Life Is but a Stream at Yahoo These Days — But Will It Revive Ad Revenue?

If you look on any major destination content property on Yahoo these days — Finance, Sports, News — you get the picture pretty quickly.

The presentation is a slightly numbing and decidedly robotic experience, a major shift away from Yahoo’s formerly edited and livelier content pages, removing almost all feeling that humans touched the page, and underscoring that computer algorithms are now firmly in charge.

Other than changing topics and different color schemes, the key properties all look exactly alike, an endless scrolling feed of news, now mostly from outside sources, with periodically inserted in-stream ads that look very similar to the content.

It’s the ads, in fact, that are the real point.

Arriving in April, these “Stream Ads” are now everywhere across the Yahoo universe, even in Yahoo Mail.

The sponsored and targeted content is akin to what you might experience in Facebook’s News Feed, which has always looked this way.

The move to embrace this native ad format — which Yahoo claims “matches the content and context of the pages” and works across all devices, especially mobile ones — is CEO Marissa Mayer’s big gamble on turning around what has become a very dicey situation for the Silicon Valley Internet company’s ever-declining advertising business.

Its initial code name at the company: Moneyball.

“This is her big play on the ad side,” said one person familiar with the efforts with in-stream ads at Yahoo. “Everything else is just a sideshow to her.”

That “sideshow” is largely referring to the depressing and persistently declining trends in Yahoo’s display business. While Yahoo has been upping its premium efforts — such as a billboard unit that drops down on pages with noisy movie trailers or flashy smartphone come-ons — many inside the company acknowledge that this is unlikely to turn the tide.

Consider: In the last quarter, display ad sales dropped fell 12 percent from a year ago, with overall revenue dropping seven percent, to $1.14 billion.

And Wall Street analysts do not expect any dramatically improved results in the third-quarter results, set to be announced Tuesday after the markets close. While online advertising performance across the industry, including at rivals Facebook and Google, continues to rise strongly and in double-digits, it is expected that Yahoo will show little to no growth in its core business.

Analysts are estimating that Yahoo will have 33 cents in adjusted earnings on revenue of $1.08 billion, compared to 35 cents on $1.09 billion in the same period a year ago.

Mayer, who has been in the job 15 months, has acknowledged the problem in several earnings calls so far, noting that she is first focused on building up talent and products, before being able to show any lasting improvement in revenue.

Helping her out massively to bridge the gap is the gift that keeps on giving from China, in the form of a large Yahoo stake in the Alibaba Group. Its upcoming and ever-rising IPO valuation has kept Yahoo shares rising dramatically.

Eventually, of course, the impressive work of Alibaba execs will not provide the lift for Yahoo, which is where in-stream ads presumably come in.

Yahoo execs, who declined to be identified due to Mayer’s stringent no-leaks policy, said that Mayer has hopes that native ads will be a “third marketplace” for the company and, in time, its greatest driver of new revenue.

“She’s aiming at capturing dollars from long-tail advertisers, which is long past due,” said one person with knowledge of the situation. “No one is sure if it will make up for the damage that’s been done on the premium side, but we’ll see.”

Currently, insiders told me that annual run rate for in-stream ads in Q3 is in the low hundreds of millions of dollars — about $60 million or more in the three months — with hopes for an even bigger boost in the fourth quarter.

Big numbers are key, and in-stream ads do allow many more ads per page, although prices are currently drastically lower than premium display ads.

In addition, the quality of ads is still poor, with advertisers that recall late-night cable spots, hawking such products as dark-spot correctors, credit checks, teeth-whitening, gray-hair remover and dental insurance.

In other words: Not exactly the Top 200 brands.

That could change, said one ad buyer with lots of big clients, if Yahoo tweaks the performance. “In the last month, only a handful of clients were buying Stream, and they were tiny budgets,” the ad buyer said. “This will need to scale to attract more top-of-the-funnel content-led brands, rather than the CPC ads from search, which is where it is now.”

Another ad buyer was equally positive, but also wary. “It could be a big deal when Yahoo gets the ads right and the targeting right, but neither is true yet,” the ad buyer said. “It also means advertisers need to get their act to together to create in-stream ads that are content-relevant. Yahoo can’t do much until that exists at scale.”

When that is is still unclear — Yahoo is making a big bet that it will get there. It will be interesting to see if in-stream ads do provide the lift in the Q3 report — even initially — that Mayer is hoping for, giving investors the first indication that Yahoo has some real revenue growth in its core business.