I keep hearing that Yahoo is going to sell Right Media and Apt and their whole technology stack, in order to reduce the costs associated with their ad business. This isn’t surprising, it was often discussed when I was at the company and I’ve heard it has been a constant question in the years since I left.
What does surprise me a bit, is that no one looking at buying or selling the assets has asked me what I think of the idea. I mean there’s no reason why anyone has to ask me. But I just can’t help thinking I have some insight to offer spending 5 years envisioning the ad exchange model and ecosystem, building Right Media from scratch and almost 3 more trying to integrate the Yahoo technology stack with Right Media into the unified tech platform for premium and non-premium advertising.
A lot of people have assumed that I would be right in the middle of these discussions, perhaps even trying to buy the business back myself. I have to admit, I’ve given it some thought and found the idea momentarily captivating. Some kind of twisted online advertising version of a heroic return to the battlefield I abandoned sometime in late 2009. But in reality, my focus is elsewhere and this is someone else’s battle to fight.
Anyway, since no one is asking, I offer my insight free of charge. And I absolutely guarantee it is worth at least as much as it costs.
Here’s the simple version of why it makes sense for Yahoo to sell these assets:
– Yahoo needs to unload the complex tangle of advertising technology used to run its business in order to save money and focus the company’s resources on investments that are more core to future growth.
– Yahoo has proven unable to be a leader and disruptor in the ad technology area. For example, Right Media has languished, APT has been a failure, Yahoo’s legacy ad systems are extremely outdated and expensive to maintain.
– There are partners out there who are better suited to building enterprise SaaS systems like the one Yahoo sorely needs to run its ad business.
And a simple version of why it makes sense for someone to buy these assets:
– Many companies (including Yahoo, although not very effectively) are competing to give Google a run for its money in the “advertising platform/exchange” marketplace. For any of these companies, to have Yahoo’s ad business run on their platform would give them a genuine shot to compete with Google.
– There are hundreds of companies building applications for digital advertising, creating an alarming array of 3 letter acronyms (DSP, SSP, DMP, etc.) and single handedly keeping a small army of PowerPoint jockeys employed updating the infamous advertising landscape slides, but very few companies are genuinely going after a reimagined full tech stack for advertising.
– Yahoo has a large group of advertising product and technology experts who could be a game changer for a company looking to build the ad-tech stack of the future
I generally agree with the arguments above. Well, not the last one, but I’ll get to that. The issue is that like most M&A logic, it grossly under-simplifies the challenges with a deal like this. Before I discuss the complications, I need to express a key personal opinion that my entire argument hinges on:
In order to build a truly disruptive and highly valuable company delivering enterprise software for digital advertising, the new solution has to be an order of magnitude better than the existing systems. It is not enough to deliver an incrementally better version of the existing systems (primarily DoubleClick and homegrown technologies). If there is to be a resurgent disruptor in the advertising technology space it has to change the game. It must attack the white space, and it must do what GOOG/DCLK, Yahoo/RM etc. have been unable to do. Further, the key white space here is a UNIFIED exchange for PREMIUM/NON-PREMIUM advertising space. No one is actually close to delivering this, and no one will beat Google/DCLK in this space without this.
If you disagree with this core premise, there’s really no reason to keep reading. We can agree to disagree.
Ok, if you’re still reading, here are some of the problems with the intersection of my core premise and the assumed logic of this deal:
– Building the Unified Premium/Non-Premium exchange will involve building the system from scratch. Yahoo’s legacy technology is not architected for this, nor is Right Media, nor is APT, nor do I believe there is another system available in the market today that wouldn’t need to be rebuilt. This is a total build from scratch situation.
– Therefore, if you are thinking about buying Yahoo’s assets, you are (hopefully) not doing it because you intend to repurpose these assets to build the system of the future. You are buying useless assets which you must buy in order to get the Yahoo business, which is the key customer you will architect your solution around.
– The buyer of these assets will have to migrate, maintain and ultimately decommission the existing tech stack, at the same time they are building the new platform. We tried to do this at Yahoo, and we failed. We failed for a lot of reasons, but the primary is that some teams are good at cobbling together existing stuff, and some are good at building brand new stuff, but rarely can a team do both. Never was that more apparent to me than when trying to integrate Right Media and Yahoo product and engineering teams. Whoever buys this asset will have to do both, or at least recognise you need 2 distinct teams to do each.
– If you are buying the Yahoo ad-tech stack, the thing you really care about is the Yahoo customer relationship. Yahoo has had a tough few years. But getting them as a lighthouse customer of the future platform is a game changer, and that’s what you really want.
– The Yahoo tech stack is a liability, not an asset. As the “buyer” your best bet would be to leave the assets in place and pay for the resources to maintain the current stack at Yahoo, and fund a totally separate team to build the new platform (with Yahoo’s firm contractual commitment to use your platform once it’s done). This enables Yahoo to cut costs near term, and offset the significant R&D cost of building the right platform to someone else, while holding out hope that they get a better system to run their business down the road.
– Speaking of cost savings, Yahoo is not going to save a lot of money in the long term on ad technology expense. Sure, with the right buyer, they can save some money near term, but the reason why a buyer would buy the Yahoo customer relationship (that is much more what is for sale here than any tech assets) is to be able to charge Yahoo and others for a game changing platform down the line. There is not any real opportunity for Yahoo to get rid of their tech expense. That’s like saying you are going to sell your car to avoid the car payment and maintenance expense and just use rental cars to save money.
– This idea that Yahoo would just stop using its own advertising technology and save money seems far fetched. What would they run their multi-billion dollar business on? DoubleClick’s stack? I’m sure the feds will love that one.
– The idea that Yahoo has a force of brilliant advertising product manager and engineers that are going to accomplish this objective is not plausible. Yes, there are smart people there, but they are not the people to build the platform of the future. How do I know? They were given the last 5 years to do it. Wouldn’t the right people have accomplished the objective already?
– Capital. This takes a lot of money. You have to buy out the assets (or at least pay yahoo to keep the existing systems running) in order to give Yahoo the much talked about cost-savings. Then, you have to make the R&D investment required to build the system of the future in parallel. Once you’ve accomplished that, all you have to do is defeat Google/DCLK in a sales war where they hold the high ground, and can pretty much price you out of the market. Not that you can’t win a fight like that, but without the order of magnitude better system I describe in my core premise…good luck.
Do I know everything about the situation? Not by a long shot. Do I know more than most? Probably.
Why write this? I’m not even really sure. Probably has to do with giving 8 years of your life to something and knowing you came up short. The reality is that I’d like to see someone pull it off. The same way I like to see world records, perfect scores and amazing feats of strategy and engineering. Or maybe its just because hard earned insight should be shared. I hope this is of some use to some of the people considering the transaction.