Tuesday, January 29, 2013

Trade-off of the Day: Revenue vs User Experience

Yahoo reported 2012 Q4 results that show a company stuck in a 15-year old trade-off between selling more annoying banner ads and improving user experience:
Display ad revenue excluding commissions to other websites in Q4 fell 5%, even though the amount advertisers were willing to pay for ads rose 7%, the company said in an earnings statement.

...the fall in Q4 was also at least partly an effect of Mayer's mission to improve the user experience on some Yahoo properties, including its home page, wrote Cowen and Co. analyst John Blackledge, who rates Yahoo as neutral. Fewer ad impressions in Q4 were "partially a result of an attempt to rein in site clutter and improve user experience," he said.
Yahoo's business model is bound by the Revenue vs Quality trade-off. In contrast, Google provides relevant text ads that improve user experience AND generate more revenue. The difference in business models creates a huge performance gap.


tags: tradeoff, business, internet, model, constraint, 

2 comments:

John Morris said...

From the chart, it appears what Google has grown by more than what Yahoo has lost since 2005. I assume this is not only comparing display business performance for Google. Has this performance gap been widening because Google has done a better job of diversifying into other businesses than traditional online display? I'd be curious to know what the trend for the online display ad sector has been since 2005... Has Yahoo lost share in a growing sector or have they maintained share in a flat sector?

Eugene Shteyn said...

They lost share to both Doubleclick (bought by Google) and Facebook.

But more importantly, they failed to capture a growing, search-related ad market.