Silicon Valley Watcher - reporting on the business of technology and media

Jerry Yang, co-founder and CEO of Yahoo! Sunday evening said Yahoo! had become a stronger company following Microsoft's acquisition bid and its subsequent withdrawal.

Writing on the Yahoo corporate blog Yodel Anecdotal Mr Yang argued that the experience of the last 13 weeks had changed the company.

We’ve been living under the microscope in a way we never have before. There has been greater attention than ever on our strategy and our ability to execute against it.

. . . We’ve emerged a stronger, more focused company with an even greater sense of purpose.

Yahoo! shareholders are bracing themselves for a sharp drop in the company's share price Monday morning, which could return to under $20 a share.

Foremski's Take: Mr Yang has yet to prove that Yahoo! is back on track. The online advertising market is set to double over the next three years and a rising tide lifts all boats.

Microsoft may have dodged a bullet in that Yahoo! would require a lot of integration effort. MSFT could gain many of the advantages of a Yahoo! acquisition in other ways by exploiting Yahoo's weakness in its ability to execute on strategic programs.

Yahoo's management and board are trying to look like local heroes in their rejection of Microsoft's acquisition offer. Empty, face saving gestures, IMHO designed to distract from their despicable actions in China.

The recent death of Tom Lantos, House Foreign Affairs Committee Chairman, removed one of Yahoo's fiercest critics. Here is a reminder from an SF Chronicle news story November 7, 2007.

“While technologically and financially you are giants, morally you are pygmies,” House Foreign Affairs Committee Chairman Tom Lantos, D-San Mateo, said at the end of the three-hour hearing.
. . .
The hearing began with Yang, who immigrated from Taiwan at age 10, entering the hearing room and bowing and apologizing to the mother of journalist Shi Tao and the wife of Internet writer Wang Xiaoning. They received 10-year sentences after being identified with the help of information from Yahoo.

The act wasn’t enough for Lantos. He called on Yang and Yahoo chief counsel Michael Callahan to turn and face the dissidents’ families, seated in the front row, and plead for forgiveness.

“I would urge you to beg the forgiveness of the mother whose son is languishing behind bars thanks to Yahoo’s actions,” Lantos said. Shi’s mother, Gao Qin Shen, had tears in her eyes as the two executives complied.

All that police snitching was done to build shareholder value. Take a look at this extract from Jerry Yang's letter to shareholders explaining why MSFT's bid undervalues Yahoo.

We have the added value of our substantial, unconsolidated investments in Japan and China. We have substantial positions in Yahoo! Japan, the leader in its market, and Alibaba, which is strongly positioned in China, a market with enormous growth potential.

More here...

Yahoo! heroes instead of zeroes in stand against MSFT but not against Chinese repression

Yahoo! said it had received an unsolicited acquisition bid from Microsoft. It's board of directors said it would evaluate the proposal "carefully and promptly in the context of Yahoo's strategic plans and pursue the best course of action to maximize long-term value for shareholders."

The $44.6 billion bid ends many months of speculation that Microsoft wanted to acquire Yahoo! If the bid is successful, it would vault MSFT into a strong second position in search and other Internet businesses.

At $31 a share MSFT is offering a generous premium of 62 per cent indicating that it wants quick approval for the deal.

Microsoft is eyeing the massive shift in the advertising industry to online. It estimates that the online ad market will double from $40 billion in 2007 to $80 billion in 2010.

Ray Ozzie, chief software architect at Microsoft said, "The resulting benefits of scale along with the associated capital costs for advertising platform providers make this a time of industry consolidation and convergence. Today this market is increasingly dominated by one player. Together, Microsoft and Yahoo! can offer a competitive choice while better fulfilling the needs of customers and partners."

The Yahoo! board of directors had rebuffed Microsoft in February 2007 saying that the company's "potential upside" would be good because of several key initiatives. In a letter to Yahoo! Microsoft said, "A year has gone by and the competitive situation has not improved."

Microsoft has calculated that the acquisition could be completed in the second half of 2008 and eliminate $1bn in annual operating costs for the combined entity. The letter to Yahoo! promised generous retention packages to its "engineers, key leaders and employees across all disciplines."

Microsoft's bid comes one day after the resignation of Yahoo! chairman Terry Semel. He has been replaced by Roy Bostock, a board memebr since May 2003. Mr Bostock has a strong background in advertising and marketing.

Would you work for a large Silicon Valley company whose top management was recently called "moral "pygmies" by a top California lawmaker because of its role in snitching on Chinese political dissidents?

Would you work for a Silicon Valley company that has been called a "police informant" by Reporters Without Borders because it handed over information to Chinese authorities that led to ten year prison sentences for two people--for the crime of distributing a censor's order not to write about the anniversary of the Tiananmen Protests?

You wouldn't especially since you now have a choice. We currently have very robust jobs market in SIlicon Valley where competition is fierce. A good salary is one thing but it is not enough, people care about where they work.

Yahoo has engaged in despicable acts in China and defended its actions as being right. But I bet it didn't calculate the costs of losing the respect of its own staff.

If you work for Yahoo I can guarantee that you are not holding your head high as you walk down the street. Yahoo is already experiencing a tremendous talent outflow and it is only going to increase because it did not do the right thing in China.

Take a look at my recent post on ZDNet:

Just in case you missed it, last week Yahoo! CEO Jerry Yang and its chief lawyer Michael Callahan were called to Washington DC to explain to lawmakers why Yahoo! helped the Chinese government arrest and then sentence for ten years two political dissidents.

Extracts from Zachary Coile's excellent news story for the San Francisco Chronicle:

"While technologically and financially you are giants, morally you are pygmies," House Foreign Affairs Committee Chairman Tom Lantos, D-San Mateo, said at the end of the three-hour hearing.

. . .

The hearing began with Yang, who immigrated from Taiwan at age 10, entering the hearing room and bowing and apologizing to the mother of journalist Shi Tao and the wife of Internet writer Wang Xiaoning. They received 10-year sentences after being identified with the help of information from Yahoo.

The act wasn't enough for Lantos. He called on Yang and Yahoo chief counsel Michael Callahan to turn and face the dissidents' families, seated in the front row, and plead for forgiveness. "I would urge you to beg the forgiveness of the mother whose son is languishing behind bars thanks to Yahoo's actions," Lantos said. Shi's mother, Gao Qin Shen, had tears in her eyes as the two executives complied.

[Where is the YouTube clip?]

Launder Chinese data

Yahoo could have easily laundered its data of any identifiable information. I've suggested this solution: Yahoo could use a third-party located in an offshore financial center, since these have strong data privacy laws, to strip its data of any personably identifiable markers and then return aggregate behavioral data--which is much more useful data anyway. If the Chinese government orders it to reveal its data, Yahoo can comply without breaking any laws or harming its users.

Risky behavior

Yahoo and its amoral behavior in regards to its actions in China is going to be hugely expensive to the company and its shareholders, imho. Because those actions risk its key asset - its people.

Why would you stay at Yahoo when there is tremendous competition for your skills in Silicon Valley right now? You could walk across the street to any company, sit down at a desk and you've got a new job.

The Yahoo effect on limiting population growth

There are also other factors to consider as a Yahoo employee, your ability to create children, or even find a partner to practice with.

There are a lot of single people at Yahoo and likely to remain so. Software engineers in particular, are already challenged in continuing their genetic lines, it certainly won't be any easier now.

You walk into a party and inevitably that question comes up. Yes, you could fudge and say that you work for Google, [however, the do-no-evil giant is lucky it hasn't been caught (yet) in a similar snitching situation] and anyway, lying is not a good way to start any meaningful relationship.

Yahoo seems oblivious to a fundamental fact about Silicon Valley's workforce today: People do care about the moral behavior of companies and they discriminate against them by choosing not to work for them.

- - -

Please see:

Yahoo moves for dismissal of dissidents' case
By Richard Koman for SiliconValleyWatcher

Yahoo wants a federal court to dismiss Chinese dissident Shi Tao's complaint against the company for allegedly facilitating his arrest by Chinese authorities. Yahoo Monday filed a 51-page motion to dismiss, claiming that Shi's problem...

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Chinese Dissident's Wife to Sue Yahoo

By Richard Koman for SiliconValleyWatcher

The wife of Chinese dissident has come to the US to sue Yahoo for turning over her husband's emails to Chinese authorities. He was sentenced in 2003 to 10 years in prison for publishing "subversive" articles on the Internet,...

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Dissidents within YHOO and GOOG will make ethical companies

By Tom Foremski for SiliconValleyWatcher

BusinessWeek recently published a news story on Reporters without Borders and its protest against Internet censorship in many countries: BusinessWeek: Nations that Censor the Net Some 17,000 attendees of the protest voted for the nation they believed is most...

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Yahoo and Google and China - it's time to Do Some Good

By Tom Foremski for SiliconValleyWatcher

One of the most powerful images of the 20th Century is "Tank Man" the man that walked out in front of a column of tanks -- a day after the bloody suppression of the Tiananmen Square protests in 1989....

Technorati Tags: Yahoo China

Microsoft's acquisition late last week of the AdECN advertising exchange is a smart move. I interviewed Bill Urschel, the founder of AdECN earlier this year.

It is a company that has quietly managed to establish itself as a major real-time exchange for trading online advertising. It is a market that is very difficult to break into once first mover advantage is established because scale and liquidity are the most important attributes for the success of any exchange.

Mr Urschell said that there is probably only room for about three ad exchanges.

A neutral MSFT

An important aspect of AdECN is that it is neutral, it is not competing with advertising networks for ads, it trades the ads themselves, linking buyers and sellers, along with demographic, regional, and time-based delivery of advertising.

This neutral model could be a feather in MSFT's cap because Google is competing with its own publisher network. Advertising on Google's own sites has climbed to 64 percent of total revenues when it used to be evenly split with third-party publishers.

MSFT's AdECN exchange combined with its ad server technology could position MSFT as a preffered advertising partner for some publishers because it is not a direct competitor.

- MSFT recently won a major client, Digg, the community powered news aggregator.

- MSFT recently won EA, the world's largest gaming software company, to serve ads in online games.

MSFT is less of a competitor

- MSFT's own sites aren't doing that well, so it could claim that its own sites aren't competing against its publishing partners.

- In contrast: GOOG's own web sites grew 9 per cent in revenues in the most recent three months compared with no growth over the same period for its partner sites - GOOG 2Q 2007.

- Microsoft could sweeten deals with aggressive revenue sharing offers. It could potentially pay out more than 100 per cent of advertising revenues to publishers.

Google and Yahoo have tied up some of the largest online publishers into multi-year deals, however, most of the publishers in their ad networks can leave at anytime. Billions of dollars in online advertising revenues could switch to MSFT in an instant from GOOG and YHOO. It is a huge vulnerability for those companies.

A bonanza for publishers?

A battle for online publishers among GOOG, YHOO and MSFT could result in a bonanza for content producers. The revenue sharing agreements would favor the publishers and it could help some struggling newspapers and magazines.

When Yahoo! appointed Terry Semel as CEO it marked an understanding that it is a media company. Mr Semel came from the top ranks of California media industry and he was to lead Yahoo! into the next phase of its growth.

But Yahoo! was too early in this transition. It realized that it is a media company, which was good but it hadn't realized that there was still a lot of money left on the table in terms of using technologies to publish media. This gave Google a way to break into the market and build up its business using servers and algorithms to publish pages of content and advertising.

Yahoo! was using media professionals to do similar things, but people are more expensive than a bank of servers running software, which is a far more scalable business model.

Similar Roots

The roots of the two companies are extremely similar. The founders of both companies went to Stanford University. Both companies flourished on the back of search. And both companies used inexpensive PC platforms to build out their services.

Chief Yahoo

Yahoo! now returns to its roots with Jerry Yang, the co-founder taking the CEO position. I remember interviewing Mr Yang in a dingy two room office space in a strip mall in SIlicon Valley, just after the company recieved a $1m VC investment. I still have the business card Mr Yang gave me, "Chief Yahoo" it said.

As "Chief Yahoo" Mr Yang will bring the company back to its technology roots and that's where it stands to gain the most. It left far too much money on the table for Google when it moved away from its technology roots.

Additional Info:

Terry Semel, the embattled head of Yahoo! has been ousted and replaced by co-founder Jerry Yang. The move comes in the wake of shareholder criticism of Yahoo! in its bid to keep up with Google (GOOG).

Mr Semel will remain as a non-executive chairman and advisor.

Susan Decker has been appointed president.

Here are details from Yahoo! and SVW analysis will soon follow:

FAST Search and Transfer, a leading European enterprise search company, said it will build an advertising exchange for its media company customers, who between them have an online audience that rivals Yahoo! in size.

The move will help to establish it as serious contender in the battle for large media advertising accounts. Yahoo and Google have recently signed big ad distribution deals with some of the largest newspaper, radio, and TV companies.

The difference with FAST's approach is that media companies use FAST software to run their own advertising networks within their own data centers. And they get to keep all the revenues instead of paying advertising networks such as Google and Yahoo as much as a 40 percent share.

LinkedUp

FAST's advertising exchange would link together media companies that use its advertising network software. The value of the ad exchange is in providing publishers with opportunities to sell excess inventory and gain the liquidity of a much larger network.

There would also be opportunities for advertising alliances and new types of ad services between publishers.

The FAST software can be configured to run many types of advertising models, such as pay per click, impressions, classified, and auction based models. It includes self-service features. Customers install and run the software within their own data centers rather than using third party networks.

From its founding in 1997 in Norway, FAST has been steadily building a strong name in enterprise search within global corporations, It has about 800 staff in the US, and about 200 in Norway, with offices around the world.

Autonomy in the UK, is the market leader in this sector but FAST has managed to win some large customers and also large media companies. IBM and the New York Times are among its search customers.

It's expansion into advertising software builds on its core search technologies, which are used to match advertising with content and users--the same as Google, Yahoo, and Microsoft advertising services.

Don't expose the customer

But using Google AdSense or Yahoo Publisher Network, not only reduces revenues, it exposes customer relationships that the ad network giants can target with additional services. Their publishing partners get none of this extra revenue.

"We think that newspapers and magazine publishers should keep more of their advertising revenues, and their customers, " John Lervik, CEO and co-founder of FAST, told SVW during a recent visit to San Francisco.

Joint Ventures

Mr Lervik said that FAST will also partner with some of its media customers in joint ventures around online advertising. One of these is a joint venture with Softbank in Japan.

The details of the FAST media enterprise software suite are under embargo. It builds on its FAST AdMomentum product.

...

Please See: The Vikings are in GOOG's rear mirror and coming up FAST

Yahoo has come under considerable criticism from shareholders and politicians for turning over data on its users to foreign governments. In China, the information has been used to imprison a journalist for ten years.

To help it figure out appropriate behavior, Yahoo today announced a $1m gift to Georgetown University to establish a Yahoo! International Values, Communications, Technology, and Global Internet Fellowship Fund.

"This commitment is another step in our efforts to be actively engaged on issues that arise at the intersection of human rights and the Internet," said Jerry Yang, Yahoo! co-founder.

The fund will support the education and research activities of an annual Yahoo! Fellow in Residence and two Junior Yahoo! Fellows who will study the link between international values and Internet and communication technologies.

Yahoo! is currently participating in a multi-stakeholder dialogue that includes industry representatives, human rights groups, leading academics, and socially responsible investors.  This diverse group has made a formal and public commitment to creating a set of global principles and operating procedures on freedom of expression and privacy to guide company behavior when faced with laws, regulations and policies that interfere with human rights.

Why doesn't Yahoo know that it is not right to collect data on its users in countries where political speech can be treated as a crime? Why does it take "eight years" of research at Georgetown University to figure it out? It'll be 2015:

Georgetown’s first Yahoo! Fellow in Residence and Junior Yahoo! Fellows are expected to begin their research on campus during the fall 2007 semester. They will study how international values impact the development and use of new communication technologies such as how the operation and regulation of the global internet affects personal privacy, freedom of expression, education, socio-cultural change and cross-national contacts among civil society groups. The fund, which will support annual Yahoo! Fellows housed at the School of Foreign Service’s Institute for the Study of Diplomacy (ISD) over the next eight years, builds upon the School’s mission to foster academic-practitioner collaborations around key foreign policy issues.

...

GOOG fighting pension funds' anti-censorship proposal

New York pension funds are calling on Google and Yahoo to resist censorship and to stop hosting customer data in certain host countries. Rebecca MacKinnon points to the proposal in Google's notice of annual meeting and proxy statement for their...

Hong Kong Lawmaker Continues Attack on Yahoo over Journalist Jailing in China

Hong Kong's privacy commissioner said there wasn't enough evidence to show that Yahoo's Hong Kong office revealed private information to Chinese authorities that jailed Chinese reporter Shi Tao for ten years.  Hong Kong lawmaker Albert Ho criticized the report and said Chinese...

Chinese Dissident's Wife to Sue Yahoo

The wife of Chinese dissident has come to the US to sue Yahoo for turning over her husband's emails to Chinese authorities. He was sentenced in 2003 to 10 years in prison for publishing "subversive" articles on the Internet,...

US Tech Firms Lame Excuse on China Business

U.S. Tech Companies Urge Washington to Confront China on Internet Censorship WASHINGTON (AP) -- American technology giants urged the U.S. government Tuesday to do more to confront China and other countries about Internet censorship. Microsoft Corp., Yahoo Inc. and...

Yahoo's Panama - the context-based ad placement service that is supposed to return Yahoo to powerhouse glory - has been out a month, but CFO Susan Decker says Wall Street shouldn't look for an impact on Sunnyvale's bottom line until the second half of the year, AP says.

But it's already making a critical change in Yahoo's culture, CEO Terry Semel says.

Panama ''is now out and we are starting to smile again,'' said Semel, who is also Yahoo's chairman. ''It has changed the mood and tempo of the company.''

It needs to do both, analysts say. If Yahoo can't turn the ship around with Panama, Semel may need to start looking around for warmer waters. Either that, or an acquisition by Microsoft could be in the works.

Decker predicts Yahoo will make gains at Yahoo's expense.

"Our hope and expectation is we will see query share improve as our relevancy improves."

UPDATE: Here's the official statement from Yahoo:

Statement: David Goldberg and Robert Roback, Vice Presidents and General Managers of Yahoo! Music, have resigned. As the founders of LAUNCH Media and the leaders of Yahoo! Music, Dave and Bob have made significant contributions to Yahoo! and we wish them all the best in their future endeavors. Vince Broady, Head of Entertainment and Games at Yahoo!, will now oversee Yahoo! Music.

Dave Goldberg:

“I have made a personal decision to resign as Vice President and General Manager of Yahoo! Music. After 13 years in this industry, Bob Roback and I look forward to going back to our entrepreneurial roots. I will help in the transition to new leadership, and I am proud to have led an exceptional team of music professionals. I wish them continued success.”

Bob Roback

“I have decided to leave Yahoo! Music with my business partner of 13 years, David Goldberg to go back to my entrepreneurial roots. I am grateful to our devoted team for the years of hard work and dedication which made Yahoo! Music the #1 music site and I wish them the best of luck.”

Last week Tom reported on a conversation with Dave Goldberg, head of Yahoo Music, about the future of DRM. Today, ValleyWag reports that Goldberg and No. 2 Bob Roback "resigned."

Given the big reorg and the heavy pressure on Wall Street, is this a sign of a larger purge? Or is it just because Goldberg came out against DRM in that conversation? Here's what he said to Tom, after Steve Jobs called for the end of DRM:

"I've long advocated removing DRM on music because there is already a lot of music available without DRM, and it just makes things complicated for the user." He said that Yahoo Music has done experiments where it has offered music with or without DRM, and that removing DRM boosts music sales.

He said that the Microsoft DRM that Yahoo Music uses "doesn't work half the time."

Steve Jobs' recent call to take DRM off music allies him with Dave Goldberg, head of Yahoo Music, one of the top competitors to Apple's iTunes.

I met with Dave Goldberg recently, when he was in town along with other Yahoo media execs, and asked him about DRM.

"I've long advocated removing DRM on music because there is already a lot of music available without  DRM, and it just makes things complicated for the user." He said that Yahoo Music has done experiments where it has offered music with or without DRM, and that removing DRM boosts music sales.

He said that the Microsoft DRM that Yahoo Music uses "doesn't work half the time."

Mr Goldberg said that Yahoo Music will explore ways it can get "off the PC." He said that there would be an announcement later this year with a large partner. Removing DRM would make it easier for music to be played on different systems.

"The car is the one thing that is keeping CD sales alive. Getting music into the car is a challenge, I don't know what the best solution is," Mr Goldberg said.

.......

Additional Info:

Jobs welcomes the death of DRM

1.24.07: Apple DRM illegal in Norway

In media, the medium defines the DRM

DVD Jon says he has cracked Apple DRM

Digital Rights Management Primer

.......

FAST Search and Transfer, the European based search giant, today announced software that allows online publishers to serve contextual ads to their readers.

The FAST AdMomentum software could increase ad revenues by more than 200 per cent for some publishers, compared with large advertising networks such as Google AdSense and Yahoo Publisher Network.

This is a software package installed in a publisher's data center. FAST says that it could also be used by a third party to offer a ready made online contextual advertising network that could be used to service many smaller online publishers such as blog networks. This means it could be used to compete with up and coming advertising networks such as FM Advertising, and AdBrite.

Publishers collect between 30 per cent to 70 per cent of the revenues that their advertising network partners receive--an amount that varies according to each deal. Google doesn't disclose the revenue split.

With AdMomentum, large publishers can establish their own advertising networks that support contextual ads, and also offer a wide variety of other types of advertising revenue such as impressions, pay per click, and also auctions.

Advertisers have a self-service interface and the software API is compatible with current advertisement tracking tools.

More than a dozen large publishers around the world have been beta testing the software.

Perry Solomon, VP of strategic market development at FAST, told SVW: "AdMomentum can be used to target ads to specific groups of people. One of our customers in Norway is using it to target ads to people on a street by street basis."

"This is a way for publishers to capture the share of the revenues that have been going to the advertising networks," he added. "The publishers already have advertisers, and they have the content, they don't need the advertising networks. We can provide them with a revenue engine."

Nearly one-half of Google's revenues in the past, have come from its AdSense network, which serves advertising on sites owned by online publishers. Large publishers such as New York Times, Knight-Ridder, and Time-Warner use AdSense.

Foremski's Take: This is potentially a game changing product and it brings back the advertiser relationship to the publisher--where it belongs.

For example, I've always wondered why the New York Times would run AdSense on its online front page, and the AdSense ads carry a text link at the bottom "advertise on this site." That says to everyone "we have no clue how to monetise this space and have handed over the customer relationship to a third party." That is suicide in today's world.

The advertising networks take a huge cut considering that they establish self-service advertising interfaces and run a bunch of servers and some software. Well, now the publishers can now do the same and cut out the middleman.

I can also see AdMomentum being used by local newspapers to essentially become the "AdSense" for their regions. They could sign up smaller online publishers within their local towns and neighborhoods and provide a much better targeted service to businesses and residents.

Additional Info:

FAST is headquartered in Norway and is publicly traded under the ticker symbol 'FAST' on the Oslo Stock Exchange. The FAST Group operates globally with presence in Europe, the United States, Asia, Australia, the Americas, and the Middle East.  For further information about FAST, please visit www.fastsearch.com.

Yahoo's top media execs came up from Santa Monica Tuesday to Yahoo HQ to present a new strategy for monetizing audiences of major entertainment brands such as TV's "Lost" and Nintendo's Wii.

Vince Broady, head of Games and Entertainment, Scott Moore, head of News and Information, and David Goldberg, head of Yahoo Music, presented their strategies at a lunch event for top media.

One of their largest initiatives is "Brand Universe" which pulls together Yahoo users in message boards, Flickr photos, Yahoo Groups, and other Yahoo sections into one location. This makes it easier to sell advertising because of the larger aggregated numbers.

Vince Broady, is in charge of Brand Universe. "We will pick 100 of the top entertainment brand names and highlight and promote those brands on Yahoo. We will work with the brand owners but we can do this even if some companies don't want to work with us."

Mr Broady said that Yahoo already knows what TV shows, music, films, games, game consoles will likely succeed, and which brands have momentum just from studying its users. "We saw very early on that Nintendo Wii would do well and so Wii became the first brand that we rolled out as part of Brand Universe."

David Goldberg from Yahoo Music said, "We can tell with 100 per cent accuracy which songs will fail within seven days of their release."

Yahoo said it would share its "Yahoo Pulse" data on which brands are doing well with brand owners because it would help them craft their content for broader commercial appeal.

Foremski's Take: It's a savvy move for Yahoo and a big change from organizing around broad generic properties such as Yahoo Finance, or services such as Yahoo mail. Yahoo's reach is such that it can create a dominant online site around a brand with a ready made community--just from pulling together it's users and their interests,  from various sections of Yahoo.

For example, people tag their Flickr photos with a band name, they discuss a band in Yahoo message boards and in Yahoo Groups, and they watch band videos in Yahoo Video. Now, Yahoo can aggregate all those people and sell them to advertisers who are always looking for the largest relevant audience.

But there is a collision course ahead because brand owners will resent a third party making money off their brand, with or without them. Here's why: 

• Yahoo is creating an online site that aggregates more of the brand audience than the brand owner can create. Yahoo controls the online presence  of a brand, especially since its search engines can point to its properties. 

• Yahoo is getting a free ride. Usually the brand owner, for example, the producers of the TV show "Lost" sell to TV networks who then monetise that content by selling advertising around it.  Yahoo doesn't have to pay a penny to "Lost" because it is monetizing Yahoo users who are interested in "Lost." Advertisers don't care, they are buying an audience with a demographic--the larger the better because of the benefits of scale in marketing messages.

• Yahoo doesn't have any loyalty to the brands. If they start to fall away and drop out of the Top 100 and Yahoo latches onto the next rising star.

• Yahoo doesn't have to invest in building brands and taking a risk on which will be successful--as TV networks do when ordering pilot series. Yahoo can potentially aggregate and sell a larger audience around a TV show than the TV networks. Because online advertising is trackable, ROI is increased which means more advertising money will go online than to TV and elsewhere. So then TV networks have less money to pay the content producers.

So who pays for creating the content of a brand and building it up?

So what if Yahoo is helping to build brands through its online activities, and traffic to a brand's websites increases?

More online traffic doesn't mean anything if you can't monetise it. And Yahoo can monetise online traffic much better than the brand owners whose business model is selling content.

Yahoo profits dropped 61 percent for the fourth quarter, the company reported yesterday. Profits came in at a meager $269m compared to $683m a year ago. Oddly enough, YHOO shares are up roughly 7.5% to roughly $29 per share this morning. The excitement seemed to be centered on Panama, Yahoo's new advertising system that brings it rougly into parity with Google's. Here's The Street's Vishesh Kumar:

Yahoo! management exuded confidence when talking about Panama late Tuesday, with CEO Terry Semel noting that the majority of Yahoo!'s U.S. advertiser revenue has already been transitioned to the system, and that the company will begin introducing the new system into international markets starting with Japan during the second quarter.

The extra time that Yahoo! took in rolling out the new system was well worth it given its quality, CFO Sue Decker said, and the platform was put together in a way that would make future upgrades simple. Given that the system will learn which ads are more effective than others over time, Yahoo! expects the bottom line impact to grow over time.

Notes the Washington Post:

One particularly troubling trend to Yahoo watchers is that the company is starting to lose its footing in display advertising, one of its strongest businesses. Yahoo, with 500 million users, still has the heaviest traffic of any Web site, but Kessler said popular social-networking sites such as MySpace and Facebook are cutting Yahoo's traffic and revenue growth.

By Tom Foremski for Silicon Valley Watcher

Yahoo's hastily engineered reorganization does away with key leaders within the company:

Chief Operating Officer Dan Rosensweig and Lloyd Braun, the head of Yahoo's media and entertainment group, are leaving the company, Yahoo spokeswoman Joanna Stevens said. John Marcom, senior vice president of International Operations, is also leaving the company "soon," she said.

Two top Yahoo execs to leave in reorg Tech News on ZDNet

Dan Rosensweig has earned a tremendous amount of respect in this industry. He is one of the few top executives that is able to garner so much positive sentiment from other senior execs. My ZDNet colleague Dan Farber at ZDNet worked with him and is one of his staunchest supporters:

Yahoo's Dan Rosensweig heading off for new adventures

My colleague Larry Dignan as well as many others (see TechMeme) have already covered the news about the management shake up and reorganization at Yahoo. I checked in with Dan Rosensweig, the Yahoo COO who resigned as part the reorg. Dan and I go back more than a decade. ...

Posted by Dan Farber in Between the Lines on: Dec 6, 2006 12:52 AM

I worked with John Marcom at the Financial Times and he was easily the most impressive executive in that organization. He had a keen understanding of what was achievable and realistic. When he left the Financial Times and joined Yahoo, that shook my confidence in the remaining management team.

I met with Mr Marcom late last year, he spoke about life at Yahoo, how the growth of the business was exhilarating, it felt like being on top of a galloping horse without a saddle. Clearly, that galloping horse somehow slowed lately and the reason seems to lay within Yahoo rather than in the broader market.

Yahoo's leadership crisis and reorganization is directly related to Google's fast paced growth. YHOO's performance would be considered very good against any other metric, but in comparison with GOOG it seems lackluster.

Google's business model is far more efficient because it has shown that using servers and software provides a far more scalable media business than that of Yahoo, which has pursued a hybrid approach relying on a human-plus-machine business model.

Several times, Yahoo has ventured into producing some of its own content, such as its Yahoo Finance video Internet channel several years ago. And more recently, with Patrick Houston, and other journalists brought in to create original content.

[Please see: Yahoo gets content . . .but can it make content?]

Google prefers to create content with machines. It sends out spiderbot armies to harvest content from the open Internet--content created by people but not by Google's people. Someone else is paying their salaries.

What is very troublesome about all of this is this: If Yahoo has trouble competing against Google then what hope have traditional media companies?

Remember, Google is a media company, it publishes pages of content and advertising.

By Tom Foremski for Silicon Valley Watcher

The timing of Yahoo's reorganization announcement signaled something else is going on. The time on the Businesswire release  was 5.34pm Tuesday West Coast time. Usually such things are announced early the next day before the markets open, or early afternoon Pacific time, when markets have just closed.

Here's what happened. Yahoo prereleased it because the Wall Street Journal said it would go live with the story. The Wall Street Journal had been prepped by sources and agreed to publish the reorganization story in Wednesday's newspaper. But it wanted an interview with Terry Semel, Yahoo CEO, which he kept missing Tuesday afternoon.

WSJ editors grew increasingly concerned with no show from Terry Semel. They worried that Yahoo might be pre-briefing the rest of the universe and it might lose pole position on the story, so the Wall Street Journal told Yahoo it would go with what it had and publish the story online. Which prompted Yahoo to try to scoop the Wall Street Journal and get its version out first.

All I can say is that things have gotten very strange at Yahoo this year. This reorg is needed but the one that's needed is at the very top, IMHO.

Terry Semel was the right person for the job in May 2001 when he joined as CEO, he isn't now. It is clear to anyone that knows Yahoo, that this reorganization is not the final one.

Has Mr Semel been spending too much time at his home in SoCal? It seems that way because he is very much out of step with the culture of his company and his business.

One more reorg to go...get it done sooner than later.

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Additional info:

Top Ten Candidates To Take Terry Semel's Job At Yahoo Financial News - Yahoo! Finance

[BTW: Susan Decker is my pick.]

Dan Farber writes about his former colleague Dan Rosensweig:

Yahoo’s Dan Rosensweig heading off for new adventures

Lately Yahoo has seen an exodus of senior executives and the pubic airing of an internal memo, dubbed the Peanut Butter Manifesto, which suggested that Yahoo needs a more cohesive vision, clarity of ownership and accountability and decisiveness. The author of the memo, Yahoo senior vice president Brad Garlinghouse, also said that Yahoo needs sell of non-core businesses and lay off 15 to 20 percent of staff. Dan said the leaked memo had nothing to do with the reorganization, which Semel also claimed in a blog post on Yahoo.

Dan Rosensweig, chief operating officer is out...

This was released early Tuesday evening. It shows the the pressure Terry Semel, the CEO is under to match Google's much more efficient business model.

Here are excerpts from the release:

http://biz.yahoo.com/bw/061205/20061205006257.html?.v=1

Yahoo! Re-Aligns Organization to More Effectively Focus on Key Customer Segments and Capture Future Growth Opportunities

New Structure to Focus on Serving More Sophisticated Demands of Audiences, Advertisers and Publishers Worldwide

SUNNYVALE, Calif.--(BUSINESS WIRE)--Yahoo! Inc. (Nasdaq:YHOO - News), a leading global Internet company, today announced a reorganization of its structure and management to align its operations with its key customer segments -- audiences, advertisers and publishers -- and more effectively leverage Yahoo!'s significant strengths to capture future opportunities for growth.

"We're moving aggressively to deliver the most possible value to our key customers -- audiences, advertisers and publishers -- and seize the major new opportunities we see ahead for the Internet," said Terry Semel, Yahoo! chairman and chief executive officer. "The Internet is continuing to grow and evolve at a rapid pace, and we're reshaping Yahoo! to be a leader in this transformation, just as we did successfully five years ago. Our strategy capitalizes on big emerging trends and leverages our core strengths in search, media, communities and communications. We believe having a more customer-focused organization, supported by robust technology, will speed the development of leading-edge experiences for our most valuable audience segments. In turn, we plan to drive growth and profitability by leveraging our deep audience insights to create a full-fledged advertising network, with a marketplace that meets supply and demand both on Yahoo!'s valuable owned-and-operated network and across the entire Internet."

Yahoo!'s strategy is to create unique user experiences and consumer insights by leveraging its unmatched global user participation, connections and data. The new structure is designed to drive this strategy by aligning the organization with four key objectives:

• Expand customer-centric culture and capabilities -- Yahoo! will develop rich experiences for each audience segment and deliver solutions to meet the needs of all advertisers and publishers worldwide. Yahoo! will organize its services around audience segments and advertising customers, rather than around products.
• Create leading social media environments -- Yahoo! will leverage its strong positions in community, communications, search, as well as media content across its global network to create leading social media environments, which will encourage every user on the Yahoo! network to participate in the consumption and publishing of information, and knowledge through tagging, reviewing, sharing of images and audio, and other social media activities.
• Lead in next-generation advertising platforms -- Yahoo! will extend its industry-leading breadth of offerings to give the most diverse array of advertisers, from large brand marketers to local merchants, every opportunity to connect with audiences on and off Yahoo!.
• Drive organizational effectiveness and scale -- Yahoo! will recruit and retain the best industry talent and focus its resources on high-impact, network-wide platforms to help capture the most significant long-term growth opportunities.

Three Operating Groups

Under the new structure, Yahoo! will have two customer-focused groups, each led by a senior, experienced operating executive, and a strengthened technology function headed by the chief technology officer. All three executives will report directly to Terry Semel. These groups are:

• Audience Group - This group will be focused on building the largest and most valuable audiences and relationships on and off the Yahoo! network, creating more unique, tailored and engaging experiences for Yahoo!'s valuable users. The group will leverage the success the company has had to date, as the largest global Internet destination, to further enhance its existing products in search, media, communities and communications; build social media environment across Yahoo!; open more opportunities for users to take advantage of Yahoo! tools and services off network and through mobile and digital devices; and pursue growth opportunities in emerging international markets. Yahoo! has launched a search for an experienced executive to serve as head of this group.
• Advertiser & Publisher Group - This group will lead the transformation of how advertisers connect with their target customers across the Internet, with the goal of driving more value for more advertisers and publishers than any other company. This group will be created by combining Yahoo!'s broad array of marketing solutions, its industry leading sales teams, and its thousands of high quality distribution partners, to create a full-fledged global advertising network on and off Yahoo!. This is designed to benefit both advertisers and publishers and significantly enhance the company's monetization capabilities, by leveraging the size and scale of Yahoo!'s advertising network. Specifically, this group will provide customer-oriented solutions across all major segments, including large advertisers and agencies, small- and medium-sized businesses, local advertisers, resellers and publishers, as well as develop advertising platforms and marketplaces for the future. It will be headed by Susan Decker, who has served as chief financial officer since 2000. Decker has also been an important contributor to the company's business strategy, has set and managed all aspects of financial and administrative direction, and has recently overseen the Yahoo! Marketplaces business unit, which she will continue to oversee as part of the Advertiser & Publisher Group.
• Technology Group -- Yahoo!'s industry-leading technology group, headed by Chief Technology Officer Farzad Nazem, will continue to support the entire organization. In addition to closer engineering integration within product teams, Yahoo! will concentrate key engineering talent and shift investment towards the development of high-impact, scalable, global platforms and infrastructures to help capture the most significant long-term growth opportunities. For example, the group will be chartered with leveraging Yahoo!'s platform investments in community to create the technology platforms for new social media environments. In addition, it will have a mandate to speed the development of innovative, next generation advertising platforms beyond Project Panama to support the expansion of Yahoo!'s global advertising network. Yahoo! also remains committed to developers and its specific focus on advanced product development.

New Structure Will Increase Accountability, Speed Decision-Making

Semel said, "We're putting the right people in the right places to execute our focused growth strategy. Yahoo! has an extraordinarily skilled and experienced group of senior executives, and we're adding outside senior talent to this already strong team. Our new structure gives us the opportunity to draw more fully on Yahoo!'s deep bench of talent, both at the new group level and down through the organization, while also increasing accountability, reducing bottlenecks and speeding decision-making. We'll also continue to drive sustained innovation by recruiting, developing and retaining the best talent in our industry."

Yahoo!'s senior management team, actively led by Semel and with the continued participation of Yahoo! co-founder Jerry Yang, will work closely together on a daily basis to ensure that the company is aggressively moving its strategy forward, driving long-term growth and fulfilling Yahoo!'s core mission to connect people to their passions, their communities, and the world's knowledge.

The company has a search under way for a new chief financial officer to succeed Decker, who will be assisting in this search. Decker will continue to serve as CFO in the interim. The new CFO and other corporate functions, including corporate development, legal affairs, human resources and corporate communications will report to Semel.

Dan Rosensweig, chief operating officer, has decided to leave Yahoo!, at the end of March, to ensure a smooth transition.

"Since joining Yahoo! almost five years ago, Dan has been a driving force behind Yahoo!'s phenomenal audience and advertising growth, helping shape the development and creation of some of the most adopted and innovative services on the Web today. At the same time, he has helped build some of our most valued partner and client relationships, resulting in our strong advertising success during the last five years," said Semel. "Dan has been closely involved in our efforts to realign Yahoo!'s business for the next phase of growth, and has built a world class team under him. Dan was one of my first executive hires at Yahoo! and I am very appreciative of the friendship, leadership, vision and passion that he has brought to Yahoo!. We will all miss Dan and thank him for all he has done."

The changes in leadership assignments are effective January 1, 2007. The company expects to complete its reorganization by the end of Q1 2007.

The big news yesterday was that Yahoo and Reuters are embracing citizen photojournalism in a big way. Today, Dan Gillmor offers a long goodbye for the profession of photojournalism.

How can people who cover breaking news for a living begin to compete? They can’t possibly be everywhere at once. They can compete only on the stories where they are physically present — and, in the immediate future, by being relatively trusted sources.

But the fact remains, ther