is yahoo really the comeback kid?

Technology

118 | GlobeAsia August 2014

Getting picked for the top job at Yahoo must sometimes feel like being a character at a Game of Thrones wedding. You can give it a

shot, but you probably won’t survive long. Indeed in the five years preceding CEO Marissa Mayer’s appointment in 2012, Yahoo had averaged a new CEO every year!

Mayer, going on two years now, has already beaten the average and since she took up the reins, the company’s stock has appreciated over 150%. Some say much of this can be attributed to Mayer’s mythical reputation in Silicon Valley as former Google employee number 20. The upswing has led many analysts to sing its praises and proclaim Yahoo the newest comeback kid. The real story, however, is much more nuanced.

Ad revenue slipping A cursory glance through Yahoo’s first quarter statement for 2014 is all one needs to see the vast chasm between Yahoo’s investments (which are performing admirably) and Yahoo’s core ad business, which is limping along. The company’s display advertising revenue for the first quarter was listed at $453 million, no discernable change from the previous year.

Advertisers are increasingly comfortable experimenting with web-based campaigns, just not with Yahoo. In fact, while the company was able to sell about 7% more ads this last quarter, they were forced to lower their rate by 5%, due to increased competition from the likes of Google and Facebook.

Google’s domination in the search advertising sphere has not been accidental. Late last year Google announced a series of new features ensuring that advertisers are only charged for display ads when there is at least a chance they could have been seen. Display advertising is notorious among advertisers who complain there is no way to know whether or not a potential customer has even seen your ad and while Google has attempted to fix this, Yahoo is yet to respond.

Google’s strides in its advertising business are in sharp contrast to Yahoo’s ad business, which was until recently headed by Henrique De Castro, a man reportedly both arrogant and notoriously out of touch with the needs of the advertising

industry. Without access to detailed metrics it is no wonder why advertisers moved instead to search advertising.

Why Yahoo must focus on its core businessWhile slowing ad revenue may not seem like a pressing problem given Yahoo’s massive valuation and escalating share price, it could become a problem very fast. The fact is with the exception of Yahoo Japan, their strongest performer lately has been the company’s stake in Chinese e-commerce site AliBaba.com.

A fair deal of Yahoo’s value stems from the fact that Alibaba is headed for an IPO, which could net Yahoo up to a whopping $10 billion. While this will certainly give the company a boost and admittedly $10 billion is a lot of shekels, what does Yahoo do for an encore? After Yahoo decreases its stake in Alibaba by the expected 10%, Yahoo’s fortunes will be governed increasingly by its own ability to attract advertisers, an area it has not excelled in thus far.

More worryingly perhaps is that nobody really knows how much of the bump in Yahoo’s stock price could be attributed to speculators waiting to cash out on an Alibaba IPO by proxy. This may seem great for now but soon the music will stop, its stock will stabilize and the company will actually have to deal with the harsh truth of fading ad revenues and shrinking user engagement.

Yahoo’s attempts to firm up its core businessIn the recent past Yahoo has been unable to build a devoted following of engaged visitors to their properties. This has of course been a huge problem for Yahoo since its whole business model involves advertising to these visitors. While part of the issue is lack of quality content, equally pressing was Yahoo’s near invisibility in the mobile space where users now consume much of their news and entertainment.

Until Mayer’s appointment Yahoo had all but ignored mobile and it has paid dearly in lost market share. If Yahoo is to keep its place at the top, the company will have to shore up its mobile offerings and provide new and compelling content to customers. Early signs in these areas however are positive.

Is Yahoo really the comeback kid?

August 2014 GlobeAsia | 119

Yahoo gets mobileFortunately for Yahoo, the company seems to have finally grasped the importance of the mobile market. In an interview with Michael Arrington of TechCrunch recently, Mayer recounted how when she first got to Yahoo, mobile was “everybody’s hobby and nobody’s job.” Mayer has swelled her mobile staff to over 500 people and it appears that they are finally taking this aspect of their business seriously.

The Yahoo Mail app went through a beautiful redesign and the company also just launched the Yahoo News Digest, which offers users a twice-daily digest of news aggregated from various outlets. The increased focus on mobile appears

to be helping as over half of Yahoo’s 800 million monthly users now also use the company’s mobile apps.

Yahoo’s acquisition of Tumblr is a key jewel in the company’s crown. The $1.1 billion Yahoo forked out not only bought them new users but also with it a whole new advertising stream. The new ads, titled “sponsored posts,” can be purchased on Yahoo’s Gemini ad platform for the first time, providing advertisers with a means to promote the same content across all of Yahoo’s many properties.

According to Mayer, almost 48% of Tumblr users reshare these “sponsored posts,” resulting in quite a decent return for advertisers. Yahoo’s

Jason FernandesTech commentator and the founder of SmartKlock.

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In the recent past Yahoo has been unable to build a devoted following of engaged visitors to their properties. While part of the issue is lack of quality content, equally pressing is Yahoo’s near invisibility in the mobile space where users now consume much of their news and entertainment.

Technology


Fortune favors the brave and the company has been struggling with an identity crisis for far too long. If it’s true that the future of TV is online, then the future of online TV is exclusive channel-based content and Yahoo seems to get that. The Live Nation and Community deals are just the beginning; we can expect to see much more exclusive content from the company in the future.

Yahoo’s July purchase of Israel-based Rayv is further confirmation that the company sees video streaming as integral to its business plan going forward. Given the trajectory thus far many analysts consider it highly likely that Yahoo will soon launch a YouTube-like service.

If the company were considering such an approach, Yahoo could distinguish itself from the competition by providing more specialized videos in a curated manner, rather than focusing on random user-generated content. This would enable Yahoo to preserve the same premium/exclusive tone they set with the series of Live Nation live-streamed concerts.

Yahoo has its work cut outSo is Yahoo really the comeback kid? Not yet. It’s uncertain just how much of its recent gains can be attributed to the Alibaba bump and the company is still struggling with its core business. Yahoo’s foray into streaming media is an excellent strategy to acquire both new users and new advertisers.

Yahoo has made impressive gains lately, unifying its ads across services and introducing new content channels. Yahoo’s new emphasis on streaming media is excellent for shareholders because if they can even bring in even a fraction of YouTube’s revenues, the company’s ad outlook would improve significantly. Yahoo is due for a huge windfall once Alibaba goes public but what it does with the money will set the course for the company going forward.

When Yahoo ruled the search industry in the ‘90s, nobody imagined that Google could come in and steal their crown, but it happened. It would be almost poetic if Yahoo were able to do the same to (Google-owned) YouTube. Yahoo will have to invest a tremendous amount of money to take on the likes of Google, but fortunately for them they just hit the lottery. Elvis famously sang: “A little less conversation, a little more action.” but money talks and Yahoo is about to become a whole lot more talkative.

increased focus on content is critical because it is really Yahoo’s only shot at shoring up those display advertising revenues.

Content for eyeballsYahoo has clearly divined that it will have a hard time beating Google on search advertising but there is one area it can still dominate. The online video streaming market is young enough that Yahoo can still be a player here if it tried. Yahoo is aware that video advertising tends to be more successful on the web and the company can exploit this by positioning itself as the king of streaming media.

On the other hand, to actually make money with streaming media, Yahoo has to find something people actually want to watch before they can slap an ad onto it. This is easier said than done. As per comScore’s March 2014 numbers, Yahoo serves up only a fifth of the video content that YouTube does, at 580 million videos a month. At the risk of sounding like Dr Frankenstein, what they need are more eyeballs.

To that end, in July Yahoo announced a whole line-up of free streamed concerts in association with Live Nation, truly announcing its arrival as a player in the video streaming game. These artists aren’t your run-of-the-mill indie bands either. Live Nation has arranged for a slew of big name musicians including Justin Timberlake, Everclear and OneRepublic to play concerts on Yahoo live and this is bound to imbue Yahoo with the street cred it needs.

Yahoo also took a page out of Netflix and Hulu’s playbooks, purchasing an extra season of the cult show Community which it hopes will bring more unique visitors to Yahoo. If Yahoo seems like it is buying legitimacy, that is exactly what a company with massive cash reserves like Yahoo should be doing.

If Yahoo seems like it is buying legitimacy, that is exactly what a company with massive cash reserves like Yahoo should be doing. Fortune favours the brave and the company has been struggling with an identity crisis for far too long.

Key TasksIndonesia’s next president faces

some daunting challenges

InterviewFrans Winarta legal certainty still

key for business confidence

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Special report108 When the lights go outIndonesia’s energy sector needs to revitalized if it is to continue to contribute to sustained economic growth. McKinsey & Company have just released a new study that offers some ideas on how Indonesia can boost the energy sector and in the process create a dynamic economy.

110 Planning for a comprehensive energy policyAs the next president takes office, Indonesia needs a comprehensive energy policy that will ensure a steady supply of crude oil and natural gas and expand alternative sources to stave off dependence on imports.

112 LCGC versus public transportation: A question of prioritiesDatsun joins the ranks of Low Cost Green Cars (LCGC) alongside four other vehicles: the Toyota Agya, Daihatsu Ayla, Honda Brio Satya and Suzuki Wagon R.

Events132 Microsoft GlobeAsia Tech breakfast.

Living the Good Life136 A watch company’s mangrove initiativeWatch marque Omega, together with conservation foundation GoodPlanet, are making a splash in Sulawesi in their bid to save the region’s precious mangroves.

Back Page140 Kisaran post office

Columnists16 Steve Hanke Reflections on the misery index 20 Jamil Maidan FloresThe march of the black banners: A dream of a global caliphate

116 Wijayanto SamirinNew leaders, new hope

118 Jason Fernandes Is Yahoo really the comeback kid?

122 Shamim RajaviLegal challenges for the new government

128 Keith Loveard The age of me

130 Scott YoungerA changing scene?

contentsVOLUME 8 NUMBER 8 / AUGUST 2014

Companies92 BRI barrels aheadBuoyed by sound fundamentals and financials, state lender Bank Rakyat (BRI) Indonesia appears to be making all the right moves – both inside and outside its industry – on its way to greater achievements.

96 Moving on upNot many state-owned enterprises have good strories to tell. PT Pos Logistik Indonesia is an exception.

98 A new lease on lifePT Pembangunan Perumahan Tbk. is building on encouraging post-turnaround performance with a slew of high-profile projects.

100 Guarding the margins Banpu’s Indo Tambangraya Megah is using efficiency to stay alive.

102 Going upstreamJust five years on from a transformation of its business portfolio, Rukun Raharja, a significant private-sector gas player, is ramping up to strengthen its hold on its new field of enterprise.

106 New-look Motorola: Calling on fresh opportunitiesOnce the pioneer of cellular technology, Motorola is making a comeback.

Interview124 The missing linkRenowned lawyer Frans Winarta talks about why legal uncertainty remains a pipe dream for Indonesia.

126 Victoria state seeks stronger partnership with Indonesia Victorian Minister for Agriculture and Food Security, Peter Walsh wants closer ties. 124

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Indonesia will soon have a new president. As this issue went to print, indications were that

Jakarta’s non-active governor Joko Widodo had won the July 9 presidential elections with more than 52% of the vote. We will, however, still have to wait for the official result from the General Elections Commission and a possible legal challenge.

No matter who is ultimately installed in the State Palace as the next president of Indonesia, he will face some daunting challenges. Outgoing President Susilo Bambang Yudhoyono has laid the foundations for macroeconomic stability over the past 10 years. Indonesia now needs to push on with more micro-oriented policies that help businesses compete and increase their output.

As things stand, Indonesia can grow by an average of 5% to 6% per annum. That rate of growth cannot support democracy in terms of creat-ing well-paying jobs for the two mil-lion Indonesians who enter the work-force every year. The next president and the new parliament will have to work together to create a range of policies that are specifically targeted to boost business competitiveness.

The top priorities for the next

president must be bureaucratic re-form and cutting the fuel subsidy. The economy too needs to be restructured and gently moved away from depen-dence on cheap energy, which has distorted business costs in the past.

There has been minimal infra-structure implementation, limited oil and gas development and little progress on manufacturing expan-sion, according to a report by CLSA Indonesia. The report noted that if Joko Widodo is installed as the next president, he could be expected to push these reforms given his record of efficient implementation, good negotiating skills and readiness to tackle bureaucratic inefficiency.

These steps will be crucial for the country as the external environment is expected to be more challenging in the coming months. The United States is in the process of winding down its quantitative easing policy– the policy of printing money to pump into the economy – which in turn will lead to rising interest rates globally. This means that Indonesian corpora-tions will face higher borrowing costs if they intend to expand or invest in new plant and machinery.

The 2014 direct presidential elections have been a watershed event for Indonesia. The close fight between the two presidential candi-dates has been good for democracy and has offered the Indonesian people a real choice. The challenge now is to move ahead and undertake the more difficult task of building a deep and vibrant economy. For this to happen, the business sector has to be involved and empowered in policymaking. More crucially, it must be provided with the incentives to invest for the long–term.

Shoeb K. ZainuddinGroup Editor in Chief

Editor’s NoteEditorialGroup Editor in ChiefShoeb K. Zainuddin

Managing Editor Yanto Soegiarto

Deputy Editors Aloysius UndituMuhamad Al Azhari

Editor at LargeJohn Riady

Senior EditorAlbert W. Nonto

Contributing EditorsFarid HariantoSteve HankeScott Younger

ContributorsSuryo Bambang SulistoWuddy WarsonoWijayanto SamirinFrans WinartaJason FernandesJohn Denton

Special ColumnistJamil Maidan Flores

Contributing Editor (Singapore) Jafri M.

ReportersArdhian NoviantoDion Bisara

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