Yahoo, Please Put Up A Fight

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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