Marissa's revenge: Yahoo!, Google, and the future of TV

Marissa Mayer left Google and took the reins at Yahoo two years ago this summer. Her first two years have focused on rebuilding the organisation, shifting the product focus from PC to mobile, and unlocking the enormous value of its stake in Chinese e-commerce giant Alibaba. Rumour now has it that Marissa is turning her attention to video, putting the final touches on a YouTube clone to launch in the next few months.

Why is online video critical to Yahoo's future, and what does its recent move tell us about the future of TV?

The future of Web advertising is video

Yahoo is a Web company. Yahoo is also an advertising company. What Yahoo has not been is an online video company, which goes some way in explaining its behaviour over the past decade.

Advertising is the lifeblood of the modern Internet. Without it, most of the Internet content and services that we enjoy would disappear in short order. That said, not all forms of internet advertising are created alike. Display advertising has been Yahoo's core strength since the original Yahoo directory became the first real consumer Internet portal. Unfortunately, display has been in decline for years while search advertising (Google AdWords) has become the dominant internet revenue platform.

Mayer presumably knows that going head-to-head with Google in the search business is probably not the best of ideas. This leaves video advertising - for years only a peripheral, but now most definitely a core revenue engine. In order to sell video advertising, however, one needs video content and video viewers. Per comScore's March 2014 numbers, Yahoo serves up about 1/20th of the video consumption than does Google, with roughly 580 million video views a month. This pales in comparison with Google's more than 11 billion monthly views. In short, Yahoo is correct to perceive that success in video is imperative to its relevance as an Internet advertising platform.

The window of opportunity for launching new video services is still open

When was the last time a significant new US TV channel was launched? Most of the top 25 cable networks were launched during the 1980s and early 1990s, and are now more than 20 years old. The Web, by comparison, remains a cauldron of innovation. Yes, Netflix and YouTube rule the roost in terms of premium and ad-based content, respectively, but the barriers to entry are still much lower on the Internet than in the television world, and new, successful video services are certainly possible.

Despite (or perhaps because of) its massive traffic, content providers are not overly enamoured with YouTube's business terms. Content providers net approximately a $5 CPM after Google takes its 45 per cent share. Yahoo's plan appears to offer a more generous piece of the action, which it hopes will persuade top YouTube content providers to post new videos to Yahoo first.

Legacy TV providers already have their work cut out for them; struggling to retain viewers against the plethora of new video services available to consumers at the swipe of a touch screen. The competitive context will become more challenging if a revitalised Yahoo goes toe-to-toe with YouTube for the best of the Web's new video talent. YouTube may well benefit from some healthy competition, which in turn will spur even greater innovation.

The author is Joel Espelien, senior analyst, The Diffusion Group. Re-printed with permission.
Link: http://tdgresearch.com/marissas-revenge-yahoo-google-and-the-future-of-tv/