Yahoo`s Wild Future

For the first time in a long time, there are more stories in the media about Yahoo than Google. With Terry Semel stepping down from the CEO position, everyone is wondering where the venerable search engine is headed. In this article, we’ll take a look at some possible scenarios.

A number of observers seem to be pretty convinced that the likeliest thing to happen will be a takeover. Kevin Kelleher writing for GigaOM even performs the service of handicapping the odds and grading the strategic sense of a marriage to five different entities. Others are also thinking along these lines; they point to Jerry Yang’s return as CEO as a sure sign that Yahoo will be sold to another company, since he’s one of the founders – if the board wasn’t looking to sell the company, why didn’t they search outside for a truly experienced CEO?

Yeah, right; tell that to Steve Jobs, unless you believe those rumors about Google pondering an Apple purchase. I’ll grant you, though, that Yang is no Jobs, and the circumstances under which the two left the top position and then returned to it at their respective companies were very different. In any case, we’ll take a closer look at those Yahoo wedding rumors in the next section of this article.

Other rumors about Yahoo’s future have been even wilder. Can you imagine Yahoo getting out of the search business after 13 years, and letting Google serve its results? It’s a bizarre idea, though not quite as crazy as it sounds, as you’ll see.

Does Yahoo perhaps intend to continue with business as usual? A strategy was set in motion before Terry Semel left, a multi-year plan that had just begun a few months earlier. The whole idea behind the plan was to streamline Yahoo and set it on a better path for its future. That may be the most likely course, but it’s questionable as to whether it will be enough to pull the search engine out of its seemingly hopeless rut and slide in the search market.

{mospagebreak title=Potential Suitors}

Gord Hotchkiss, writing for Media Post Publications, is pretty confident that Yang taking over the CEO post at Yahoo is a sign that the search engine won’t stay independent much longer. “My suspicion is that there may be an acquisition deal in the works and this is a ‘feel-good’ move to help shore up Yahoo’s eroding stock price until the deal can be finalized.” If that’s really what’s going on, then we have to ask: who is the most likely suitor?

News Corp. may be one of the contenders; stories are circulating in the press that it is discussing an interesting deal with Yahoo. Depending on which source you believe, Yahoo would get MySpace in exchange for giving News Corp. a 25 or 30 percent stake in the search engine. But some are saying the potential deal could collapse now that Terry Semel is no longer Yahoo’s CEO; the idea was that he’d serve as a bridge between News Corp.’s and Yahoo’s very different corporate cultures.

Wired is advocating the deal, saying that it would give Yahoo a new business model. Instead of trying to be a portal, “Yahoo…would be able to plug in its very good but under appreciated and monetized Internet tools like mail, calendar, photo sharing etc…into one of the largest distribution networks in the world.” That would be very good for Yahoo; still, would a different pairing make even more sense?

It’s almost certain that the search engine has other suitors. Rumors of Microsoft wooing Yahoo keep surfacing from time to time, and it’s a fact that the two companies have been in negotiation for a merger before. Those talks broke down, though they have been deepening their partnership. While a merger between Yahoo and Microsoft would certainly create a formidable challenger to Google’s crown, these two companies also have significantly different corporate cultures. As Kelleher pointed out in GigaOM, “Integrating both companies may prove so distracting that neither one could focus on the task at hand: beating Google at its game.”

Kelleher thinks the best hope for Yahoo is to be bought by a private equity firm. Yahoo is a mess; its culture and structure need repair, but who can focus on making those kinds of fixes when the field is moving so fast and the only hope of keeping the money coming in is to keep innovating? According to Kelleher, this is exactly what private equity firms do best. “They eliminate infighting and focus on implementing a smart plan quickly. There is significant risk: a restructured Yahoo may lose its innovative edge and alienate its longtime users. But as things stand now, that seems to be the path Yahoo is on anyway.” Ouch – that’s painful, but honest.

Kelleher thinks it’s more likely that Yahoo will be bought by either Comcast or AT&T, to give them “a web portal to lure in customers.” He also mentioned buyouts by Disney, GE, or CBS as possibilities. All of those scenarios seem less likely to me than a deal with either News Corp. or Microsoft. Then again, a marriage isn’t the only possible future for Yahoo.

{mospagebreak title=Throw in the Towel?}

It may sound crazy after 13 years, but Yahoo could get out of the search business altogether. A New York Times piece suggested that the company might outsource its search to Google and redirect the money spent on search to “reinvigorating the Yahoo portal, buying hot start-ups and taking other initiatives that would differentiate Yahoo from the Internet search leader.”

Yahoo might actually make more money that way. Google’s search advertising technology is still far more efficient than Yahoo’s. And Yahoo’s attempt to catch up with Project Panama was very costly. Though the overhauled search advertising system is better than what Yahoo had in place before, it still might not be enough.

But does it really make sense to give up on search at this point? Marketers like being able to purchase all kinds of online ads from a single source – and there are areas of online advertising in which Yahoo still beats Google. The advertising plan going forward is one of Semel’s better legacies: the company plans to sell search and display ads on the Yahoo portal and on a growing family of web site partners such as eBay and Comcast, while also brokering ads through RightMedia. Another excellent Semel legacy is Yahoo’s strong advertising sales staff.

As for Panama, that investment has already been made; it would be crazy to abandon it now, without giving it more time to prove itself. John Battelle on his SearchBlog shared part of a report he received from a leading SEO/SEM firm evaluating Panama. It noted that Panama imitated Google in many areas, and that this was a good thing because it “creates operational standards for the search marketing industry.” After talking some about Panama’s pluses and minuses, the report went on to say that “Panama is brand new. Like any enterprise-level software product, it needs time to find its footing and refine its offering. We are confident that, with time, Yahoo’s new system will represent a very positive change for paid search advertisers.” At the very least, you can expect to see Yahoo hang in there for another couple of quarters to see what kind of return they’ll get on their Panama investment.

{mospagebreak title=Business as Usual?}

It’s quite possible that Yahoo will continue on its current path, but when I say that I’m referring to the plan that’s currently in place to improve the company. There are signs that this could work. One of the points that got lost in all the bad news about Yahoo was that Panama is starting to find its stride. Susan Decker said that it would begin delivering double-digit increases in revenue for every search in this quarter. That’s a little ahead of schedule. Unfortunately, any good feelings it might have inspired were cancelled out by news that advertising on the Yahoo portal was less than expected, leading to a decrease in revenue.

It’s also worth noting that Yahoo acquired collegiate sports site just one day after Terry Semel stepped down. Yahoo is currently the number two destination for sports online, behind; this move bolstered its position. It also showed that Yahoo is still committed to its media group and its content distribution strategy. This actually plays to one of the company’s strengths, according to Jupiter Research market analyst Barry Parr. “They understand how to license other people’s content, and they have been really good at that,” he explained. “Where they have stumbled is when they have tried to become original content producers.”

Everyone seems to love Yahoo’s media sites – everyone over a certain age at least. Some observers have noted the search engine’s older demographic as if it were a problem; personally, I see it as a potential strength, due to the sheer size of the older population and the fact that they’re among the fastest growing demographic getting online (Baby Boomers, anyone?). Either way, – and, I anticipate, future purchases – will help Yahoo to redress the balance as far as attracting a younger crowd and making sure it is still relevant in the future.

Then there’s the partnership agreement that Yahoo made with six major mobile operators across Asia. The 100 million users of those mobile operators will be treated to Yahoo! oneSearch, easily accessing news, Web images, financial information, weather conditions, Flickr and web and mobile web sites. Yahoo seems to be reaching out to more users on more platforms than ever before.

And perhaps that’s the key to Yahoo’s future, and the truth behind Jerry Yang’s appointment to the CEO position. As Gord Hotchkiss notes, “Jerry Yang is recognized as a champion for the user experience on Yahoo and, in stepping back into the CEO’s old role, seems to signal a return to the fundamental principle of the user’s importance.” Hotchkiss thinks it’s too little, too late; I’m not sure I agree with his assessment. Either way, time will tell. One thing you can say for certain: if this doesn’t work, Yahoo still has other options for its future.

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