Wharton online Yahoo Case

Yahoo! recognizes a majority of its revenue through online display ads, including revenue generated when graphical advertisements are viewed or when actions are performed and when text-based search ads are clicked through.

Ad-blocking software creates problems in the following ways:

Ad-blockers restrict ads, and thus Yahoo! can not claim revenues on ad views or click-throughs. This contributed to the 15% drop in revenues this year.

The difficulty caused in Yahoo’s core business creates a ripple effect of problems to every department of Yahoo!. Creating a competitive market, forcing Yahoo! to offer better prices, change its marketing strategy to attract businesses to continue to advertise and advertise better, and technical development team to find methods to circumvent the ad-blocking software.

Yahoo! customers are growing more and more skeptical of advertising with Yahoo! as switching costs are very low, and site visitors have voiced their low WTP. Since advertisers are aiming at high-income segments of the market and those segments are most likely to use ad-blocking software, it deems the advertisement redundant to an extent, thus reducing the benefit and thus the ROI of advertising.

Thus the low-income segment of the site visitors who have a higher propensity to view Yahoo without using an ad-blocker see the ads that are aimed at higher income segments and thus might find the ads irrelevant and thus face bad user experience on the site.

The reduction on revenue stream and user reactions to the ads create pressure on the internal organization to innovate to keep up with the technological developments, to reduce their staff – increasing pressure on current employees, possibly creating worse job experience and creating difficulty in personnel retention.