Yahoo and Intel: Tech Sector Outcasts

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Intel is calling for sales of $9 billion to $9.6 billion in the current quarter, generally in line with expectations, and expects gross margins to recover this year. "We are just positioning ourselves for a strong second half," Intel Chief Financial Officer Andy Bryant said during the earnings conference call.

Small Successes

Yahoo's guidance, however, indicates that the company has a long way to go toward fixing its problems. On top of its full-year projected revenue decline, Yahoo forecast third-quarter net sales of $1.17 billion to $1.31 billion—falling short of some analysts' own estimates. To right the ship, Yahoo is counting on a new search-ad system called Panama that's designed to better match search queries with ads most likely to generate revenue (see BusinessWeek, 3/8/07, "Panama's Promising Early Results").

According to Decker, revenue-per-search is up 15% to 20% since Panama's U.S. rollout earlier this year. "The market is clearly more responsive…than we initially planned for," said Decker. She also said Yahoo's emphasis on targeting ads based on the Web sites people visit within its network and on those it has information about has resulted in higher advertising returns from some of Yahoo's lower-value, less targeted sites.

Decker also noted some success from Yahoo's Smart Ads program, which targets ads based on the sites visited by individual computers. Yahoo executives expressed optimism that the recent integration of the search and display advertising sales teams would help make it easier for marketers to buy more ads from Yahoo as well as encourage smaller advertisers to do business with the company. "Simplifying the sales process is a good step," says Marianne Wolk, research analyst at Susquehanna Financial Group.

Increasing Investment

Still, Yahoo executives acknowledged that much needs to be done. Besides fessing up to mistakes under Semel (see BusinessWeek, 6/19/07, "Yahoo! Turns to Yang"), Yang and Decker spent the first half of the conference call outlining a plan to accelerate growth.

Yang said Yahoo will continue to invest in its advertising capabilities. Part of this investment will come from people. Yahoo plans to increase the company headcount, which already stands at more than 12,000 employees. The new people will help Yahoo improve its technology and make more money from search and brand advertising, says Yang. To offset that investment, Yahoo also plans to cut some of its less profitable businesses. "We are investing for growth," says Yang. "There are no sacred cows."

One area where Yahoo will concentrate its efforts is in its new partnership with Right Media, which the company acquired for $725 million. The online advertising exchange helps Yahoo serve more targeted ads both on and off its network, thus increasing revenues (see BusinessWeek, 5/1/07, "The Promise of Online Display Ads").

Staying Creative

In order to grow in line with the online advertising market, however, Yahoo will need to rely on more than Right Media. The company must figure out how to fight increased competition for ad dollars—from social networks such as Facebook and News Corp.'s (NWS) MySpace.com, and a myriad of other sites where online audiences are spending more time. "There is a lot of evidence that the branded advertising market is getting more fragmented and advertisers are advertising on a lot of smaller sites in addition to Yahoo," Wolk says.

That means coming up with creative ways to attract, and keep, the attention of audiences as well as advertisers. Yang, for one, is promising to spearhead just that kind of creativity by focusing more on attracting talented people and fostering the kind of technological innovation that has transformed small startups into Yahoo's major competitors. "This is a company that I believe can and will win," he said.

Holahan is a writer for BusinessWeek.com in New York. Kharif is a reporter for BusinessWeek.com in Portland, Ore.