Major Layoffs to Hit Yahoo!? Forget the Sideshow, Watch For Strategic Plan

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Been there, done that.

Yahoo! (Nasdaq: YHOO  ) is reportedly poised for another round of major layoffs that could number in the thousands as the company seeks to launch a major restructuring, according to a report in All Things Digital.

But as investors know, any idiot can cut costs by merely taking a machete to the workforce -- but it takes a genius to grow revenues. Yahoo! has hired Boston Consulting Group to zero in on potential revenue-growth opportunities, according to the report. And as investors recall, this has been the bugaboo at Yahoo for years.

Start Here
With Yahoo!'s bread and butter coming from advertising, and more specifically display advertising, that would seem like the place for Thompson to start, wouldn't you say?

Yahoo!'s display advertising was comatose last year, standing at $2.16 billion with zero growth over the previous year when excluding the benefit from its third-party advertising relationships.  But Yahoo!'s rivals such as Facebook posted a 69% jump in display advertising revenue last year, to nearly $3.2 billion over the year earlier.

Facebook also leaped over Yahoo! and Google last year to take the No. 1 spot in U.S. display advertising, according to research firm eMarketer. Here's a look at eMarketer's numbers and estimates through 2014.

Three-R strategy
With its competitors taking swipes at its performance, Thompson & Co. need to delve deeper into a three-R strategy: Relevancy, relevancy, relevancy.

Relevant content = relevant readers = higher click-through on relevant ads.

An even-stronger focus on relevancy is a great place for Yahoo! to start. (Pssst, Yahoo! --Facebook and Google (Nasdaq: GOOG  ) are already there.)

In its IPO filing, Facebook notes:

We compete to attract and retain advertisers. We distinguish our products by providing reach, relevance, social context, and engagement to amplify the effectiveness of advertisers'  messages.

Google, in its annual filing with the Securities and Exchange Commission, goes even further on the relevance front, taking these steps:

[W]e expect to continue to take steps to improve the relevance of the ads displayed on our websites and our Google Network Members' websites. These steps include not displaying ads that generate low click-through rates or that send users to irrelevant or otherwise low-quality websites and terminating our relationships with those Google Network Members whose websites do not meet our quality requirements.

And last spring, the Internet giant announced plans to deliver targeted ads to users' Gmail accounts, noting a user who receives a ton of photography messages would likely be interested in a local camera store ad when they call up their Gmail.

Executing on Its Research
As competitors encroach on its display-advertising market, Yahoo isn't totally sitting on its laurels. Last year, it conducted a study with Innerscope Research to explore users' biometric response to ads that were personally relevant and presented in context with the Web page that they appeared on.

And what did the research show? Users' physical responses -- that is, dilated pupils -- increased 40% when shown ads that drew a personal connection and were in context with the content on the Web page compared with ads that did neither.

But despite the knowledge gleaned from the April research report last year, it didn't translate into higher display-advertising revenue for Yahoo! in the fourth quarter. The company's display-advertising revenue fell 4%, to $546 million (excluding benefits from its third-party relationships) over the previous year.

Thompson, meanwhile, is planning to make the the company's wealth of user data its "cornerstone" for growth, according to a Business Insider report.

Although he's aiming to use this data to create unique and relevant experiences for the users in new products and services, how about using the data mining to improve the relevancy of what Yahoo! currently has?

That would result in less R&D time and greater leveraging of its existing investments. Sure, it's not as sexy as starting  a new product category or service, but Yahoo! needs to get the fundamentals down first in enhancing its advertising-revenue growth.

Yahoo! could take a page from technology companies already benefiting from data mining. In this free Motley Fool report, "The Only Stock You Need to Profit From the NEW Technology Revolution," it names the leader among those data mining software tool providers and how its changing the face of business. For access to this free report, click here to download it now.

Fool contributor Dawn Kawamoto does not own stock in any of the companies mentioned. She is, however, an avid user of the companies' Web sites. The Motley Fool owns shares of Yahoo and Google. Motley Fool newsletter services have recommended buying shares of Google and Yahoo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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