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Once a Leader, Yahoo Now Struggles to Find Its Way

Yahoo has been one of the most-visited sites on the Internet since its glory days as a Web portal. Yet as the rest of the Internet moved on to social networks and mobile devices, Yahoo has failed to keep up.

The exterior of Yahoo! corporate headquarters in Santa Clara, California.
Getty Images
The exterior of Yahoo! corporate headquarters in Santa Clara, California.

That became painfully clear Tuesday when Yahoo’s board abruptly fired its chief executive, Carol A. Bartz. She focused on bolstering Yahoo’s online media and original reporting, but neglected to develop the new social networking tools, video services or mobile apps that people now prefer to use. In that way, the tale of Yahoo’s misfortunes is not just one of management woes, but a vivid illustration of the transition from Web sites that publish professional content to a new digital world dominated by mobile phones and sites where the users are the content creators.

Yahoo’s problems are shared with another Internet pioneer, AOL . Both astutely capitalized on the first huge shift in how people read — moving online from paper — but they failed to follow Internet users and advertisers to cellphone screens and social networks. Both companies have tried to become media companies. Meanwhile, the next generation of companies, like Google and Facebook, have happily satisfied the demand for information and entertainment — not by creating content but by building mobile and social networking services that attract users and, increasingly, valuable advertisers.

“Yahoo hangs on to the pieces that made it a giant years ago,” said Shar VanBoskirk, a digital marketing analyst at Forrester Research. “It assumes people will come to its Web site, and what users are looking for now is a much more syndicated experience that allows them to go to mobile devices and co-create content.”

As the way people use the Internet changed, she said, Yahoo and AOL “hit the wall and didn’t continue to evolve as the rest of the market did.” Yahoo’s sites, like its home page, e-mail service and sites for finance and entertainment, still have a huge audience — 177.6 million unique visitors a month, according to comScore — second only to Google’s but more than Facebook’s. But while Yahoo’s traffic has flattened, both Google and Facebook are growing in popularity. And people spend about half as much time on Yahoo as they do on Facebook.

Advertisers are chasing what they say is more profitable prey — users of smartphones, video sites and social networks, and the companies that cater to them. Yahoo has always led in one of the most important corners of the advertising marketing: display ads, those that show images and video. But Facebook and Google are closing in on Yahoo, in large part because they can offer advertisers more personal information about users.

Yahoo’s slice of the display advertising pie has shrunk for three years in a row, according to eMarketer, a digital-marketing research firm. Last year, its share of display ads was 14.4 percent, compared with 12.2 percent for Facebook and 8.6 percent for Google. But this year, Facebook will surge ahead of Yahoo with 17.7 percent to Yahoo’s 13.6 percent, eMarketer predicts. And by next year, Google will have nearly caught up to Yahoo, too, with 12.3 percent of display ads compared with 12.5 percent at Yahoo and 19.4 percent at Facebook.

“Yahoo still has an enormous amount of traffic,” said David Hallerman, principal analyst at eMarketer. “But more and more ad buys are being made in a more targeted way.” Advertisers are attracted to information that Facebook has about a user’s friends or Google has about a user’s search queries, he said.

Mr. Hallerman compared Yahoo and its audience to the mass-circulation magazines of the 1960s, like Life and Look. Those publications were done in by the shift among advertisers to magazines aimed at specific groups like celebrity news or golf. “The idea of a portal trying to be everything to everybody is outdated,” he said.

Advertising executives also criticized Yahoo for the shortcomings of its advertising technology as well as executive turnover that meant that every few months, ad agencies had to teach a new Yahoo executive about their accounts. “When you look at Yahoo, there’s a lot of distractions,” said Christian Juhl, president of the Western region at Razorfish, a digital ad agency owned by the Publicis Groupe.

In 2007 Google bought DoubleClick, a display advertising company, to compete with Yahoo. Two years later Google had developed DoubleClick Ad Exchange, which was more efficient for buyers and sellers of ad space. It invested heavily to acquire or create tools for targeting, serving and optimizing online display ads. It has also invested in YouTube, its video site, to try to lure TV advertisers to display ads.

“You see the likes of Facebook and Google eating their lunch,” said Julie Berger, vice president and managing director for digital at the Los Angeles office of Horizon Media, a leading media agency. “Consumers’ habits are changing,” and Yahoo executives have not sufficiently realized that, she said.

But even as Internet users began to surf the Web differently — reading bits and pieces on different sites and devices — Yahoo and AOL dug in, creating content as they had in their heyday in the 1990s.

Tim Armstrong, AOL’s chief executive since 2009, is investing heavily in news and original reporting. His biggest bet was to buy The Huffington Post, the news and aggregation site founded by Arianna Huffington, for $315 million earlier this year. He also bought the tech blog TechCrunch and is pushing into local news with Patch, which has reporters in more than 800 towns writing about city council meetings, neighborhood crimes and civic events.

But like Yahoo, Mr. Armstrong is dealing with unhappy shareholders and calls to break the company into pieces and sell them off. AOL has an investment bank and lawyer specializing in mergers and acquisition on retainer. A steady decline in its Internet access business makes increasing its overall advertising business difficult. In the latest quarter, AOL reported a 5 percent gain in global advertising sales, its first increase since spinning out of Time Warner in 2009, but it remains a money loser.

Ms. Bartz took a parallel approach at Yahoo, hiring dozens of journalists and bloggers and buying Associated Content, which enlists amateur journalists to write about a variety of topics. Its first social network, Yahoo 360, introduced in 2005, never caught on.

Inside Yahoo on Thursday, the management team held an all-hands meeting with employees to try to reassure them about the company’s future. Jerry Yang, Yahoo’s co-founder, who was pushed out as chief executive before Ms. Bartz was hired, said the decision to remove Ms. Bartz was a difficult one but the company should be growing faster.

“We’re at a critical time in Yahoo’s history,” he said.

It may not have been what advertisers want to hear. “What advertisers want is an innovator, a partner that is going to help them know the next best place to reach their customers,” said Ms. VanBoskirk of Forrester. “Yahoo’s problem is they look like a legacy player that’s not thinking about the next thing.”

—Stuart Elliott contributed reporting from New York.

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