Jim Lanzone — "They Had a Chance to Sell for $44 Billion. They Didn't."

29:25And they want AI to be like fun and lively. And I guess I'm just getting at like, what do you think the consumer really wants from AI? Like where do you think there are real needs that LLMs can satisfy versus right now they're sort of just getting thrown, yeah, Things that researchers built sort of natively to them and stuff that's working for enterprises, but doesn't really have like the consumer. It is. It always has been category by category. So I think AI now is, you know, horizontal across everything that's happening out there. It depends. So. So, yeah. And I don't know what part of it you're using for entertainment.

30:06Is that like it's your buddy? Well, some of it. You're having conversations with it. I had the sort of like, oh, we're going to create like slop videos. My wife has recently been sending me these. I don't know how much TikTok you waste your life watching, but they're a very viral TikTok of the moment is fruits, like, you know, arguing with each other, like cheating on each other. It's like as if it's like The Bachelor, but it is fruit. And it is like it's the first time I don't I found it terrible. I was like, I don't know why you're watching this, but it's like slop, you know, is sort of hitting story in a way like i feel like this sort of like time wasting video is where it like can be sort of tested enough and it's just like throw shit at the wall see what resonates with people i don't know i know that makes sense that's that's just incremental i mean amazon just announced ai studios i think albert chang it was formerly of abc and disney and i mean is now running it um so there obviously is a future for that it makes more sense in short form videos right lower consequences and and it's more time burning spin up the whole movie yeah but tick tock's not new or reels is not new to how you or youtube shorts to how you've been spending time you know that's consumed much much more of your entertainment time than it used to so you know i think that makes sense we we tend to operate much more in categories where um they you are trying to get things done so you do have a little bit more of that professional well again it's some of them Some are utilities, so I would say email, search, maybe weather are in the utilities category.

31:39We do have content categories, sports and finance, but again, in finance, you're trying to make more money or save money. Sports is the one where, you know, obviously that's entertainment, but Yahoo users are using it to play fancy, beat the snot out of their friends, you know, take it too seriously that win money, you know, they're, they're actually using it for, for these things. So not to be cheesy about it, but we did have to reset the mission of the company when I got here. Yahoo was a turnaround. It had been owned by Verizon for many years before that, serving whatever purposes they bought it for.

32:12Before that, it was a struggling public company having to make really hard choices about what it was going to do to survive and try to grow against some really hard headwinds of Google and Facebook and YouTube and social media, other things. So, you know, we had the benefit almost of being able to only focus on what was good about Yahoo. We didn't have to worry about the rest of it. Why is Yahoo Finance still number one? Why is Yahoo Sports top two? Why do so many people want aggregated news? And like, what can we do to lean into that? Why is Yahoo Mail still so popular? And the spine of that book is always goes back to...

32:47What is it? What always goes back to Jerry and David's original founding of the company. They were trying to be the guide to the internet. It says it right on the original page, Jerry and David's Guide to the World Wide Web. And that started because Andreessen had started Mosaic. And it was originally for it said on the page for Mosaic. And it was because you had access to the Internet, but you didn't know how to find anything. And then that evolved into doing things. And Yahoo is your home base for that. So we did not have infinite resources taking this over. Our job to do is to make sure we understood that people were using Yahoo 4.

33:22and that was for trying to accomplish these goals in whatever category it was so all of our focus and roadmaps started to go behind that and that's when we started to move out things that didn't sorry but it's still rooted in the internet or it's all internet but you're using the internet to accomplish those things um so when it comes to ai ai uh we just launched literally today as an example in email you talk about entertainment versus calendar and all that but we launched a product called planner and it does go in using scout technology and extracts all these like next step uh things that are demand need to demand your attention that you need to know you know a deadline something for your kid's school a flight doctor's appointment it extracts that out and automatically adds it to your calendar if you're a you know or to a to-do list and in yahoo in your, you know, we have that feature as well.

34:16And that's using AI to remove steps so that you can get things done better and faster that you didn't have to think about. Like, I think that's a good one. I had my first fantasy baseball draft of the season last night. And if you are a Yahoo Plus subscriber, it will be your research assistant and help you do a better job in your draft. So So it really is category by category. I buy that Yahoo is more of a friend to the internet than some of these LLMs because it's like, okay, we want to get people to the good stuff out there so they can find it. And that's really what the business has been about.

34:53But has that raw material just gotten worse over time? Is the internet just degrading? It feels like media is getting worse. you know i think of like even reddit which for a while i think there was a meme it's like oh if you wanted a good google search result you just search what are they saying on reddit which i think is somewhat true but to some degree i worry more and more that reddit posts are becoming like was this an llm ama or or is this a real one i don't know do you worry about just like the raw materials that you rely on on the internet getting worse right now i mean i hate to always bring it back to this isn't new, but if you go back to my first time in search, Danny Sullivan, I don't know if you remember Danny, but he had the biggest search engine conference.

35:395 ,000 people would go. And those of us who ran search engines, we'd be on stage and talking. But in the audience were all the spammers. How can we take advantage of all this? All the whole SEO community. And if you went outside or to the bar afterwards, everyone's together. And that game of trying to send traffic for their own purposes, that's not new. And, you know, there are really good SEOs are trying to be helpful for publishers. And there's ones who are trying to gain the engines to, you know, drive it to, you know, lower tier traffic. That is not a new game. I don't think AI slop. I think that's another part of it.

36:18Think about the decade before clickbait. I mean, it's just, you know, all these attention vampires out there. Think about how headlines change over the years and the ones that you would have written 10, 15, no, probably 15, 20 years ago to over the last 10 years after BuzzFeed and how every, even New York Times, headlines became very BuzzFeed type headlines. So this trend has been out there. But I would say there's more good content than there's ever been, certainly than 20 years ago on the internet. Just by sheer volume, if you think about not only is the content on The Times and Washington Post and CNN and BBC and all these places, there's amazing content in these places.

36:57But then with Substack and then with YouTube, it is endless how much great content is out there. So I think it is our job to help you find the good stuff and to be your guide through that digital wilderness and then, you know, avoid falling into, you know, off a cliff or stepping on a rattlesnake or whatever we have to help you do to get through it all. That that is historically our job and we have to, you know, do a good job of that. That job will get harder over the next 30 years, but it's not a new job. I think I agree with you that overall it's gotten better. I mean, YouTube explainers, that whole category is sort of like you can go to YouTube for sort of any question you have about the world.

37:35I think the New York Times has gotten better, but obviously like local papers have generally gotten worse. It's hard. It's hard to score overall. I mean, I worry. There's been puts and takes. In this generation, I'm less like Jim Prosser, a PR guy in Silicon Valley who I respect, has a blog. he basically argued that like the uh seo optimization for llm's category i forget what people are calling it but yeah but he said he thought that was sort of fake or like that that there isn't as much to be done there do you agree with that they're honestly i i follow a lot of seos i i you know came out of that industry i i i know a lot of those people i read on twitter all day long everything they're just trying to do what they can uh to adapt and to get the that that traffic was pulled out from under them in a lot of extremely important categories that that had been and and to your point you know um not really with any heads up you know this was just done in the dark of night and all of a sudden it's like here are these right here are these products i'm not even shooting on the se i'm more saying is there money to be made helping people optimize for language models right now, or you think that's not going to be a big business?

38:51I mean, if it is the traditional large language model with footnotes at the end, it's going to be a hard one. But yeah, the industry will have to adapt to prioritizing traffic or it'll be hard. I mean, I do watch those discussions that they're having about trying to figure out like, oh, if you, you know, because what they're hearing from Google and others is, you know, it's the same. Do it the same. You have to optimize for these characteristics on quality and speed and freshness and all these things. But at the end of the day, if the UI does not enable someone to easily click out or click out at all, it's going to be hard.

39:34Right. Hard to see value from it. It's going to be hard to get traffic. Right. Yeah. And by the way, I also think users have been trained. And this is where I go to. We're only three years into the next 30 years. So I think it can be evolved over time now, but it's not going to happen overnight. They have been trained initially with these products to not click, you know? Definitely. My biggest concern, rather than like spam for language model error, well, not my biggest concern, a concern is just whether the consumer is savvy enough, right? I think on Twitter especially, you see all this like AI writing that goes so viral and And it just feels like who is the speaker?

40:17Like the markets are moving off of reports that feel like they could have been written by AI. Although the mission for Twitter is Wild West. It's free speech. Anything goes. We're not going to curate it. And that's a good thing. So that's probably not the right place to go if you want to. But that's where we've been going. Yeah. But I would argue those users are getting what they're asking for in using that product. I mean, I use it all the time. And you just have to know what you're getting yourself into. They have been launching more features to maybe help you curate it more. But, you know, look, every one of these feed-based products is always trying to get you to the for you column.

40:58They're all about that, and that's the one that's most susceptible to that. But your answer for this problem is to trust sort of news outlets, right, which you then sort of drive traffic. You're not personally going and saying who's real, who's not, what's true, what's not your... We definitely are when it comes to Yahoo.com or Yahoo News. You're saying which outlets are true, right? Or like you... We are trying to be purple in terms of left and right. And I would always remind people, there's only one category. When people say they don't trust the media, they're not talking about sports or food critics or movie critics or people who cover the real estate.

41:39it's politics is the dividing category and and uh and so for that one we really try to especially for people who are not logged in just starting out not move them one way or the other now you will by the algorithm be moved one way or the other and based on your preferences over time i think that's totally fair as long as the the source is a trustworthy source we you know we are partnered with hundreds into the thousands of publishers so we we have vetted these sources that you will see showing up. Right, you're deciding is Reuters trustworthy. The only thing that shows up on Yahoo is someone we've done a partnership with when it comes to news.

42:13When it comes to Yahoo Scout, our AI answer engine, there's all kinds of data that's coming into that, including vertical publisher data. We also ground it on Bing.

42:29It's based on usage data, query data, all the things that Yahoo uniquely has over time. It's one reason our answers are pretty unique. But in that way, it is curated. It is not just a random poll by digesting the entire internet and then predicting the next token. You're striking partnerships. Yeah, we're actually trying to have a high quality in our answers. I mean, the news business can feel essential, a trend we haven't touched on as much, like prediction markets. I think there was a reporter who was worried he was getting threatened over saying that a missile had hit something because a prediction market hung over it and there was an angry reader trying to get him to adjust the article um to i guess help the bet so you know prediction markets resolve to some of these news outlets obviously man right language models you know it's like a lot of materials news i mean you you own tech crunch which obviously no no we sold yeah you owned yeah that's what i'm saying yes past and decided not to continue owning like how much is your view that yeah the news business is fucked Well, that wasn't it.

43:33It was that we were kind of had one foot in hot water, one in cold water. Like, who are we? We have to choose. We were bought by private equity. We're starting back out. Like, you just have to focus, you know? And so for us, over time, it was that we're not in the breaking news business. So we aren't having reporters on the front lines, you know, reporting the news out from there. That we will aggregate that news and send them traffic. And we're glad they do it. But that's not, that's all we do. We are our our content is for context to the things that people breaking the news, you know, report.

44:08And historically, Yahoo Sports is a good example. The best breaking news reporters in basketball, you know, originally Woj, then Shams. They started Yahoo. You were the breeding ground. It was the breeding ground for that. But again, within and I saw this at CBS as well because we ran CBS Sports dot com. We had all kinds of, you know, writers on the front lines. and SportsCenter would barely mention us in breaking the news. I mean, it was within five seconds. It's already out there. So we just felt like that's not where we can have the most value and maybe we don't find the most value ourselves.

44:42Which is it? And also why be the 200th player in that? It's not where Yahoo should play. We were literally competing against the Associated Press for news stories. That's not our job. Our job is to send the Associated Press traffic. Yeah, I mean, you define your job. I mean, I guess to me, the world is short on breaking news. I'm not saying you need to, anybody is obligated to be in any particular business, but I want to disentangle, like, do you think breaking news is not like a great business? Again, I would say we have to go back to, sometimes when people talk about someone buying our company, they're like, oh, but what do you get by regulators?

45:21I'm like, I love that we're at this point in time, 31 years, that after all Yahoo went through and how much people in the industry kind of dragged the brand through the mud, that they would think that we would be the source of being, you know, of a regulatory thing with an acquisition. That doesn't make sense. But I would say the same thing here, that Yahoo of all, you know, publishers would be the one that is being... Why hold us to account on the... Well, no, no, is the one that you're saying is missing from the front lines of journalism. I think there's a lot of people... Right, you're doing far more journalism than every other tech platform in the world.

45:53We do a lot of journalism, but again, we do it from a certain point of view of like, that is not the breaking news side that I think a lot of people do. I'm not trying to put their resources into. In some ways, it's because you're the closest to it. Part of doing a turnaround is people are saying like, what's the formula for that? There's not always one. People is the most important part. People know what they're doing. And then they naturally put a great strategy in place and built great products and all that. But, you know, one part of that is strategic focus. You can't do everything, especially when you're trying to fix the P &L, you know, get a solid foundation going for the future.

46:33That is where we really were coming from and all that. But breaking news, I mean, it becomes a headache. Or like, were things getting like escalated up to you? Or just like the business of breaking news is hard to manage? Not for very long. We made these decisions fairly soon after we took over. But no, I wouldn't. Certainly no decisions would make their way up to me. I mean, I remember back at CBS, I had all kinds of news brands. This was my first rodeo running a news brand. We did not get involved. Well, that's why I'm asking for your sort of overall perspective on news right now. Yeah, I mean, it's an interesting spot.

47:10I mean, I think the corporate ownership of all these things, what's being pushed on journalists from an editorial perspective. And at the same time, we work with hundreds, thousands of sources. I think the ones or the flashpoints are always interesting. There's nothing more interesting to journalists than other journalists. And I've always found that too. and so that is not happening across the board. There are still the vast majority of sources are not falling into that camp. So what I would say is new sources are definitely seeing less traffic because of the way search has been evolving. So that part of it has been difficult for the industry and staffing in a premium way requires premium CPMs, right?

48:06And I think what happened over the previous 15 years was programmatic CPMs against premium staffing equals very difficult business model. Right. So now other things have evolved, like podcasting and other ways to, you know, to kind of to go with if you're those kinds of brands. But, yeah, it has been a hard business and harder for some than others. You know, New York Times is still doing really well. There are others doing well. That's what I was going to say. anyone who's subscription-based and this could be you know really anybody you have to start with a broad funnel usually of free if you're netflix and you're you define the category chat gpt in some ways with that where it was a subscription model to start with the only way you could use it was in many ways uh was subscription-based um uh but at the end of the day only five percent of chat gpt users are i believe are paying subscribers so again back to that broad funnel and I think that requires brand, that requires scale.

49:09So it is for the few who are able to have that kind of a model. And then on the other side of that, you will have more niche things and that is where historically trade publications would fit in. They would charge a lot of money and not have a huge subscriber base, but they're prestigious in their industry. And I think that's - I'm happy to take on that mantle. And I think that Substack and others have come along in that niche and furthered that. What Yahoo is obviously privately owned. Like what can you say about the business today? That's good being private. I think. Don't you want to brag? I feel like.

49:47No, not yet. At some point. It's, you know, look, this was the kind of the white whale of turnarounds. It was one that, you know, I don't think a lot of people thought could be pulled off. And it was even, you know, I feel like we have done that, but I think it's been a four and a half year now journey to get there. And you realize like selling AOL, like how much have you do the math, I guess, for sort of the Apollo deal to now? Yeah. So, yeah, I mean, what they have said publicly is they've already returned the investment, the cash investment on it. So we're kind of playing for upside, you know, on the rest of it.

50:23If you look at it as a PE deal, we're a little, we're very unusual for that, right? because we are heart of the beast silicon valley you know who we compete with for users who we sell to you know all of that it's not a it's not really it doesn't fit the model of a traditional you know pe deal in that way um and then ai you know when we bought the company it was the middle of like stonks and and all that and then and then ai wasn't even on the map and that happened november of 22 we we spun the company out in september of 21 so that's changed the whole game so yeah with deals like AOL, we actually sold the content delivery network that they own when we first joined.

51:00We sold the branding rights to Yahoo, back to Yahoo Japan when we first started. So they're like, and then smaller ones like TechCrunch and Rivals and Gadget. So you take those all together and it's been, we've returned quite a bit. And then the amazing thing is that the core Yahoo business, we've really optimized that. We've gotten the cost in a really good place. The quality of the people is incredible now. And they're all, you know, off and running. Traffic is growing at a really good rate. Revenue is growing at a really good rate. Very profitable. But, you know, this was a company that went public in April of 1996.

51:39You know, started running into some headwinds in the 2000s. And I think for the next 15 years, you know, it was kind of rough to be a Yahoo, the public company. If you think about the the famous deal where they didn't sell for 44 billion to Microsoft. That was 2008, you know, and it went on another almost 10 years before selling to Verizon. So that was a long time. So there, it is good to be private. I've worked, I've done two startups that I founded or co-founded, but you know, the majority of my career is one of them in public companies or large companies. I'll just say there's some benefit to being public.

52:13I mean, to being private, to do the, you know, to do all the things to fix it. Because once you go public, as you know, it is all about you are held to account quarter by quarter. And you better understand what those next five years are going to look like before you get there. And it's also hard to make changes in public. What does a win look like for Scout and your AI strategy? How much is it about showing the industry what it should be doing and then playing with the industry versus you want this to be sort of a huge product on its own? Like what is the goal with your AI strategy? So if you go back to the turnaround strategy, it was a couple years of transformation work to the org, to the team.

52:57And then once you got through into the revenue model and the revenue engine, you know, we migrated from the old revenue engine to a new one that was just, you know, was better. And then once you get through that, we are in the right, OK, to then go and fix all the products. So then we went through that phase and now we're in the shots on goal period. We've actually, we have the resources. Like it's working, we're making money, we got rid of the stuff that doesn't make sense. We can go do something with this audience and that is very loyal to us and the places that are very logical not to go do some rando innovation, something that has nothing to do with the spine of the book for Yahoo, but things that our users would find uniquely valuable, but also your asset base.

53:40So I would say there's two big ones right now. One is Scout. The other is our DSP, our demand-side platform in the ad tech space, which is growing in a really good clip. That competes with people like Trade Desk and DV360 from Google and Amazon and a lot of smaller players. We're the largest private DSP. And that is essentially, you can target, talking about the new fronts, you can target on Yahoo, oh no, we will sell ads to you directly to go into our properties. You can also, using our data, then go through us to have ads on other people's properties. And so that has been a really good business.

54:23We shut down two ad tech businesses to focus on that one. And we think that could be potentially worth billions of dollars if we get that right. What percentage of the business is it? I mean, it's a lot of top line revenue. There's a lot of revenue sharing that goes back. Right. Yeah. So you do. And how much are people using it of traffic? To totally advertise off of Yahoo or it's mostly for people who are already doing a lot of Yahoo? No, it's only 9 % of the impressions in that network are Yahoo. So that's also our competitors will say you're only buying Yahoo and try to throw us under the bus that way.

55:00It's actually 90 % are off of Yahoo. And so Netflix and Spotify and many, many other great properties work with the Yahoo DSP. Scout is interesting because there's a lot of great reasons to do it, which is why we built it ourselves. So Yahoo had outsourced search since 2009 to Bing. And same as Yahoo did originally. So it was almost like an enterprise search deal. And Bing did that to build up the volume in their network, right? The way search advertising works is it's not about the technology as much as it's about volume. The nth advertiser will, you know, increase prices in the auction. They'll expand coverage.

55:39They'll increase relevance, which will help the click-through rate. That is really the secret, is the nth advertiser goes to Google. So if you put Bing and Yahoo together, you know, for the Bing marketplace, it actually increases the likelihood the nth advertiser will also come into Bing. So that's why Yahoo and Bing have been partnered for so long. But when it came to this, we looked at the category about a year ago because we were coming through that transformation period. Felt like this was the next obvious thing to focus on given search such a big part of our portfolio still, but outsourced it.

56:13And we looked at everything. We looked at every outsource possibility that you could think of. And it came back to the idea that given all the data, 30 years of search history, all of our usage data, our user data, the publisher data, all of it, we actually were sitting on this goldmine of data that you could use to create a really good AI answer engine. Right. You have to partner with an index because you have to ground it for accuracy. But if you had that, and then it became very obvious that we already had a big search team. really weren't building index search that we could repurpose for this so we we tried to figure that out and then last summer we bought the company a company a startup run by a guy named eric fang who's kind of a uh luminary in the industry he he you know back in the day he worked at microsoft and ran the research lab in beijing and he helped create bing but then he went with jason kylar and he co-founded hulu uh he was the head of technology and product for hulu so we both spent time in the streaming wars.

57:15And then was at Kleiner Perkins and Meta and other places before the startup. So Eric shared a passion with our team that what he called Yahoo's Toys would be an amazing set of data to work with to create a product like this. And so we went up buying his company last summer and we put him in charge of consumer search. And so early August last year, we started building. And again, if we go back to why we did it, we have the third most search volume. It's small compared to Google, but still a very big business for us. We had to have the best AI search results or answers that we could possibly have.

57:54If we didn't, we would lose users because search is evolving and changing. And if it made sense, we would outsource it, but it actually made the most sense to build it. How much of yahoo.com are you funneling people? Like, are you? nothing so far why not like because uh we are in beta and we're a month you know cost does it cost more money to distribute we're a little more than a month and a half in and yeah there is a cost there's a there's a cost both to grounding a bing and we work with a very lightweight model that anthropic makes called haiku um so it's super fast and it essentially processes our data it's that we're not using their answers.

58:33It's ours running through their lightweight model that comes back to us to render in our kind of, we love our UI. We think it's really rich UI that has some personality and some great answers. So all that together does cost some money. That cost is coming down over time. And then again, over time, I think search advertising will come back into this category and be able to make this really profitable. But in this early stage, we are trying to hone it. We actually have a Slack channel called Improve Scout. And hundreds of Yahoo employees are in there all the time, like feeding back on what's happening.

59:13We're getting user data in from people coming through it. I mean, it's in the millions of people who are, you know, that have been through this and are using it. But, you know, at the right time, we'll come out of beta and want to unleash it across all 700 million users. but we just, we're not in a huge hurry to do that yet. Well, I'm cheering for the vision of getting traffic back out to the publishers. Great to hear it. Thank you so much for coming on the Newcomer Podcast. Thanks, Eric. Great. Thanks for sticking around to the end. Please, if you've made it this far, you've got to like, comment, subscribe.

59:47Excited to grow the channel. And of course, you can find our writing and reporting on Startups and Venture Capital at newcomer.co. We also host events. You can check out what we're doing at newcomer.events. Share other podcasts. Help us get distribution. Support the channel. Comment. Support. Like, comment, subscribe. You know the deal. Thanks. Thanks for being on the journey with us. All right. See you next week.