Peter Kafka

Recent Posts by Peter Kafka

Where Are Yahoo’s Ad Tech Outsourcing Plans? Complicated and in Limbo.

Yahoo has been making a flurry of content deals of late, all part of interim CEO Ross Levinsohn’s plan to turn the company into a media giant.

But what about the other part of Levinsohn’s plan — possibly outsourcing a big chunk of the Silicon Valley Internet giant’s ad-servicing business?

As it turns out, doing so is awfully complex and fraught. And, since Yahoo’s board hasn’t officially given Levinsohn the top job as yet — there is an active job search effort going on, looking at him as well as others — the planning process has gone into neutral, said sources.

But if Levinsohn does get the go-ahead, things could get very interesting.

As in, a major-tie-up-with-Google interesting.

That’s one of the options Levinsohn and his team have been considering, as they contemplate a strategy that would hand over much of Yahoo’s ad tech operations to outsiders.

What might that look like? Here are some of the options insiders say Levinsohn is looking at:

* Finding a partner to serve the premium “tier 1” display ads that Yahoo sells itself. The most likely candidate for that job would be Google’s DoubleClick, since most other players are either too small or too untested to handle the volume of ads Yahoo sells. An alternate theory: Find some way to tie up with Microsoft and AOL, and get those companies to help shoulder the load.

* Find someone to take over for Yahoo’s Right Media Exchange, which handles the large slug of “tier 2” ads the company has traditionally offered to outsiders, as well as its APT ad platform, which works primarily with newspapers. There’s a much larger pool of companies that could handle that work, but Yahoo seems to be thinking about three in particular: Google, again; some combination of Microsoft and AppNexus, the ad tech infrastructure company that works closely with Redmond; and PubMatic, which just raised a big pile of money and is eager to take on the work.

* Meanwhile, Levinsohn could also keep some ad tech operations, like analytics, within the company.

The upside for these kinds of deals could be significant. For instance, an ad tech executive who knows Yahoo’s business estimates that the company could generate up to $500 million a year in extra income by bailing on Right Media. Half of that figure would supposedly come from an uptick in ad revenue, while the rest would come from cost savings after shrinking payroll and overhead.

The downside is that even contemplating the different scenarios is knotty.

For starters, any consolidation with Google would be reviewed by federal regulators, whose concerns helped scuttle a would-be Google-Yahoo search deal in 2008. Google and Yahoo could argue that display advertising isn’t nearly as consolidated as search, and that logic might eventually prevail, but the limbo wouldn’t do Levinsohn any favors.

“Giving everything to Google would make us a ton of money,” said a Yahoo executive. “But then the question is, where are you three years from now, and would the DOJ allow it?”

A Google deal might also enrage Microsoft, which is partnered with Yahoo on search. One possible solution to those bruised feelings would be to hand off the remaining parts of Yahoo’s search business. The logic of the deal might be jarring for some of Yahoo’s other partners, since last fall the company was pushing to build a coalition that was designed in large part as an anti-Google gang-up.

The biggest problem with all of the scenarios: Levinsohn can’t really pursue them with force unless he’s actually Yahoo’s CEO. People both in and outside of Yahoo say discussions have slowed down recently as Levinsohn waits to hear his fate.


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I’m a giant vat of creative juices.

— David Pogue on why he’s joining Yahoo