Business Analytics Capstone Strategic Analysis for Yahoo. Tom Lunsford May 15, 2016

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1 Business Analytics Capstone Strategic Analysis for Yahoo Tom Lunsford May 15, 2016

2 Problem Statement

3 Problem Statement Adblockers Adblockers remove or alter advertising content in a webpage and affect Yahoo s customers, its revenues, and its internal organization by impacting the amount and/or the way that Yahoo earns revenue as a content creator/publisher. Customers Yahoo s customers are its website users ( users ) and advertisers that want to interact with the users. Yahoo s users are further divided into users that use free services (e.g.., with ads) and those that pay for a service (e.g., without ads). This problem statement will focus on users that use frees services and are exposed to advertising ( ads ). Users access Yahoo s sites and services through desktop computers, tablets, and mobile devices. Yahoo s strategy to solve the problems that adblockers pose must consider all types of site access and projected growth for mobile access. Yahoo must provide an attractive user experience to drive users to its websites to generate revenue through ad revenue and adblockers affect that experience by altering what users see when they visit a Yahoo site. Adblockers result in the loss of data about user behavior (e.g., advertising clicks) that Yahoo and advertisers find valuable to guide marketing strategy/decisions that ultimately result in sales of products and services provided by the advertisers. Without user data, customer analytics is less valuable for the advertiser because market research (descriptive analytics) and predicting what consumers will do in the future (predictive analytics) is less useful. As a result, advertisers will look to other providers of customer data upon which to based their marketing strategy and marketing decisions (prescriptive analytics). The loss of user data will affect the price that advertisers are willing to pay Yahoo for advertising across Yahoo s sites. Yahoo needs to interact directly with its customers to gather input/data to guide the development of its strategy.

4 Problem Statement Continued Revenue Yahoo generates a majority of its revenue and profit from search and display ad revenue based on a review of Yahoo s financial statements and its Annual Reports over the last five years. Adblockers threaten that revenue stream by keeping users from seeing some ads or any at all, thus reducing the price that an advertiser is willing to pay to advertise on Yahoos sites. The extent of the impact to revenue and profit can be estimated using a statistical model such as regression analysis. I recommend completing a regression analysis using Yahoo s own historical user/advertiser data and historical data available from the newspaper industry (because declining advertising revenue is not a new problem for publishers). I would use regression to predict a range (rather than a discreet number) of financial outcomes based on assumptions about the number of site users (demand), the cost of retaining/growing users, the prices advertisers are willing to pay at various levels of demand, and the probability of various scenarios. I would optimize the model for profit from advertising. Yahoo also needs to consider non-financial factors around intangibles such as attractive user experience, the speed at which advertising loads on mobile devices, the network data consumed with advertising and website content, and how its response to adblockers will be perceived by its users, advertisers, competitors, employees, and (because it is a public company) its shareholders. Yahoo Internal Organization Yahoo must consider the effect that its response to adblockers will have on its employees. For example, employees may have an negative reaction if Yahoo no longer offers free or beings to pay adblockers not to block certain preferred content. Or employees who have been successful at Yahoo under its current business model may not be readily willing to change to a new business model. Yahoo may consider changing its business model as a response to adblockers and this may force significant changes upon its employees such as how they are hired, developed, and compensated. For example, if employees have been historically rewarded for the number of clicks on banner ads and now Yahoo chooses to generate revenue through subscriptions, then rewards will be focused on subscription dollars rather than on ad dollars. Yahoo should seek to maximize collaboration from employees across its organization to solve the problem that adblocker pose. Content creators, programmers, finance, and others can help quantify the risk that adblockers pose to Yahoo s business model and profitability.

5 Strategy

6 Strategy I recommend that Yahoo implement the five phase strategy outlined below with the goal to keep its site content accessible to users no matter what happens with adblocking and use this strategy to distinguish itself from its competitors (e.g, Google, Bing). Yahoo should: 1. Focus on the Site User Experience. Yahoo should focus its resources on what users presumably want from Yahoo as a website publisher such as speed, performance, privacy, security, and a distraction-free site experience. People could be organized into task forces to address each of these main user concerns. Once these concerns are effectively addressed, Yahoo will drive demand for its sites and possibly reduce the use and/or adoption of adblocking for its sites. 2. Assess the Size of Adblock Problem. Yahoo should estimate the financial impact that adblockers have today and are forecasted to have in the future across its major revenue producing sites (e.g., search, , finance, fantasy sports, shopping, news, weather). Yahoo should collect data on the use of adblocking and the number and type of page views that are limited across its sites and look for variation by type of site access (e.g., desktop, mobile), age, income, and geography. Yahoo can use the estimated impact to guide its allocation of resources. 3. Communicate Directly and Openly with Site Users. Yahoo should create a customized message that is shown to adblock users for a limited time (e.g., 15 site visits) that educates users about the impact that adblockers have on free content, highlights Yahoo s valuable products and services, and explains Yahoo s goals around speed, performance, privacy, security, and distracting content (identified above). Yahoo should not block user access, circumvent adblocker technology, pay adblockers to whitelist its site, or change its user experience from what a user expects today because these activities may cause users to lose trust in or loyalty to Yahoo and increase the risk that users will go to competitors. 4. Limit Intrusive Ads and Seek Feedback from Site Users. Yahoo should limit ads that are typically considered intrusive (e.g., pop ups or auto play video) and gather feedback directly from its users that Yahoo can use to block particularly distracting ads or block an advertiser. Yahoo should ask users to whitelist its site after six months of site user feedback. 5. Develop Alternative Ways to Monetize Yahoo s Products and Services. Yahoo should diversify its revenue streams by developing alternative ways to monetize its products and services without advertising revenue such as paid subscription tiers and offering extra functionality or content in exchange for an ad free experience.

7 Effects and Measurement

8 Effects and Measurement Anticipated Effects of Strategy 1. Focus on Site User Experience Yahoo should focus its resources on what users presumably want from Yahoo as a website publisher such as a distractionfree site experience, speed, performance, privacy, and security. Employees could be organized into task forces (internal organization) to validate each of these user concerns (customers) and develop solutions for each (internal organization, customers). Once these concerns are effectively addressed, I anticipate that Yahoo will drive demand for its sites (customers), possibly reduce the use and/or adoption of adblocking for its sites (customers, revenue), and potentially gain pricing power with advertisers (revenue). 2. Assess the Size of the Adblock Problem Yahoo should estimate the financial impact (revenue) that adblockers have today (customer use) and are forecasted to have in the future (customer use) across its major revenue producing sites (e.g., search, , finance, fantasy sports, shopping, news, weather). Yahoo should use the estimated impact to revenue to guide its allocation of resources (internal organization). I anticipate that Yahoo will see that adblocking does have a minor, but growing, effect on revenue (revenue) and that the effects are different for mobile and desktop users (customers). 3. Communicate Directly and Openly with Site Users Yahoo should create a customized message (internal organization) that is shown to adblock users (customers) for a limited time (e.g., 15 site visits) that educates users (customers) about the impact that adblockers have on free content, highlights Yahoo s valuable products and services, and explains Yahoo s goals around distracting content, speed, performance, privacy, and security. Yahoo should not block (internal organization) user access (customers), circumvent adblocker technology (internal organization), pay adblockers to whitelist its site (internal organization, revenue), or change its user experience from what a user expects today (customers) because these activities may cause users to lose trust in or loyalty to Yahoo (customers) and increase the risk that users will go to competitors (customers, revenue). I anticipate that direct/open communication will result in customer retention and growth. 4. Limit Intrusive Ads and Seek Feedback from Site Users Yahoo should limit ads (revenue) that are typically considered intrusive (internal organization) such as pop ups or auto play video and gather feedback (internal organization) directly from its users (customers) that Yahoo can use to block particularly distracting ads or block an advertiser (internal organization, revenue). Yahoo should ask users to whitelist its site after six months of site user feedback (internal organization, customers, revenue). I anticipate that the lost revenue from intrusive ads will be offset with customer retention and growth. 5. Develop Alternative Ways to Monetize Yahoo s Products and Services Yahoo should diversify its revenue streams by developing alternative ways (internal organization) to monetize its products and services without advertising revenue such as paid subscription tiers (internal organization, customers, revenue) and offering extra functionality or content in exchange for an ad free experience (internal organization, customers, revenue). I anticipate that Yahoo will increase its profitability by developing new revenue streams and managing the costs that it incurs to publish its sites.

9 Effects and Measurement Continued Plan for Measuring These Effects Using Data 1. Focus on Site User Experience Initially, Yahoo needs to conduct some exploratory research to collect feedback from users on what they broadly value about their relationship with Yahoo. Yahoo could use market research online communities (MROC) to gather this data. Next, Yahoo needs to conduct active (e.g., user self reporting, surveys) and passive (e.g., social media data, web data, mobile data) data collection that it can analyze using graphs and models (e.g., regression) to look for trends, correlation, and causation. Yahoo will want to determine the effects that different types of advertising have on the number of users and amount of usage, and how changes in revenue are related to variables that are in the data Yahoo collects. 2. Assess the Size of the Adblock Problem Yahoo should develop a predictive regression model to estimate the revenue impact that adblock has today and is forecasted to have in the future. Yahoo should use data that it already has on its own users on the use/adoption rate of adblocking and the number and type of page views that are limited across its sites and look for variation by type of site access (e.g., desktop, mobile), age, income, and geography. Yahoo should also consider collecting related data from the newspaper industry because declining ad revenue and its effects on publishers is not a new problem and Yahoo may gain insights into what has been effective and what has not. The data could be used to perform simulations to guide decision making. 3. Communicate Directly and Openly with Site Users Yahoo should develop several different types of customized, educational messages about Yahoo s focus on site user experience and adblocking and monitor their effect on customers by using surveys on why customers change their use of Yahoo s site, quit using those site altogether, or why they returned from a competitor. 4. Limit Intrusive Ads and Seek Feedback from Site Users Yahoo should create multiple forums that allow customers to identify ads that are intrusive and change those ads or how the ads are delivered, or block particular advertisers altogether. Yahoo could use a reaction button ( like, dislike, don t care ) on its sites to get user sentiment. Then, Yahoo should ask users to whitelist its site after six months of site user feedback. Yahoo should monitor the causal effect that altering the delivery of advertising has on voluntary whitelisting by seeking active data on why a user chose to whitelist. 5. Develop Alternative Ways to Monetize Yahoo s Products and Services Yahoo s goal is to maximize profit with whatever strategies it follows. Yahoo should develop a regression model that seeks to optimize profit (i.e., where marginal revenue equals marginal cost) for paid subscription tiers and extra functionality or content in exchange for an ad free experience. Yahoo will want an optimal price at which to offers these products/services that will balance the lost revenue from advertising with the cost to produce content.