Is Yahoo a Sleeping Giant or a Fading Star?

Why write about Yahoo?  Have they done anything relevant in the last 5 years?  Is there a coherent vision for what Yahoo does?  Before completely writing them off consider a few things:

• According to alexa.com Yahoo is still the 4th most visited website in the U.S. and the world.
• According to compete.com Yahoo had over 150 million unique visitors in November.
• In October Yahoo accounted for more U.S. search traffic to bing than bing.com did.

Even without a clear message or a clear direction as a company, Yahoo is still a powerful brand.  There are millions of websites that people can spend their time one, yet they still choose to visit yahoo.com.  This should make Yahoo a very valuable company, yet it has only 1/2 the market cap of eBay and 1/10 that of Google.  It is possible that the lack of overall direction has hurt Yahoo’s ability to generate profit.  For instance, I believe Google understands that their revenue generator is advertisement.  So whatever Google service you use, it is ultimately driving you back to Google ads at some level.  Yahoo lacks this focus and it hurts them.

Part of their issue is they don’t seem to be able to decide if they are a media company or a technology company.  Looking at their history of acquisitions (list on wikipedia), it is apparent that there was little rhyme or reason to their purchases.  Everything from rivals.com (which is a sports news website) to delicio.us and a lot in between.

What does all of this mean?  I think this is an undervalued company that given the right leadership could bounce back in a major way.  I don’t think that they will ever be the innovation factory that Google has become, but here are a few scenarios in which I could see Yahoo flourishing:

1.  Find a CEO that will focus on becoming the next generation of news media.  It’s no secret that the current paradigm of news media is outdated, but does anyone expect any of the established players to really try and disrupt the market anymore than it has already been disrupted?  In a time where newspapers are laying off reporters in droves, there should be ample opportunity to attract the right talent needed.  Yahoo Sports already has a reputation for being some of the best investigative reporters in the business.  Use that as a model to provide similar levels of coverage on other topics and I think they would have a captive audience.  Beyond just producing content, I think a focus on news media would allow Yahoo to use the fact that it still has a lot of ties in the valley and presumably a fair amount of engineering talent to look for innovative ways to both acquire content and to present it to the users.

A few possibilities on finding this CEO could be to look through the wreckage of blogs that AOL bought and then dismantled.  Another option could be to look towards someone that has recently been involved in a major media website redesign.  The two that jump out to me are espn.com and cnn.com.  For their flaws, both sites have had relatively successful major redesigns within the last couple years and that experience could be quite useful in redirecting Yahoo’s efforts towards focusing as a media company.

2.  There have been rumblings about Microsoft putting in a bid to buy Yahoo.  This actually makes a lot of sense to me.  Yahoo is already providing the user front end to about half of the bing search requests and there is 8 or 9 more years on the 10 years agreement for Yahoo to use bing as it’s search engine.  I’m going to work on the assumption that Microsoft would move down the path to make Yahoo a media company as discussed earlier.  Microsoft has the cash to pump into this to hire the talent to make it work.  They’d potentially also have the money to push for local media, which is a huge untapped market.  Microsoft could then look for ways to leverage the Yahoo media into their ever-growing mix of media that it provides to their Xbox Live users.

3.  The other possible acquisition seems to be the Chinese company Alibaba.  From anything I can find on this, it would turn into a fire sale with Alibaba taking any Asian assets and selling the rest.  So if that led to dumping some assets and allowing Yahoo to focus on option 1 or 2, it could be a good thing.

I have no idea if any of this will actually happen, but I’m kind of rooting for Yahoo.  I don’t have much reason to other than some sentimental attachment to one of the original dot com powerhouses.  What I am sure of is if they don’t make some changes soon there is a good chance that their star will continue to fade into obscurity.