Yahoo makes an attitude adjustment

John Keck is a Yahoo convert.

A year and a half ago he was one of many interactive-media directors who loathed working with Yahoo to buy and place ads. But a month ago he gave a speech called "From hate to love" at a Yahoo-sponsored summit for interactive advertising agencies in Princeton, N.J. In the speech, he described a sponsorship deal he helped broker between Compaq Computer and Yahoo--one that might have been impossible a year ago.

"I used to be outspokenly negative about Yahoo," said Keck, who works for San Francisco-based advertising agency Foote Cone & Belding. "They had incredible arrogance...They hired a bunch of kids who took orders and made lots of money.

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"But our relationship with them has completely changed--they've let us in the door. They're now focused on what's going to make Compaq happy with Yahoo and what's going to make (our agency) happy with Yahoo."

Once secretly reviled by many traditional advertisers and agencies for arrogance and inflexibility, the kinder, gentler Yahoo has been noticed in the industry. Whether the effort shows up in the bottom line may be revealed Wednesday, when the Internet bellwether reports second-quarter earnings.

While Yahoo tries new tricks to land advertisers, competing Web sites also are pulling out the stops--sparking something of an arms race among Net content companies.

The most obvious examples are larger ad formats on mainstream sites such as Ask Jeeves, CBS MarketWatch, Excite.com and The New York Times' Web site, which typically have kept a tighter rein on the aesthetics of their sites in fear of scaring visitors away. NYTimes.com went so far recently as allowing Oracle to place ads that sent a military aircraft buzzing across the news stories on the site.

Behind the scenes, ad salespeople are also becoming more accommodating, media buyers say. Perhaps nowhere is that more evident than at Yahoo, still the most trafficked site on the Web despite revenue troubles and management changes.

Among the changes, Yahoo is working closely with agencies rather than avoiding them. It also is developing longer-term relationships with clients rather than pitting one against another to jack up rates.

Overall, Yahoo representatives are approaching deals with a sense of humility and collaboration, rather than the cockiness and patronization that earned it the reputation of a Web bully.

"In the past they would come to us very arrogant and demand things; now it's a tail-between-the-legs approach," said one media buyer who requested anonymity. "Now they're trying to be more of a partner for us. They seem to be more flexible...and trying different ad models and different approaches."

Playing nice to agencies and advertisers is crucial for Yahoo. During the past year, the company has fallen from being a Wall Street darling and poster child for the Internet boom to a battered and bruised casualty of the dot-com implosion. Many advertisers have been washed out by the stock market collapse, while the survivors have drastically cut their spending.

In its first quarter, Yahoo reported pro forma net income of $7.6 million, or 1 cent a share, on sales of $180.2 million. The number was substantially down from the same period last year, when Yahoo reported net income of 10 cents a share on sales of $230 million. In addition, Yahoo's total number of advertisers in the first three months of the year fell to 3,185 from about 3,700 in the previous quarter.

Yahoo's shares have tumbled 87 percent from a 52-week high of $142.68 to about $18.

The company is scheduled to report second-quarter earnings Wednesday, providing some insight into whether the softer side of Yahoo is beginning to pay dividends. Analysts expect the company to break even in the second quarter, according to earnings tracking company First Call.

To reverse its slide, the company hired former Warner Bros. Co-Chairman Terry Semel in April as its new chief executive and former Reader's Digest executive Gregory Coleman as its head of North American operations.

Much of Yahoo's earlier success, and later collapse, was through its ability to ink multimillion-dollar deals for advertising and sponsorship placement throughout its site, the company admits. Once the immediate dollars were taken away with the stock bust, it became harder to convince traditional advertisers to fill the void. Traditional advertisers typically take longer to court and require more care and attention than online companies.

"There has been a very aggressive reaching out to traditional advertisers to get them involved in the Internet," said Murray Gaylord, Yahoo's vice president of brand marketing. "The agencies today are also much more receptive to the whole proposition. They're wanting to get involved."

The agencies are especially important to Yahoo's future because they often hold the key to valuable relationships with traditional brands, which the company hopes 70 percent to 80 percent of its total ad revenue will come from by the end of 2001. Yahoo has seen that it needs to create long-term relationships with these companies not only to sell advertising but also to sell access to valuable research and data it holds on customers.

Changes in Yahoo's practices were inevitable.

To stem the receding revenue tide, Yahoo forced itself to reinvent its business practices. One step has been the work of Gaylord, an advertising industry veteran who was chief operating officer at the Ad Council before joining Yahoo in March 2000. Gaylord's modus operandi: Turn Yahoo into an operation bent on establishing relationships, not burning them.

"There's a real understanding that we do need, and must focus on, relations" within the advertising community, Gaylord said. "It was very transactional in the early days."

Under Gaylord, Yahoo has begun to act more like a media company. In an effort to court the agencies that handle interactive ads, Yahoo began sponsoring summits exclusively for agencies and their clients like the one Keck attended in Princeton. The two-day events have run intermittently since October and are largely focused on education. The meetings were held in Chicago; Napa Valley, Calif.; Dallas; Santa Barbara, Calif.; and most recently in Princeton.

Mark Stephens, media director for interactive agency Lot21, knew the company was starting to view the agencies as more important during a January conference he attended in Napa. He said Yahoo invited all the top media directors and planners, and co-founder Jerry Yang was available during a question-and-answer session.

"The summit itself was a shift. They wouldn't have bothered to do this before," he said. "It was a pretty significant undertaking to put up advertisers and agencies in a hotel in Napa."

Still, some media executives who attended the Napa conference came away with the feeling that Yahoo oversold itself, instead of fostering the exchange of ideas and learning among agency executives. Keck said that Yang's appearance, although impressive, was more of a celebrity sighting than an opportunity to learn something more about the advertising industry.

But he said Yahoo took notice and adapted its conference agenda for the New York event to appeal to agencies' objectives. The summit featured guest speakers and media executive roundtables, rather than simply Yahoo-centric presentations, Keck said.

Despite the overtures, media executives say that the Web portal has more work to do to repair relationships.

Yahoo and other major publishers dictated the rules for nearly all aspects of online advertising in the first half of last year, executives say. Advertisers and agencies had little flexibility in negotiating lower rates or deviating from standard ad units like the banner, for example.

Deals that allow advertisers exclusive claim to a page were rare a year ago. Publishers also were not open to allocating technical resources to accept rich media advertising, which typically requires more bandwidth to load properly without disturbing a Web site's design.

Ad executives say that although Yahoo isn't likely to admit it, the company is open to what's known as performance-based deals as opposed to earlier adherence to standard flat rates, which are based on the number of times consumers view an ad. Performance deals are set up so that the advertiser pays only when a visitor clicks an ad and signs up for a service, for example.

"The Yahoos and the AOLs have traditionally been like, 'It's our way or the highway,'" said Ryan Bell, national media director for online advertising company Beyond Interactive, which works with such clients as Oracle, Reebok and Verizon Communications.

In past years, the company placed barriers on advertisers to run banners that would "loop," or show repeated strings of animations, because it can be annoying to site visitors. But Yahoo is no longer so restrictive about technology or pricing.

"We've seen a sway in what sort of deals will be entertained," Bell said. "Before, there wasn't as much flexibility in pricing, but now that advertisers are seeking out those types of 'cost per acquisition' pricing models, we've seen publishers being more flexible as to what types of deals they'll accept."

Executives also say that advertisers can be much more innovative than before. For example, Jerry Quinn, media director at iTraffic, said his agency orchestrated a campaign for 20th Century Fox that overhauled the Ask Jeeves home page into a tropical theme for four days.

In addition, Yahoo has started publishing case studies and research on ad campaigns for its advertisers--material that had previously been considered sacrosanct.

"Last year it was a take-it-or-leave-it strategy where a lot of the publishers' sites said, 'This is what I have, and this is what it costs, and that was the end of it,'" said Andrew Swinan