serving technologies. Alternatively, this strategy can be extended by incentivizing Adblocking users to whitelist Yahoo ads by providing certain discounts on products of affiliate companies.

3. In general, a lot of consumers are adopting Adblockers without understanding the negative repercussions it has on the free-content ecosystem on the web. Yahoo should take up the responsibility of educating its users about its negative effects (in the form of videos, articles, pre-roll ads) to publishers and advertisers alike and also reassure them about the steps it is taking for making the web faster, visually attractive and less intrusive to them.

Effects and Measurement

Effects and MeasurementDescribing the anticipated effects of strategy and measurement metrics

An effective implementation of long-term and short-term strategies would benefit Yahoo in multiple ways:

1. Firstly, it would help them recapture and retain Adblocking users. This would allow Yahoo and its advertisers to access the sea of its customer data once again and provide tailored service.

2. It would also help publishers maintain the free-content ecosystem of the web by promising daily revenue streams.

The anticipated effects and measurement of each strategy needs to be continuously monitored to confirm our hypothesis. A positive confirmation would allow us to scale up or optimize that strategy.

Anticipated effects after gradually embracing Native advertising and pre-roll ads

• Increase in revenue streams of Yahoo through online advertisements.

• Increase in CTR for advertisers. This may further translate into a boost in offline sales of products.

• Lower CPM for advertisers.

• Increased revenue for publishers.

Measurement metrics for native ads/pre-roll ads embracement

• Measure Click Through Rate (CTR) of native advertising (Yahoo’s Gemini ads). Compare this rate with historical figures and check if employing native ads is correlated with higher CTRs. Additionally, a ratio of “Native ads revenue/ Total ads revenue” would indicate how much revenue Yahoo’s Gemini platform is garnering for Yahoo.

• Compare and contrast CTR during pre native and pre-roll ads era to CTR in post native and pre-roll ads era using the analytical suite and campaign management tools provided by Yahoo. This can be done by both advertisers and publishers.

• Native ads are characterized by low competition and high inventory. Since we will be employing a Pay-Per-Click (PPC) model, advertisers will only pay if someone clicks on their ads meaning the Cost Per Impression (CPI) is very low.


Anticipated effects after developing an in-house team of software developers helping Yahoo create ad-light web pages, not just for mobile but desktops too

• Increase in Yahoo’s brand value due to Yahoo’s initiative to make customer browsing experience pleasant.

• Higher rates of satisfaction among Yahoo users, publishers and advertisers alike due to ad-light web pages.

• Faster loading of web pages (despite the presence of ads) due to employement of new technology.

• Browsers finding contextually relevant and visually appealing ads displayed to them.

• Some software developers perform exceptionally well, while others don’t. Some might also resign.

Measurement metrics for developing in-house software team

• Come up with financial model stating if I invest in a certain non-financial dimension like customer trust, satisfaction or experience, how it would affect my financial performance in the long run. For example, an increase of 0.8 in the customer trust ratio would increase my 5 year revenue from that customer by 1000 dollars. Using Net Present Value, we can model the financial implications of whether Yahoo should invest in a project or not.

• Using tools like SurveyMonkey gather feedback about this new light, ad free webpages, ad quality and relevance. A causal relationship between increased ad revenue and new ad technology would help in justifying our investments.

• Measure Page loading time using the new platform and contrast with the traditionally displayed webpages.

• Using People analytics, you can fairly predict performance of new hires by analyzing their past work samples. You should also have a structured interview conducting cognitive ability tests, job knowledge test, integrity test to reinforce your confidence in hiring a candidate. Alternatively, you can use multivariate regression analysis to find which characteristics best predict hire performance.

• Also, instead of hiring new developers, we can analyze if existing software developers at Yahoo can be promoted to this new role. We can then compare which route, new hire or promoting existing employees, end up being a better predictor of future performance.

• If we see a sudden increase in attrition, we can have an exit survey understanding which factors caused people to put down their papers. Accordingly, we can focus on retention efforts by improving work conditions, matching unmet needs, training managers etc.


Anticipated effects on acquisition/joint venture strategy

• Higher debts; change in Yahoo’s capital structure.

• Yahoo’s stock might plummet if the acquired company doesn’t live upto its expectation. Alternatively, Yahoo might see a surge in its stock prices if the acquired company with its technological expertise helps Yahoo improve its yearly revenue streams through advertisements.

• Some employee from the acquired company may get the pink slip as part of Yahoo’s people restructuring strategy.

• There may be uncertainty among employees of the acquired company about the future course of roles and responsibilities now they are a part of Yahoo.

Measurement metrics of acquisition/joint venture

• To know whether the acquisition deal is worthwhile, due diligence must be done. Valuation metrics like Price Earnings ratio, Enterprise Value to Sales Ratio must be accurately calculated before finalizing the deal. Here again, Net Present Value may be employed as a tool to decide if one should acquire the company or not.

• Figuring out a breakeven point for the acquisition cost will help us calculate the additional increase in revenue needed by Yahoo to compensate for the investment made (within a stipulated time).

• Employing People Analytics to make hiring and layoff decisions. With the data available on employees, they can measure which employees (from the acquired company) have been promoted within what time frame. Past work samples may be evaluated and in certain cases, employees may have to go through a structured interview measuring their fit within Yahoo’s culture. Additionally, they can measure employee’s unique contribution to the company through minutes of performance evaluation meetings. This will help them find the most valuable employees and retaining them. Care should be taken to choose the right correlations so that these decisions are not influenced by noise.

• There may be few employees who have an impact on the performance of other employees. Identify such individuals using Organizational Network Analysis to find collaboration patterns and measure connectedness. For this purpose, we can use surveys identifying which employees have been approached the most for any help/advice. If such employees prove valuable to the internal functioning of the new team, care should be taken to retain them.


• Through internal mobility programs that may include personality tests, integrity tests, retained employees from acquired companies may be shuffled and their job responsibilities modified to better serve Yahoo’s new strategical needs. Additionally, they may have to undergo training to make up for certain lack of skill.

Anticipated effects on paying Adblockers to whitelist Yahoo ads

• Improved revenue streams as compared to the time when users had ads blocked by Adblockers.

• Decrease in customer satisfaction rate as they would still have to battle slow page-load times, high bandwidth, battery usage etc.

• Assurance to advertisers about their ads getting displayed.

Measurement metrics on paying Adblocker companies

• Measure and compare quarterly revenue pre Adblockers era and post Adblockers era. Then, measure quarterly revenue after paying Adblockers to whitelist ads. Find if the difference is statistically significant. The reason we do this three-prong analysis is to confirm that a drop in revenue is ‘only’ because of Adblockers and not because Yahoo has lost its customer base.

• Conduct an experiment where part users are shows ad-free webpages and the other half are shown the usual webpages with ads. Through a survey, rate their satisfaction levels in terms of page loading time, bandwidth-battery usage, browsing experience and so on. Net Promoter Score would tell us whether users are likely to suggest Yahoo ads to their peers and colleagues.

• Provide third-party viewability tags which will help advertisers track their impression metrics.


Anticipated effects on educating users about the negative effects of using Adblockers

• Web browsers better aware of the repercussions of Adblockers on the free content ecosystem on the web.

• Marginal decrease in the use of Adblockers.

• Increase in customer trust.

Measurement metrics of educating internet users

• Track users who have stopped using Adblockers post this initiative. This can be measured by a survey (SurveyMonkey, Typeform). This survey may further ask browsers about their current attitude towards Adblockers and Yahoo as a company. Using Net Promoter Score, we can quantify the current attitude of users towards Yahoo and Yahoo ads. An incentive to fill the survey in the form of limited access to premium services should be offered.

• Measure the additional increase of revenue from these users and hypothesize cases when revenue from such users would have stopped had they employed Adblockers. This can be done by analyzing a surge of revenue streams

• Using data analytics, we can predict the current customer ads preference, segment such customer and predict future users ad preference. This will make ads less invasive, improve ads customization, targeting and reduce irrelevancy.

impact of adblockers on yahoo's advertising revenue by siddhesh patil

Data & Analytics