Yahoo!’s Long-Term Strategy: Diversify

Yahoo sees itself very differently from the way Google sees itself. That leads to some clear differences in the two companies’ strategies. The ten-year-old Internet portal applies a lesson that Google would be wise to learn: diversification is a good thing.

If you have been following Yahoo!’s various moves for the past several months, you may be wondering what the company is up to. Certainly some of it can be chalked up to competing with rival search engine Google, such as the expansion of storage space for its free email accounts. But that doesn’t cover all of it; indeed, Yahoo seems to be getting into areas that Google has hardly touched yet, and it is going about it in a carefully-thought-out, methodical manner.

In some ways, this shouldn’t be too surprising. At ten years old, Yahoo is an established Internet company. It weathered the storm when the bubble burst on the highly inflated values placed on Internet- and technology-rated stocks, coming out intact at the other end of a harrowing stretch that saw many companies go bankrupt. While its current stock price is less than a tenth of what it was at the peak of the Internet boom, a company that came close in 2004 to doubling the profit it made in 2003 – and more than doubled its revenue in that timeframe — is nothing to be sneezed at. Also, while Yahoo hasn’t been very vocal about it, many of the services which Google is starting to make its name in are ones that Yahoo came out with earlier (Web-based email is the most obvious, but there are others).

Perhaps the biggest evidence of the difference between Yahoo and Google is apparent in the way they see themselves. Google is chiefly a search engine. In its U.S. Securities and Exchange Commission filings, it describes itself as “a global technology leader focused on improving the ways people connect with information.” Yahoo, when it started out, didn’t even have its own search technology. It states in its U.S. Securities and Exchange Commission filings that Yahoo is “a leading global Internet brand and one of the most trafficked Internet destinations worldwide.” The differences may seem subtle, but they are important, because they affect each company’s entire strategy.

To give you one example: why would a company focused on search create an entire Media Group with roots in television? Late last year, Yahoo formed this group in Santa Monica, and hired former ABC television executive Lloyd Braun to head it up. At the same time, it hired Neil Budde, a newspaperman with a firm grounding in the Internet, thanks to his stint as founding editor and publisher of the Wall Street Journal Online edition.

These hires were quickly followed up with more of the same: Shawn Hardin, former general manager of NBC’s Internet group; Ira Kurgen, former Fox Broadcasting executive; and, most recently, David Katz, former senior vice president of CBS. Give yourself a gold star if you spotted a pattern here: one hire from each of the four biggest television networks. Even the Media Group’s offices scream about the connection. Not only are they closer to Hollywood than Yahoo’s Sunnyvale headquarters, but they used to house the home entertainment division of a little company you might have heard of: Metro-Goldwyn-Mayer.

Just what is Yahoo going to do with all that TV talent? It’s worth keeping in mind that it isn’t just looking for folks knowledgeable about the entertainment industry to make up the Media Group. In March, its job listings included a news editor, news product manager, Yahoo finance content producer, and a senior sales producer for news and information. That certainly sounds like Yahoo is looking for more than just people with contacts who can help them make deals with the big TV networks.

Currently, if you look at Yahoo! News, you see news consolidated from several different sources. With the list of talent Yahoo is searching for, however, one wonders if it isn’t looking to get into the news game itself, with its own content. Indeed, the listing for the news editor position stated that if hired, the candidate “will also have the opportunity to help shape the direction of online journalism by contributing to the overall direction and growth of Yahoo News…As such, general knowledge of the news industry and awareness of emerging online journalism trends (blogs, RSS, interactive storytelling) are also required.”

This is not to say that deals with TV networks aren’t potentially in the works. Several people in the industry made some informative observations about David Katz, Yahoo’s most recent hire. Rich Mandler, vice president and general manager of enhanced TV at Walt Disney, said of Katz that “He’s got a real broad perspective on the intersection of content and technology.” Ben Mendelson, president of the trade group Interactive Television Alliance, noted that Yahoo and its rivals were trying to “stretch out past their PC demographic and reach the average Joe who sits in the living room with a remote control,” and that Katz was an important asset to help meet this challenge. Yahoo TV, anyone?

Yahoo isn’t the only company offering a search feature that lets users get information from their mobile phones. But it’s been actively expanding the feature, while keeping in mind the inherent limitations of the medium as compared to conducting searches in front of a desktop or laptop computer. For example, shortcuts on the phone’s keypad make it quicker to get specific kinds of information. A user of Yahoo’s recently-updated SMS service could type in “w” and the ZIP code to get a short weather forecast for that area – which is a very handy feature for travelers and those who live in places where the weather can change quickly, such as South Florida during the rainy season.

Yahoo may have done Google one better with this service, in that users can reply to the answers they get for more information and results. Items such as stock quotes and addresses are also available through the service. Users can also save responses and send repeated replies – for example, if they wish to receive daily stock quotes for a particular company. Best of all, Yahoo’s mobile phone Web search is now available with any WAP-based phone. Yahoo’s partners for the SMS-based service include Cingular, Sprint, and Verizon; for the browser-based Web search services, partners include Cingular, Sprint, and T-Mobile.

Yahoo has also upgraded its Yahoo! Messenger service. The company has turned it into an expanded communications tool by adding the ability to make PC-to-PC calls worldwide, and allowing users to leave voicemail messages. Users can also share photos and transfer files more easily than before. The upgrade also boasts enhanced spam protection to combat the growing problem of harmful instant messages sent by spammers.

Another neat feature of the upgraded Yahoo! Messenger service is the ability to perform Web searches right within the message window. Users can save the URLs from these searches directly from the window to their personal My Web page – something I’ve wished I could do more than once during instant messaging conversations. Users will also be able to previous IM interactions from the message window, which will hopefully assist clear communications (especially among those with short memories).

Perhaps the best way to understand Yahoo and what it has done lately is to think of it not in terms of its being a search company, but a communications company. It started out as an index to help people connect with information; now, it not only connects people with information, but with other people, as well. This explains why it recently purchased VoIP provider Dialpad, with the idea of adding public-switched telephone networking capabilities to its PC-to-PC Internet calling feature of Yahoo! Messenger.

Speaking of mixed media, Yahoo recently made a deal with Sprint that allows users to download a Yahoo! Mail for Mobile application onto their Sprint phones. The application offers users a PC-like interface for accessing their Yahoo! Mail accounts through their mobile phones. It requires a Sprint PCS Vision handset. Users can even store email on the phone. This is not a free service, however; users pay $2.99 per month, a fee that is tacked on to their monthly wireless phone bill.

Yahoo is not only about communications; it’s about community. It recently made upgrades to MyWeb that provide such a different approach to Web searching that the geniuses at Google are probably kicking themselves for not coming up with it first. Without going into too many details here (since it is covered more completely in another article), MyWeb 2.0 allows users, in effect, to “pool” their search histories to receive even more relevant results.

Here is how it works: when someone finds a Web page they like, they can save that page, tagging it with keywords so that they can find it again easily. That person may be part of a group of Yahoo users and choose to share some or all of the pages they have found with the group. Another member of the group can benefit from what was found by searching within the set of pages that others have chosen to share. In this way, a group of people with common interests, or coworkers, can build up their own pool of community knowledge. They can even assist each other almost without having to do a thing.

Yahoo, in short, is finding ways to penetrate into many aspects of users’ lives, by being more entertaining, more helpful, more convenient, or some combination of these things. Searching the Internet is only one means to that end. The company has found other ways to achieve this goal as well. Diversity can be a good thing. This is a lesson other companies might be wise to heed.

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