Yahoo! Needs a Mad Man

You'll find New York Times Co. headquarters on the corner of West 40th St. and 8th Ave. in midtown Manhattan, about 3,000 miles away from Flipboard's headquarters in Menlo Park, Cailf., in the heart of Silicon Valley.

The two couldn't be further apart, yet as of today, they're partnering. The New York Times has agreed to share its content through Flipboard's social media magazine, the first time the newspaper has granted a third-party access to complete articles. Once more, a tech upstart rides to the rescue of an ailing industry.

But it also works both ways. Just as the Times was looking west for help, a legendary Silicon Valley name was looking east: Yahoo! (Nasdaq: YHOO  ) is about to make a big bet on Madison Avenue's advertising giants in an effort to stage a revival.

Mad man
Under interim CEO Ross Levinsohn, the one-time dot-com darling is shifting strategy to attract advertising tied to major events, The Wall Street Journal reports. It's a move that would make Yahoo! the Web equivalent of a TV network, flush with unique content aimed at pulling in big ad dollars.

To do that, the company -- which has spent years trying to pad advertising profits through services, software, and e-commerce sales -- would have to woo modern-day Don Drapers at the likes of Omnicom and Interpublic Group. Those two agencies alone produce more than $20 billion in revenue annually. Worldwide, advertising agencies generate $187 billion in sales each year, according to Yahoo! Finance.

Levinsohn wants Yahoo! to get a larger slice of that pie. According to the Journal, he intends to court the major ad agencies in order to "support and grow" the company's relationship with them. How that might work is unclear right now, but a promise to bulk up event coverage and develop special sections or programming seems likely.

Better than nothing
Yet that strategy carries risks. Look at AOL (NYSE: AOL  ) . Chief executive Tim Armstrong paid $315 million to acquire The Huffington Post in February of 2011 yet revenue fell 4% year-over-year in the March quarter. Adding more in-house developed content wouldn't necessarily make Yahoo! more attractive to Madison Avenue agencies. For one thing, costs could increase dramatically.

Right now, Yahoo! gets plenty of help producing content. Especially in the finance channel, dozens of third parties contribute articles that the company aggregates into meaningful feeds. The Fool is one such supplier. The company also has a blog network, built around its 2010 acquisition of Associated Content.

If I'm reading Levinsohn's intentions right -- and, admittedly, I may not be -- his hope is to make Yahoo! a premium name in event coverage through second-screen destination sites.

Think of a splash page for the Academy Awards that not only broadcasts a live video feed to, say, an iPad, but also includes a pool where users make their picks and compete for prizes, articles and commentary, plus embedded Twitter feeds and Facebook posts. Yahoo! would then collect data on those logged-in and present relevant display ads from inventory supplied by its Madison Avenue clients.

We've yet to see something this pervasive, though Levinsohn recently struck a deal to host CNBC videos at Yahoo! Finance, the Journal reports. More such deals could be in the works.

Tick, tick, tick...
But that's also one victory in a long campaign for a CEO who is short on time. Yahoo!'s board of directors is searching for a new chief executive as of this writing, which means Levinsohn's strategy has to produce meaningful results soon.

Nor are investors likely to be patient. Yahoo! has spent years flailing about, trying to craft a strategy to set it apart from peers Google, which dominates search advertising, and Facebook, which has emerged as a brand-advertising powerhouse.

By contrast, Yahoo! has seen revenue slip every year since 2008. Display advertising, its largest business, grew 15% year-over-year in 2010 but then went nowhere last year. Search advertising revenue fell more than 40% last year while services and transactions revenue -- read: e-commerce -- has declined in each of the last two years. Levinsohn is right to want to shake up the business.

Why it might work
And he has an important ally in Manhattan's mad men because Facebook and Google aren't exactly good for billings. In January, Procter & Gamble said it would slash its big-ticket advertising budget, in part because Web-based alternatives had proven to be more cost-effective.

Big agencies can't afford to see big clients take their billions elsewhere. Partnering with Yahoo! could allow them to offer an attractive digital display alternative. Or at the very least, a stronger argument against switching to cheapskate alternatives. Yahoo! could win by being part of the discussion.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Google and Interpublic Group at the time of publication. Check out Tim's web home, portfolio holdings and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Facebook and Google. Motley Fool newsletter services have recommended buying shares of Google and Procter & Gamble. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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