Sometimes, the quickest way to lose credibility is to tell people who are a lot smarter, accomplished and experienced than you are what they should be doing instead with their time. This is one of those times. But sometimes I just can’t help myself. Besides, I don’t have too much (credibility or fame or money) lose anyways. So here goes. . . I have no idea what Marissa Mayers is really planning to do with Yahoo. I do believe (or hope?) the “public” plan seemed more like a smokescreen. That what was actually revealed was not a “strategic plan” but a tactical plan to create short term focus, reset the culture, get into an operating rhythm, and stem the tide on employee churn. In the meantime, the pundits hasn’t been too kind complaining that her strategy seemed uninspired and conservative for a company on the brinks of irrelevance.
The worst place for a company to be stuck in is as a leader in a rapidly shrinking market. If Yahoo doesn’t act soon, it might end up with that label. Yahoo is still a major destination on the Internet, but the areas where it is either #1 or #2 are either commoditized or no-longer growing parts of the web – email, finance, sports, “portal.” Even worse, in each of these categories, Yahoo is facing major disruptions from much more nimble mobile and socially focused startups. (And no, focusing on “personalization” is not an effective strategy against these disruptions.) Instead, Yahoo needs to become the disruptor rather than the disrupted – it needs to find competitors who are even less nimble and more handcuffed by their existing business models than Yahoo is today. The obvious answer, in my biased world view, is to look for opportunities to disrupt legacy media distribution and consumption via online video.
At its core, Yahoo is a new media distribution and monetization company – and its main asset is its audience of 150M monthly unique visitors and its 1000+ strong sales force for selling premium advertising. Everything else – the technology, the people – is simply a means to that end. Put it another way, Yahoo is a new media network – one that built its audience via differentiated technology and user experience rather than via exclusive physical distribution channels or infrastructure economies of scale. Yahoo is really closer to ABC, NBC, and even Comcast than it is closer to Google.
So what exactly should Yahoo be doing? The first bet is to leverage its still significant audience to build a counter weight to Google/YouTube in the online video platform business. The playbook is not rocket science.
Yahoo needs to re-invent yahoo.com as a major destination with video as one of its main forms of content. It needs to make the yahoo online video consumption experience native across all mobile devices (in addition to desktop) especially the tablet as a second screen platform. Those of us in the internet business would probably never consider Yahoo a leading product and user experience company. However, compared to the cable companies that have brought us the clunky “channel guide” experience – the guys and gals at Yahoo are downright geniuses. It also needs to take a page from YouTube’s and Tivo’s playbook to blend time-shifted video consumption behavior with the linear programing paradigm of broadcast TV. If Yahoo can pull off creating a seamless user experience across what was once two very different worlds of online video and linear TV, it would have a giant winner on its hands. (more on that later)
The next step for Yahoo is to raid YouTube for “premium” original online content. A silent revolution has been taking here in LA where video content are produced at the fraction of the cost of television content while generating the type of audience that would put most run-of-the-mill cable channels to shame. The innovation that has laid this foundation is YouTube’s channel subscription feature which has created the TV equivalent of “timeslots” for the asynchronous online medium. This has allowed YouTube channels to build a consistent and recurring audience for episodic content and in turn focus on content production rather than continuing having to find audiences for each and every video produced. These YouTube personalities have become celebrities capable of launching new channels (http://en.wikipedia.org/wiki/KevJumba) or even consumer brands. http://en.wikipedia.org/wiki/Michelle_Phan). On the other hand, these channels have been looking for better monetization, increasing distribution diversification, and more control over their own audience from YouTube – Yahoo has the potential to become the ideal foil to Google. Of course, Yahoo would be not be the first to the party – Maker Studios and Machinima has already carved out sizable portfolio of YouTube channels. Yahoo should partner with companies like Maker and Machinima or – ideally – acquire one or both to gain scale and full economics right away.
Now, Yahoo could stop right there and would still have created a leading premium video destination rivaling Hulu and Youtube. Flushed with one of the largest premium video ad inventory on the web, Yahoo can quickly build up one more billion dollar ad revenue stream by unleashing one of its core assets, its sales force, to sell its video ad inventory.
But of course, it would be a total shame if Yahoo just stopped right there. Yahoo should attempt to license premium TV content for over-the-top linear TV applications. The offline content owners are continuously looking for better terms, more diversity, and more direct ownership of their audience in their digital distribution relationships. The ideal partnership especially on the digital side has yet to be found – which is where Yahoo comes in. The TV networks’ relationship with cable and satellite companies has never been one of mutual admiration. Internet companies like Netflix and Google/Youtube has worked hard to change Hollywood’s initial perception that they are out to commoditize at best, pirate at worst their content with mixed results. Apple has the leverage to force Hollywood’s hand but iTune hasn’t exactly been a savior to the music industry. Hulu and the network’s own destinations are subscale compared to existing distribution channels like cable (Comcast reaches about 22M paying households and roughly 55M individuals). Both Dish and Intel have been rumored along with Apple to be approaching various cable channels on licensing their content for an over the top live TV initiative. Yahoo; however, has the audience scale to be of significant value to content owners if it is willing to provide the partnership framework to allow content owners to “co-own” their audience and gain more levers in their marketing tactics (actually not unlike what YouTube channels has asked for). It is not hard to imagine a world where Yahoo could become Hollywood’s best friend and beat all the other online companies to the punch. If Steve Jobs can pull off iTunes + iPod back in 2003 – it should be within the realm of possibilities that Yahoo can pull this off. In the end, the right portfolio of online content combined with traditional TV content PLUS a native user experience for cross device video consumption will be a game changer and sets the stage for Yahoo to take over the living room.
(Side note, in no ways will this be easy. Too many networks have come to rely on affiliate fees from cable and satellite companies to maintain their cost structure. And in this scenario, the cable and satellite companies have the most to lose and will definitely fight tooth and nails to convince networks to not license their content to Yahoo. Like many legacy industries, the TV business is stuck between its current business model and its future.)
The very last step to this crazy plan (if I’m talking crazy might as well go for it all the way!) is for Yahoo to become a major force in converged traditional and new media distribution on TV. Yahoo needs to own the last mile for the most important channel for media consumption – the living room. The winning application is not an incremental or a segregated consumption experience on TV (e.g. Netflix) that most of the digital content distribution companies have been building. Instead, Yahoo needs to make consumers forget about their friendly neighborhood cable operators. Having the right content bundle from TV and digital content owners is the first step to offering a differentiated content bundle. At some point in the near future, Yahoo needs to be the default user experience on TV as well. The entry point to the living room traditionally is through the setup box. As a result, Yahoo can offer it’s over the top content experience through a subsidized, IP-enabled setup box replacement. Alternatively, for a bigger splash – Yahoo can acquire the top three video streaming device companies – Roku, Tivo, and Boxee. Collectively these companies own close to 6M “subs” – good enough to be the 3rd largest “cable company” in the U.S. ahead of Cox, Charter, and Cablevision. If Yahoo has a billion of dollars to spend on acquisition – it might make a lot of strategic sense to think hard about rolling up these companies to eventually create a true alternative for cord cutting. (As crazy as this sounds, what do you think Google TV is trying to do? Or for that matter, Apple TV.)
While we are close to the tipping point to the mass market adoption of this brave new world of a completely device independent video consumption experience, we are not quite there yet. What is missing, is a company that can piece together an already scaled audience, give them access to wide range of linear and asynchronous video programming, and meld all of that together through a user experience applicable for both the lean back world of TV and the lean forward world of video. Yahoo arguably has as good of a chance of doing just that as any player in the space. Hulu lacks true scale. YouTube has yet to gain the trust of Hollywood. Cable and satellite companies are handcuffed by its old business model. And Apple has never been able crack the application layer (see Ping and iCould).
Having spent and continuing to spend lots of time in the Silicon Valley while living and working in Los Angeles, I’m not sure many entrepreneurs, venture capitalists, and executives in the Valley realize that the tipping point is already here for the convergence of the old and new media industry. Ten years ago, “new” and “old” media content, transport mechanism, and display medium were completely segregated (outside of music). Today, a single piece of video content can be transported by any given protocol (IP or not) via Internet, cable, satellite and simultaneously and end up on a tablet, smartphone, laptop, and TV anywhere in the world. Ten years ago, content distribution (in the TV business) was artificially constrained by tightly coupling physical distribution (cable companies) and marketing distribution (tv networks). Today, those relationships are quickly becoming less relevant – as distribution will likely continue to become more and more fungible as the Internet becomes the transport medium for any content regardless where that content ends up. Many things can be said about Yahoo, but its track record in building a sustainable and scaled audience in an open and hyper competitive distribution ecosystem such as the Internet is an expertise that only a handful of “Internet companies” have and none of the old media companies can claim. Marissa needs to make a bold bet – the status quo is simply a slow crawl to obscurity for the once iconic company. A major bet on disrupting one of the largest industries in the U.S. already going through major turmoil is going to worth the gamble. Don’t let Apple or Google have all the fun.