To grasp what's happening at Yahoo, look at two snapshots, then and now. Start with the late 1990s: The founders, Jerry Yang and Dave Filo, are barely out of their twenties, but these two boyish, scrawny Stanford computer-science grad-school dropouts still look and act a lot like teenagers. Infused with the idealism of the early wave of Internet pioneers, they say that they're motivated not by starting a business or making money but by creating something useful for the community. Even though they've become instant multibillionaires, Dave -- who grew up on a commune -- remains compulsively frugal: He still lives in a cheap rental apartment, and he often sleeps on the floor of his open cubicle at work, which is strewn with junk. He wears T-shirts that he got free at hacker conferences, even if the shirts have logos of Yahoo's rivals. Jerry and Dave's colleagues play soccer inside the office in an open space across a glass wall that looks right into the boardroom, even while the board of directors -- the grown-ups! -- meets there. And they race their mountain bikes through the hallways of the company's Silicon Valley headquarters. Jerry and Dave's idea of a "power lunch" is the greasy glory of the In-N-Out Burger, which pulls its delivery truck into the Yahoo parking lot.
That was then, but this is now: The red-hot California company with two free-spirited boyish genius founders -- zipping around on Segways, playing roller hockey in the parking lot, making billions while hardly into their thirties -- is Google, not Yahoo. And the highest-profile new public face of Yahoo is a grown-up: Wenda Harris Millard, the company's chief sales officer, who's responsible for bringing big-brand advertisers to the Web site. By 1990s Silicon Valley standards, she seems suspiciously New York and unspeakably old economy. She doesn't act like a teenager -- at 50, she's the mother of two teenagers in Connecticut. Before coming to Yahoo, she had a long career as a publisher of magazines -- the dead-tree kind, not the electrons-on-the-screen kind. She takes the Metro-North commuter train to work (what can be more old school?) at an office tower near Grand Central Terminal. She's a habitue of the Golden Triangle for New York's power-lunching media elite: Michael's, the Four Seasons, and the hot spot of the moment, Lever House on Park Avenue. Lever House's ponytailed maitre d' greets Wenda warmly by her first name and escorts her to the best table -- the center booth -- where she nibbles on a $33 entree of seared ahi tuna and tastes a glass of white Burgundy while seeing and being seen by the potentates of the media business. She's suntanned from spending the weekend in the Bahamas with her friend Martha Stewart -- it was Martha's last hurrah before entering prison. She expounds on the crucial distinctions of where players sit at the power-lunch joints -- how the ad sales execs prefer the Pool Room of the Four Seasons restaurant while the editors haunt the Grill Room.
Power-lunching? What's going on here? Has Yahoo lost its original spirit? Hardly. The Web site is still one of the most powerful forces in the Internet revolution that's transforming the global media. The big shift is that Yahoo is no longer trying to create the revolution in opposition to the establishment. It's fomenting revolution from within. Millard's mission is to promote the Web as the future of advertising. Thanks to her insider's understanding of the New York media scene and her formidable energy, she has been able to get Madison Avenue to see Yahoo not as upstart but as savior -- the vehicle that will rescue it from the long, harrowing decline of the medium it has been tied to for decades: broadcast television.
The Web always had the potential for reinventing and reinvigorating advertising. With its unique ability for measurement -- tracking who clicked on an ad and how they interacted with it -- the Net promised to solve the classic problem stated by department-store pioneer John Wanamaker: "Half the money I spend on advertising is wasted; the trouble is, I don't know which half." But in its early years in the 1990s, the Web couldn't deliver the mass audiences needed by national consumer brands. Lately, though, Millard has been instrumental in showing Madison Avenue that the Internet has developed the audience reach, the technology, and even the creative ferment to realize its great potential.
And Madison Avenue is now ready to listen. For many years, the biggest advertisers have kept spending more and more money trying to reach a mass audience through their mainstay of broadcast TV. The tube used to make their lives so much easier: In the early 1970s, when people turned on their TV sets, they tuned in to ABC, NBC, or CBS, or their affiliates 80% of the time. But the Big Three's share has fallen to 33% with the rise of Fox, cable, video games, videocassettes, and DVDs. And advertisers don't really desire the viewers who remain loyal to the broadcast networks, who are older, poorer, less educated, and more rural.
The paradox is that even as broadcast TV's ratings have fallen dramatically, its ad rates keep going up, and that means TV's so-called CPMs, the cost to reach 1,000 viewers, have soared. Advertisers kept paying up because they lacked alternatives. Says Nick Donatiello, who consults for media companies for Odyssey, a market researcher: "These advertisers are like drug addicts: As ads are less effective, they have to buy more and more to get the same fix."
The Internet's coming of age may be the knockout punch to TV. In a recent study by the Annenberg School of the University of Southern California, 37.5% of Internet users said that they watch less TV now. The more experienced you are at using the Internet, the more hours per week you'll spend online -- the average jumps from 7 hours per week for the newly wired to 17 hours per week for experienced Webheads -- and the more likely you'll cut back on your TV viewing, the study found. At the same time, digital have-nots tend to be older, or say they can't afford computers or don't know how to use them. Network TV is becoming the refuge of people without options.
Meanwhile, the rise of high-speed connections is making the Net much more compelling to consumers and advertisers alike: 2004 marked the first time that broadband Internet penetrated more than half of all online U.S. homes. Broadband opens up the possibilities for "rich media" -- flashier ads enlivened by video, audio, animation, and greater interactivity. That penetration puts high-speed Internet pretty much where TV was back in the 1950s: at a crucial turning point that will make the Web a very powerful ad medium. And now that advertisers are terrified that TiVo-style devices will quickly spread to most homes so viewers can easily zap every 30-second commercial, they're finally starting to take the Internet seriously.
It's about time. Millard likes to point out that the Internet accounts for 14% of the minutes Americans aged 12 to 64 spend consuming all forms of media -- a share that's still rising -- compared with just 7% for newspapers and magazines combined. But the Internet receives only 3% of the overall ad dollars, she says. Inevitably, the dollars will follow the eyeballs. "You have these facts staring you in the face as a marketer," Millard says. "This is where your audience is, and you need to reach them."
Madison Avenue has always been slow to change: It took 25 years for the ad dollars to catch up to the eyeballs watching broadcast TV. For cable, it took 15 years. But thanks partly to Yahoo's energetic evangelism for the new medium, the Internet will probably reach that milestone much faster. Online ad spending has been rising at a 30% rate, while both network TV and overall ad spending are maxed out at single-digit growth.
Yahoo's front page draws about 25 million visitors a day, and it has become a powerful tool for launching new product lines, such as Coke's C2 and Ford's F-150. Buying a so-called takeover or roadblock -- all the ad space on the front page for 24 hours -- now costs an estimated $650,000 to $1 million, and the ad will be seen by more consumers than the typical daily audience of the Today show. And roadblocking Yahoo, MSN, and AOL all on the same day, as Coke and Pepsi have both done, can produce "an astonishing, astronomical amount of reach," says Mohan Renganathan of MediaVest Worldwide, one of the biggest services for buying ad space. The mass market didn't actually vanish; it simply moved.
The numbers may have been moving in its direction, but Yahoo had to change radically before it was in a position to persuade Madison Avenue to change radically.
The press and the public always loved Yahoo, but the ad business didn't. Like many Silicon Valley startups, Yahoo had an arrogant edge. Heady with the idea of creating a new order, Yahoo and the other Web kids were condescending to the grown-ups of the old establishment. They got away with it, says Gregory Coleman, Yahoo's executive VP for global ad sales, because "the fish were jumping into the boat."
When the bubble burst, many Madison Avenue types openly gloated, relieved that the media business might not have to change much after all. They could still create the same old 30-second TV commercials that won industry awards and brought them huge billings rather than have to learn how to promote brands through an unfamiliar new medium. Internet advertising fell from a peak of $8.1 billion in 2000 to $6 billion in 2002, and it looked doomed.
Yahoo hired Wenda Millard in late 2001, and she went on to instill a new sense of humility and customer service in the sales force. She was well connected to the pooh-bahs of branding and advertising and set out to help them understand and embrace the new medium and realize its potential. (Around the same time, MSN also hired an experienced magazine executive to reach out to ad agencies.) The new cooperative attitude between Silicon Valley and Madison Avenue is a big reason Internet advertising is booming once again: from $6 billion in 2002, it rose to around $9.4 billion in 2004. Yahoo, MSN, and AOL add up to 30% of the market, and Yahoo is the leader with around a 13% share. It's also the number-one brand on the Internet, according to Nielsen NetRatings, with 89 million unique visitors a month in the United States.
Some of Yahoo's ad revenue -- the company won't say how much -- comes from the paid links that appear when you do an online search, an idea pioneered by its rival Google. But more and more is coming from branded advertisers. Yahoo's ad buyers now include more than 70 of America's top 100 advertisers. Ads are now by far the biggest source of Yahoo's revenues.
Before Millard became a pioneer in new media, she was a pathbreaker in old media. She started out selling ads for Ladies' Home Journal and New York magazine, then became one of Madison Avenue's best-placed insiders as the publisher of Adweek and the cofounder of Brandweek and Mediaweek. "I was paid to have breakfast, lunch, and dinner with the industry," she says. When she was named publisher of Family Circle in 1993 at age 38 (before it was acquired by the company that publishes Fast Company), she became the first woman ever to run one of the major women's magazines -- an idea that was considered rather shocking at the time. In 1996, at 41, she was considering rival offers to run conventional ad agencies when she was recruited to lead the sales effort at DoubleClick, a startup that was pioneering advertising on the Internet. "I'm too old, I'm overdressed, and I can't work with geeks," she thought. "But I became absolutely fascinated by the idea that for the first time in 50 years, since the birth of TV, we had a new medium. I didn't understand how the pipes worked, but I wanted to be there at the beginning of a new medium." Millard became DoubleClick's 14th employee.
When Yahoo's new CEO Terry Semel and its cofounder Jerry Yang recruited Millard in late 2001 to reorganize and run its North American sales force, she knew the Web portal needed an attitude adjustment. "I had already spent 20 years in the media business, and it was very frustrating to listen to twentysomethings talk to marketers with disdain," she says. "The Internet industry was leading to its own demise. You have to embrace, not oppose, the industry to lead to change. People aren't going to listen to you unless you're part of their world and you appreciate it."
Millard's changes won over big ad buyers such as Jeff Bell, the VP of marketing for Chrysler's Dodge and Jeep divisions, who recalls, "Yahoo was one of the first companies to say, 'We were so arrogant in the dotcom era. We're repentant. Let's say we're sorry and begin to change immediately.' I think they've done more than MSN or AOL, and they started earlier. Yahoo was willing to listen to us. That sense of humility and service was good."
Millard also realized that clients and ad agencies would embrace the Internet once they understood it better. But before Yahoo could help, it had to get a much better understanding of its customers' businesses and their needs. That hadn't happened when sales reps were assigned target clients alphabetically. Millard reorganized the sales force into 10 teams focused by industry: "You can't address General Motors the way you address American Express or Unilever," she says. "We built our whole strategy around respect for the customer. When you do that, all doors open up."
It wasn't surprising that Hollywood embraced Yahoo after Semel, the former head of Warner Bros., took over as Yahoo's CEO in May 2001. The big studios realized that buying out Yahoo's front page on Thursdays and Fridays was a highly effective way to promote new films. Instead of looking through newspapers, people were turning to sites such as Yahoo to check theaters and showtimes, buy tickets, read reviews, watch trailers, and download "teasers" with as much as the first nine minutes of new movies.
It was one thing to attract advertisers for products that people routinely research on the Web: movie tickets, financial services, electronics, and cars. (J.D. Power reports that nearly 64% of new-car buyers do some research first on the Web.) A harder challenge was selling Yahoo to packaged-goods giants such as Procter & Gamble, Unilever, and Kimberly-Clark, which make things that people don't study or buy online, such as soap and toothpaste. Those companies challenged Yahoo's salespeople to prove that online advertising actually results in offline sales. And Yahoo came up with an ingenious approach. It teamed with AC Nielsen's Homescan, which has participants in 66,000 households who scan the bar codes of every item they bring home from supermarkets and grocery stores. Yahoo recruited 22,000 of those homes -- the ones that are also Yahoo users -- for its own study. Now Unilever can advertise a product on Yahoo and then see exactly how many Yahoo users went out and bought that brand. That's what the industry needed to become converts.
The VPs of marketing and their account executives and media planners at ad agencies aren't the only people Millard has been wooing. She also promotes online advertising to creative directors at the agencies. When she joined Yahoo in 2001, "Wenda and I shared a belief that online creative sucked," says Jerry Shereshewsky, her closest colleague, a veteran adman Millard appointed as Yahoo's Ambassador Plenipotentiary to Madison Avenue.
Shereshewsky wanted to improve the quality by sponsoring awards for outstanding creative work in the new medium. Silicon Valley already had its own awards show, the Webbys. But that didn't mesh with Millard's philosophy that interactive has to be part of the establishment rather than apart from it. So they approached the existing ad awards programs -- the Clios, among others -- and got them to introduce new awards for interactive. The winners receive replicas of the oversized purple armchair from the lobby of Yahoo's California headquarters, the Yahoo Big Idea Chair. The chairs have already become prestige items to have on display at ad agency offices.
Yahoo also began hosting educational "summits," where creatives could share ideas about innovative practices. The confabs attract attendees such as Woody Woodruff, the creative director at Marsteller. "I've been doing advertising for 30 years," he says. "The Internet is not something you instinctively know how to use. Yahoo's creative summits tell us what can be done. These seminars and awards shows are responsible for getting people interested in online advertising. They won't tell you to advertise on Yahoo. They hardly even mention Yahoo. But if you think, 'Gee, we've got to do something special,' you think of Yahoo first, because they're the ones who've been proselytizing the medium." Woodruff wound up turning to Yahoo for technical help with an interactive campaign to promote the new $20 bill. The ads won his agency a Yahoo Big Idea Chair.
At the most recent summit, in Manhattan in October, Millard and Shereshewsky brought in creative teams to show off four campaigns that had incorporated online advertising in innovative ways. To promote Axe, a deodorant body spray for teenage boys and young men, Unilever produced two comical mock home movies showing women who just couldn't keep their hands off men who used the product. The films attracted 1.7 million visitors to Axe's Web site in three and a half months.
The summit continued with a presentation about an American Express campaign that created two "Webisodes" -- five-minute films that debuted on the Web -- starring Jerry Seinfeld and his buddy Superman. A roadblock of Yahoo's front page brought several hundred thousand people to AmEx's Web site within 24 hours to view the films. More than 3 million visitors came to the site in two months. By offering an easy tool for people to send emails to friends telling them about the films, AmEx captured the names and email addresses of 250,000 people -- five times as many as it had hoped to get.
The AmEx campaign was impressive, but the 165 audience members at the Yahoo summit voted to award the Big Idea Chair to Audi for its David Bowie contest. Audi's Web site let visitors take any two of their favorite Bowie songs and "mash" them together to create a new song. Then the fans voted for the finalists and Bowie himself picked the winner. Once people came to the site, Audi tracked thousands who configured designs for its cars, sent them to local dealers, and followed through with car purchases, resulting in a 1,032% return on investment for the campaign.
The summit's attendees included influential figures such as Ty Montague, then the co-creative director of Wieden+Kennedy's New York office, which has won three Big Idea Chairs for its "Beta 7" campaign -- a mock Web log supposedly posted by a beta tester of Sega's ESPN NFL Football video game. The anonymous tester criticized the game for being so violent that it made him black out and tackle people. The site had 2.2 million visitors in four months. "The creative departments at ad agencies still see TV as the sexy medium," says Montague, who's now chief creative officer of J. Walter Thompson, "but their days are numbered. These people will either get religion or get left behind."
That might sound a bit hyperbolic, but consider this: In the late 1950s and early 1960s, even after broadcast TV had come to more than half of U.S. households, the reputable creative directors refused to make TV commercials, which weren't very good yet and still weren't admired or respected as an art form. Eventually, they got religion -- or got left behind. nFC
Sidebar: The New Language of Advertising
Forget about "30-second spot" and "prime time." Here's the newer lingo as brand advertising moves to the Internet.
A mock Web log that's actually an ad, pioneered by Wieden+Kennedy's campaign to promote Sega's ESPN NFL Football game.
A user interacts with the ad (sometimes inadvertently) by rolling the cursor over it -- without even having to click.
3. Roadblock or Takeover
An advertiser pays up to $1 million for all the ad space for a full day on the home page of Yahoo, MSN, or AOL (sometimes all three).
4. Viral Films
Short film downloads from the Web. Pioneered by BMW, which hired acclaimed Hollywood directors to make 10-minute films starring its cars.
A twist on viral films: Advertiser-produced series that draw consumers to the brand's Web site. Pioneered by American Express.
6. Skyscraper Ad
Vertical column running along the side of a Web page.
7. Rich Media
Ads with animation, video, audio, or interactivity. May use techniques such as float, fly, and snapback: animations that jump out from the ad and sail over the home page before retreating to their original space.
Alan Deutschman is a Fast Company senior writer based in San Francisco.