So what indeed is Yahoo (NASDAQ:YHOO)? CEO Carol Bartz has been trying to paint the new picture of it not being in Google’s (NASDAQ:GOOG) space, but being different. Not a search company, to be sure, a media company of some sort, and one that’s put many of its eggs into the basket of better and better targeted advertising, down to serving each of us the right ad within 50 milliseconds of the time we hit a web page.
Now it’s becoming a media company, or in the old parlance: a publisher. It has purchased Associated Content for something more than $100 million, a company whose value has lately been burnished by the media’s fascination with Demand Media, and more lately with AOL’s (NYSE:AOL) Seed.com push, as AOL tries to set its own independent path.
Look at who is involved in these companies — Associated Content CEO Patrick Keane, former head of ad sales strategy at Google, and AOL CEO Tim Armstrong, former Google sales head and a continuing investor in Associated, and you can see the simplicity, the commercial elegance, behind it. Armstrong, his confidence built on Google’s success, has put it dramatically, saying he wants to “spark a revolution of people doing content at a different scale.”
It’s a matter of reversing the traditional stream. That stream: Writers, reporters and editors come up with ideas, editors decide what gets into print and everyone expects the ad sales people to sell against whatever gets published. You know: good luck, guys, we’ve created good stuff, certainly you can find advertisers who want be associated with it.
Now, Associated and Demand and AOL are looking it at the other way, which makes sense given the ad roots of their leaderships. Reverse the stream: Figure out what advertisers want, how much they willing to spend in which categories, when and to reach whom — and then essentially commission the, uh, content stuff.
How much do you pay for the content? Well, as little as possible — Associated Content pays $5-$30 a story to those surviving writers among the 380,000 who have signed up to contribute. But, here’s the important metric. You pay a lot less for the content than you know you can make on the advertising. Let the business opportunity drive the content creation.
Now these cost metrics are making sense even to the most hallowed of news brands. They don’t have to accept the entire business model, the whole ads-drive-editorial philosophy of these companies. They do, though, like the idea of getting cheap, at-least-good-enough, content to drive their own websites, especially in topical areas, like travel and technology. So Reuters, Scripps, and Fox News, among others, have signed up to take Associated Content content.
For Yahoo, I think, it’s simple arithmetic. If you’ve figured out how to monetize content better than the other guys — remember Yahoo Newspaper Consortium members say they can mark up $8 CPMs to $15 and beyond, courtesy of Yahoo’s behavioral targeting technology — why not do it against content you own. With the Associated purchase, it now will own the 2.1 million articles in the database, with another 2000 coming in every day, and it can sell advertising directly against those articles, without having to do any margin-draining revenue shares.
How good is that content? Well, Patrick Keane is the first to say that editing would be too fancy a term to apply to his process. Though he employs 15 full-time editors, they’d have about two minutes per story to devote to editing, given the 2000-story-a-day in flow. So as Keane told me, editing amounts to “making sure the title is correct, the story’s not gibberish and not created by a bot in the Philippines.”
Lots of questions tumble out of the Yahoo Associated deal. Here are my first four:
- With the Yahoo Associated deal done, who is going to dance with Demand? Will it IPO or now be snatched up by Microsoft (NASDAQ:MSFT), as a defensive move? Google wouldn’t buy, because, it’s not a content company, right?
- What’s this mean to the Newspaper Consortium? Nothing, I’m sure Yahoo will say, but consider that the same niches — travel, gadgetry, health, sports, entertainment — that attract better ad rates than plain old news are the ones newspaper companies are themselves trying to better monetize, in part with Yahoo technology. Now, Yahoo, the emergent publisher, will be competing for viewers for that same content.
- Doesn’t this mean Yahoo itself will soon supply more content to news companies? Just as Associated and Demand (with its recent providing of USAToday Travel Tips section) have begun to do, Yahoo can do bigger time. It can produce largely Pro-Am, good-enough content cheaper than news companies, sell it to them — and even provide packages of content and ads. It’s a publisher. It’s a syndicate. It’s a wire. It’s an ad rep. News sites, in this scenario, are increasingly distributors, exercising some choice of what appears on their sites, under their own brands.
- Overall, today’s deal is further evidence we’re into the age of cheap content and of content arbitrage. The stream’s being reversed all around the news business, with advertising driving content creation in ways that those of us who fought print advertorials couldn’t once imagine. Content arbitrage is a feature of the landscape as I recently wrote (“The Newsonomics of Content Arbitrage“) and one that modern media companies must learn. How they use its principles will make all the difference in what they and their brands stand for, but the need to understand the principles is reinforced by this deal.