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Summary:

Yahoo can become the jewel of Web 3.0. It already has strong, or at the very least interesting positions in numerous verticals. But it needs more of them, and it needs to thoroughly monetize them.

Written by Sramana Mitra

Yahoo has lost about $20 billion in market cap over the last two years. The fight that it was supposed to put up against Google has been full of Brownian Motion, generating no real momentum.

Yahoo has a staggering 500 million users. However, it does a rather poor job of monetization. The vision that Yang shared at CES last week (“At Yahoo we want to be the most essential starting point for your life”) can come true if the key activities that we perform online are channeled through its My Yahoo service. And on the financial side, each of those activities needs to be backed up by a monetization model that takes full advantage of the traffic that Yahoo consistently manages to generate and preserve.

I have written endlessly about Yahoo’s turnaround strategy, making no bones about the fact that I believe Yahoo is in THE most promising position to be able to leverage Web 3.0.

And yet, Yahoo continues to falter.

The company will report its fourth-quarter and full-year 2007 results next week. It is a fantastic leveraging opportunity — if they can play their hand right.

The reason I believe that Yahoo can become the jewel of Web 3.0 is that it already has strong or interesting positions in multiple verticals, among them news, sports, finance, jobs and photo sharing. My entire Web 3.0 thesis is based on the web becoming verticalized, and therefore, to do justice to its potential, Yahoo needs to win in the verticals, and monetize them.

Let’s take the example of the online jobs vertical. The market has continued to grow rapidly; online recruitment advertising ($5.9 billion) surpassed newspaper job ads ($5.4 billion) in 2006, according to media research firm Borrell Associates. Newspapers are losing vertical classifieds to online, and Yahoo should be one of the most prominent beneficiaries of this movement.

But it isn’t, at least not yet. Why not?

Yahoo bought HotJobs, thwarting Monster’s effort to consolidate the space. Today, jobs is one of the top online segments and constitutes around 25 percent of U.S. Internet ad revenues. The top players in the online jobs market are CareerBuilder, Monster, Yahoo HotJobs and vertical search engines like Indeed and SimplyHired. HotJobs has approximately 9 percent of today’s market.

Monster, meanwhile, is an independent public company with a market cap of $3.5 billion and revenue of $997 million for the nine months ended Sept. 30, 2007; Rupert Murdoch is rumored to be mulling an acquisition of it. Monster had 60 percent market share in 2001, but fell to roughly 30 percent in 2007. Still, put HotJobs and Monster together, and Yahoo would have close to 40 percent market share in this important vertical.

Yahoo should also dominate online photo sharing; in the U.S. the top 10 photo-sharing sites draw around 50 million visitors each month. Monetization happens primarily through hosting fees and photo printing/merchandising services. Flickr, a wonderful property that Yahoo already owns, has figured out the hosting bit, but its monetization strategy does not include an in-house printing/photo merchandising service. To close this gap, Yahoo should buy publicly traded Shutterfly, which expects to post revenue of $180 million for the full-year 2007 period but whose market cap has recently dropped to under $500 million.

Yahoo has also made a move in online travel, but is not a top performer. Priceline, Expedia and Orbitz are all monetizing the segment. Yahoo should acquire one of them, and become a serious player.

Yet another segment that is moving online is real estate classifieds. Borell Associates predicts that by 2012, newspaper real estate ad revenue will hit $3.2 billion, while online real estate ad revenue will surpass that at $3.4 billion. In 2007, total ad spending on real estate dropped 3 percent, but online advertising soared 25.8 percent to $2.6 billion due to a shift to online from print. Yahoo doesn’t have much of a presence in online real estate — ZipRealty is a ripe and cheap acquisition target.

On the positive side, Yahoo is No. 1 in news, sports and finance. However, in each case, the monetization needs to be much more thorough.

What I’m suggesting is that Yahoo build up and/or acquire multiple strong online verticals, monetize them thoroughly, report on them separately, and create an organization structure that enables them to execute on them successfully.

Their current organization structure, which has advertisers, publishers and audiences under different executives, is in my opinion a flawed model. Accountability is unclear. They should put each vertical – soup-to-nuts – under a separate GM, one who is accountable for all three aspects of the vertical and owns the P&L. This would fix a lot of the cultural problems and finger-pointing for which Yahoo has lately become infamous.

I am still a great believer in Yahoo’s potential. The monetization path is rather clear to me. It should be equally clear to Maggie Wilderotter, Yahoo’s recently recruited board member, who also sits on the board of newspaper conglomerate McClatchy, and has articulated the vertical classifieds situation rather clearly to me.

When will it become clear to Jerry Yang and Sue Decker?

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  1. I’m sorry, but this is a very superficial analysis of the problem at yahoo. Conglomerates offer no added value to hareholder nor the employees. Stockpiling properties for the sake of “verticalization” and pure marketshare is simply a 1960s version of a “strategy” – and this is what you are proposing. . .

    the deeper problems is how is yahoo with so many disparate properties (verticals) going to offer shareholder value ABOVE AND BEYOND what each property can offer independently. Just adding/buying more companies will simply exacerbate the inertia and “peanut butter” problem so well discussed previously. Marketshare does not equal profitability, growth, or economic value. Acquisition does not equal shareholder value. (you rather be a shareholder in GM or Toyota?)

    furthremore, you can talk about “monetization” all you want without telling people how. Its like saying we need a better search algorithm in 1997 without inventing pagerank . . . completely obvious but unconstructive.

  2. Interesting stats on job boards, Sramana. I’m still suprised that Monster are still doing to well despite charging such a premium for their service and offering little in the way of innovation.

    We’ll have to wait and see how the Yahoo! Life! suite pans out. They have a lot of integration to do with last years social networking acquisitions, i.e. Flickr, MyBlogLog and Delicious. And I’m not too sure about the idea of putting Delicious icons in to Yahoo! search results…

  3. This is the best blog post I’ve read in a very long time. I believe you have hit the nail on the head.
    I also have looked at YHOO businesses and come to the brlieve that YHOO needs to focus on VERTICALS. Web 3.0 will be lead by Healthcare. Just take a look at the number of vertical health properties that were funded last year and this market has NOT participated in any significant change during web 1.0 and web 2.0.

    The Zip Realty perspective is interesting. Not sure you’d get much proprietary IP with the acquisition. But, what you could gain is entrance into a HUGE market at the local level. Yup, why not acquire Zip and pay close to book value and start offering Yahoo Small Business (advertising) services from these brick and mortar offices. Talk about getting to the last mile (telco term).

    similar idea to what FedEx did by buying Kinkos or UPS buying Mail Boxes Etc. Except, hopefully, executing on the model<<

  4. Yahoo needs to continue to either buy or build more intereting products/services to engage the younger web users, to enter Web3.0 — much like their grabbing del.icio.us and Flickr to signify entry to Web2.0 before… Twitter is one obvious target.

  5. Yahoo, Please Put Up A Fight | ImmediateRealEstate.com Tuesday, January 22, 2008

    [...] admin article is brought to you using rss feeds.Here you will find the latest real estate news for buying and selling homes.In 2007, total ad spending on real estate dropped 3 percent, but online advertising soared 25.8 percent to $2.6 billion due to a shift to online from print. Yahoo doesn’t have much of a presence in online real estate — ZipRealty is a … [...]

  6. Yahoo was pretty big in the old days when it was the search engine of choice. Now, Google has taken that place because it gives people what they need – a search engine that works FAST. Imagine using the MSN website as your home page, as is default with Internet explorer…. those excruciating moments of the pain of waiting is enough to think about making a switch to a different homepage. What about the home page on Safari? It makes the belief of fast browser-startup go away.

    Yahoo probably has the resources to get working towards Web 3.0 and since it isn’t focused on a minimalist interface, it could perhaps even get there.

  7. Great post that highlights what I’ve called Yahoo’s infatuation with second place. I don’t know the company well enough to comment on the acquisition ideas, but looking at organic growth the peanut butter manifesto definitely resonated. From the outside it seems like everything is held up by the lack of a focused strategy. I get the whole “essential starting point of your life” thing, but that seems more like an idea or a vision. I have not seen clear, compelling action lined up behind that idea.

  8. Can anyone believe that up until February 2004, Yahoo’s results were provided by Google. The companies parted ways as the competition for web users grew. I quite agree to “Yahoo can become the jewel of Web 3.0″ after seeing tht revamped Yahoo mobile portal. But i dont knwo why Yahoo has made their new widget enabled mobile web portal rather hard to find. IM sure Yahoo will suppport new phones with the new portal soon.

    Parul Bindra
    http://bhopu.com – Web 2.0 Blog

  9. Yahoo is losing market cap because it’s gone too big. It doesn’t manage to be innovative and agile enough to compete successfully in the Internet. It reminds me of what AMD has done to Intel.

    An interesting fact is that Yahoo, across all their properties, is still leading the race. But, judging by the growth rate of the Google properties (and maybe also Facebook…) it won’t last for long.

    Eyal,
    http://www.sutree.com

  10. Aren’t we ready for a “Super Portal”, and couldn’t Yahoo be that? A website that collected everything we do and access on the web, such as Blogs, News, Social Sites, Mail, Shopping etc etc. The underlying sites for that Mail, Social Network Shopping etc wouldn’t necessarily be Yahoo, but could be Facebook, Googlemail and any other. It feels to me like the time is right for someone to bring some structure and simplicity into all the different kinds of activities, and I can’t see anyone better positioned that Yahoo.

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