Why Marissa Mayer Must Fix Yahoo's Mobile Advertising Business

Yahoo's CEO has made some strides in re-positioning the search giant, but she has to fix the company's mobile experience or it will all be for naught.

Apr 16, 2014 at 12:24PM

Yahoo! (NASDAQ: YHOO) CEO Marissa Mayer has brought a lot of attention to the lumbering Internet giant since taking its helm in July 2012.

She hired Katie Couric to become some sort of news anchor for the company, lured noted technology writer David Pogue away from the New York Times  (NYSE: NYT), and spent over $1 billion buying Tumblr. She also licensed Saturday Night Live episodes, announced the company was looking at producing original television-style shows, and has worked to turn Yahoo from a company that relies on Internet search and services like email to one that's a media company with proprietary content. Mayer has done everything possible to get attention for her evolving company -- she even posed for a spread in Vogue. But what she has not done is move Yahoo into offering a cohesive mobile experience. That has left the company struggling to grow revenue in a market where desktop is declining and mobile is growing.

How far behind is Yahoo?

In an earnings call with investors in January Mayer described Yahoo's mobile advertising revenue as "not material," CNET reported.

That's a frightening statement that shows that however far Mayer has moved the company, she has an enormous hurdle ahead. 

Yahoo reported $453 million in display ad for the first quarter of 2014, flat compared to the first quarter of 2013. That's an accomplishment of sorts -- being flat in a down market is at least sort of a positive. But Yahoo did not break out how much of its revenue came from mobile ads, so you can assume the number is still "not material." 

Facebook and Google rule mobile

Facebook (NASDAQ:FB), a Yahoo competitor that also had trouble making the transition to mobile, solved that problem and derived 53% of its advertising revenue from its mobile platforms in the fourth quarter of 2013 up from 23% in the same quarter last year.

Even Google (NASDAQ:GOOG) -- which Yahoo battles for search revenue -- has made gains on the mobile ad front. Google does not break down where its ad revenue comes from, but eMarketer estimates that Google's global net advertising revenue will rise 14% to $43.5 billion in 2014, from $38.3 billion in 2013, and the company forecasts that a growing percentage of that number will be from mobile ads. 

In fact in the mobile advertising world so far it's a two-horse race and Yahoo doesn't appear close to saddling up.

"Facebook and Google accounted for a majority of mobile ad market growth worldwide last year," eMarketer reported. "Combined, the two companies saw net mobile ad revenues increase by $6.92 billion, claiming 75.2% of the additional $9.2 billion that went toward mobile in 2013. The two companies are consolidating their places at the top of the market, accounting for more than two-thirds of mobile ad spending last year -- a figure that will increase slightly this year."

Yahoo's mobile plan needs work

Facebook got a lot of attention earlier this month when it announced plans to split its Messenger service off from its main app. That news was disappointing to casual users of Facebook (like me) who enjoyed the convenience of having everything in one place, but at least Facebook has a main app and a clear (albeit mildly confounding) app strategy.

Google has a straightforward main app that works almost exactly as its website does. There is a search box, a microphone button for the company's digital assistant, and a button to access the company's various services including YouTube, Blogger, News, and more. Accessing any of those services is simple as hitting a button that launches the web app version of the service. Google of course also has stand-alone apps for some of those services and its Maps offering, but the main app is comprehensive and clear. 

Yahoo's strategy is less cohesive and harder to understand. Download the main Yahoo app (at least it's the one titled Yahoo) on an iPhone and you get an app that lists news stories. There is a tiny search button, but nothing as obvious as Google's giant search field. Yahoo also offers stand-alone apps for its mail, messaging, weather, news, fantasy sports, finance, video, cricket news (really), and sports services. You can access some of those services via the main app, but unlike Google, which launches a web version of the app, the button in Yahoo's main app brings you to the app store download page.

Yahoo has to fix its mobile experience

If people are balking at the idea of having to install a second Facebook app, they are not likely to be thrilled by the prospect of downloading half a dozen or more Yahoo apps. Mayer may have the company on the right path in terms of moving away from relying on search and having a suite of products along with proprietary content, but none of that matters if the mobile experience is not good.

Yahoo needs to stop whatever it's doing and build a Yahoo app that mirrors the experience of the Yahoo website in a mobile-friendly way. The company must simplify its offering and eliminate some of its apps (or at least make it very clear which app the main one is and what it does). Only after that happens will it matter that Yahoo has Couric and lots of cool original and licensed programming. There is simply too much content available for users to put up with a bad experience in search of good content. 

These are solvable problems but they have to move to the top of Mayer's list or any turnaround will be short-lived.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google-Class C Shares, and Yahoo!. The Motley Fool owns shares of Facebook and Google-Class C Shares. 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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