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Worldcrunch

New Yahoo CEO Marissa Mayer's Big Plans To Kick Her Company Back In Shape

Article illustrative image Partner logo Mayer at last year's Le Web conference in Paris

Yahoo is deep in the process of looking at ad tech companies to acquire.

We spoke with two sources familiar with the situation, and they explained to us what's going on.

Here's what we learned.

Yahoo's business is pretty simple.

It makes money by selling ads on Web pages.

This is the formula: Number Of Visits To Web Pages X Rate Yahoo Can Charge For Ads On Those Pages = Revenues

That formula means there are only two ways for CEO Marissa Mayer to grow the business.

Method One: She can increase the number of visits to Yahoo Web pages. The way Yahoo does that is by creating new popular products and media.

Method Two: She can increase the rate Yahoo charges to put ads on Web pages. The way Yahoo does that is by using ad tech to find out as much as it can about the people looking at its Web pages, and, in "real-time" sell that inventory to buyers willing to pay more to reach certain demographics.

Mayer is going to embrace both methods.

Mayer's favorite thing to work on is consumer-facing products. So she's going to personally invest lots of time in "method one."

As for "method two," Mayer would like to delegate.

The problem is that Yahoo does not currently have a team running ad tech that Mayer trusts.

There is a reason for this.

Back in 2007, Yahoo acquired a hot ad tech company called Right Media for $680 million.

This deal brought a huge amount of ad tech leadership into Yahoo.

But since then, Right Media leaders Michael WalrathBill WiseWendi Sturgis, and Ramsey McGrory all quit to take senior roles at other companies (or, in the case of Walrath, start investing in companies).

In short, Yahoo botched the integration of its huge acquisition. This happened for the same reasons that Yahoo as a whole has suffered over the past five years. It had a horrible board that hired under-performing CEOs.

All that said, our sources say that Yahoo believes it still owns a solid brand in the name "Right Media" or "RMX" – even if Right Media's leadership is gone and its technology has rotted.

So Mayer's plan, according to our sources, is to buy an ad tech company with a strong executive bench, and install it as the new leadership of Yahoo RMX.

There are lots of candidates Yahoo is considering, but our sources say there are two current favorites.

The one Yahoo likes best, according to a Yahoo source, is called Rubicon. Founded in 2007, Rubicon's clients are publishers. Rubicon helps them categorize their ad inventory and sell it to the highest-bidding marketers. Yahoo would acquire it, and essentially become its sole client. Yahoo especially likes the depth of Rubicon's executive bench.

The problem with Rubicon is that it has raised more than $50 million from startup investors. Startup investors expect a 5x to 10x return on their money. So Rubicon is not cheap. It'd cost Yahoo several hundred million dollars to buy.

During Yahoo's last earnings call, Mayer said that Yahoo will be acquiring companies, but only in the tens and low hundreds of millions of dollars range.

A second Yahoo source cautions us, however, that Yahoo could buy Rubicon if it wanted to.

It's true; industry M&A bankers say that between Yahoo's cash and its reasonably liquid assets, like a stake in Yahoo Japan, Yahoo has about $10 billion it could spend.

Our Yahoo source says just don't expect Mayer to run out and spend a billion dollars on something like Pinterest.

So perhaps Rubicon's price is not too rich for Yahoo.

If it is, however, the first Yahoo source tells us the next company on its list is one called PubMatic. Like Rubicon, Pubmatic's clients are publishers. It helps them optimize their inventory.

Over the summer, Evercore put out a note that said acquiring a couple of companies, including PubMatic, could increase Yahoo EBITDA by $400 million. Mayer didn't miss that detail.

The problem with PubMatic, from Yahoo's perspective, is that it does not have a deep bench of executives or technical people.

A source close to Pubmatic tells us the reason its executives may not seem as strong as Rubicon's is that PubMatic is not going through a fundraising process, and executives have not spent a lot of time prepping for meetings with investors. This source says PubMatic CEO Rajeev Goel does not want to distract his team.

This source says that Rubicon, meanwhile, has hired Merrill Lynch/Bank Of America and is in the middle of a fundraising process.

To be clear, it is not certain that Yahoo will buy Rubicon, PubMatic, or even any ad tech firm.

What we can report, for sure, is that two Yahoo sources tell us that Yahoo wants to buy an ad tech company in order to install a new team to run RMX. One of these Yahoo sources says that the current favorites are Rubicon and Pubmatic.

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About this article source Website: http://www.businessinsider.com/

Business Insider is a business website with extensive coverage of the financial, media, tech, and other industries. It launched on July 19, 2007, led by DoubleClick founders Dwight Merriman and Kevin Ryan and former top-ranked Wall Street analyst Henry Blodget.

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