Yahoo, Please Put Up A Fight

62 Comments

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?

62 Comments

ken

i seriously hate Yahoo. They are the dinosaur of all web portal parasites and offer nothing that isn’t available better elsewhere. They destroyed eGrouos and Konfabulator with their blinkered corporate greed. Their search sucks and their webmail is the joke of all webmails. Yahoo remind me of PDQ Bach: “His plagiarism was limited only by his faulty technique.” Even with Adblock their site still manages to piss me off. At least America on Langley gave us IM. What will it say on Yahoo’s gravestone?

PCeasy

I recently was a big fan of yahoo. Since the changes to mail, I can’t use it on some computers. It’s just to hard to use the new mail. And the search is just awful.

Zeke

@abhijit, are you still using dial up? cause the new Yahoo mail on my computer looks fantastic and its loading really fast, actually even slight faster than GMail which I can not stand the sluggish “loading” screen. This is quite an achievement considering Yahoo Mail has a much heavier UI than GMail.

nugget

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While revenue might be $180M they loss money. How is that helpful to growing the bottom line at Y!?

Bats

Very interesting. Great post. I hate to present this view as it is very “Gekko” but it seems Yahoo could unlock more value to shareholders through a break up than as a standalone entity. Its obvious that its investments (Japan and Baidu) are worth more than its core, and its the core that holds the juicy, vertical properties that command high valuations. Could Private Equity or a strategic player with balls make a bid? Who knows….

Scott Cropper

Yahoo should give up on doing search and trying to compete with Google in various ways. They should concentrate on services/features like: Flickr, Del.icio.us and Upcoming; continue to do things like adding support for OpenID and other standards; make their IMAP free to all and just use Google Adsense (or not) to make money. By giving up the battle for Search King they could beat Google everywhere else. I know that sounds crazy but its something to consider.

Trevor Speirs

I think you set off a tidal wave of responses. I agree that Yahoo’s positioning in the Verticals is a key strategy. It is probably better positioned for the information age than other publishing conglomerates like News Corp (but they are coming fast).

In addition to the verticals you mentioned, you forgot to discuss their position in the music area (with the bungled acquisition of MusicMatch Jukebox) The problem is that Web 2.0 and 3.0 demand more than being a series of verticals. Yahoo has all the properties to be our digital living room, yet they have not integrated all the pieces. I understand that solid integration takes time, but the first steps should be a “super portal” (as mentioned by an above commenter) that presents all the pieces to the consumer in a user friendly way.

Sanjath

ooops, I was talking about New Yahoo Mail. It was mis-typed as Yahoo Main !!

venkat

This note looks more like an academic strategy class exercise but in reality, Yahoo’s problems seem much more than that. If its just buying properties(which they are already doing) and getting money(difficult part), they could have done that as mentioned in one of the comments. It would be interesting to take into perspective what competition would be doing while yahoo executes this strategy.
The question they have to ask for each and every product(service) they offer it as paid-only, would the user be willing to pay for it. (I doubt about most users). Also monetization metrics and data need be relooked into than attributing no. of users, page views, traffic etc which is old school.

Sanjath

I think some of their properties badly need a facelift. E.g: y! groups should’ve taken the advantage of social networking, because thats what people were using for some kind of networking and information sharing. But, that has stayed stale for a long time.

I agree with some of the comments about New Yahoo main, even though their intention is laudable, implementation has been disappointment with JS errors and compatibility issues with browser versions etc.

abhijit

Sramana, I wonder if you or any of the other commenters have Yahoo mail ids. Yes, Yahoo has a lot of points of entry into the web world, but their backbone is their email service (or maybe that’s my perception).

Me and a lot of my friends who have Yahoo email ids, were all looking forward to the new email interface. And to tell you the truth, it SUCKS, big, big time. Maybe it’s great in broadband USA and South Korea but in the rest of the world, the way it loads is not worth a startup’s salt. And to think that Yahoo employs Douglas Crockford, the Javascript Guru!!

For me, that is just one of the issues.

Take POP3 access – Yahoo still doesn’t provide POP3 access to all their email ids. Surprisingly, if you do take a yahoo.co.in email id, it comes as a default! I’ve had a Yahoo email id since they were only Yahoo.com, but I don’t seem to deserve the service that they provide to their newer account holders!

Take their storage space – Yahoo started with their unlimites storage space long after Gamil. They just seemed to appear as a ‘me-too’ company.

And as a last straw, Gmail is providing FREE IMAP access. Which Yahoo doesn’t even provide to their paid Business Users!!

This kind of attitude would be unpardonable for a startup. And for an established organisation, this is not only unforgivable, but it’s reputation lost.

Sadly, today, when it comes to email, Yahoo just appears as a staid company trying it’s hardest to keep up and failing even so.

For me, that’s just not good enough. After ages of sticking with Yahoo mail, I’ve finally switched over to Gmail. Although, it takes a bunch of effort to notify everyone of the new email id, I’ve just had enough of Yahoo’s slow interfaces, lack of functionality, and in the days of Web 2.0, looking like a dinosaur on it’s way to extinction.

I wonder, if we had the ’email id portability’ along the lines of ‘number portability’ for mobiles, how many of even PAID Yahoo Business Users would stick with Yahoo.

IdeaTagger

I think you make a good business and financial case for this verticalisation strategy but from a technology and user-experience perspective, I think Yahoo is too fragmented as it is. It seems to have too many parts, most of which are not integrated.

As I commented in a 2007 post on Read/WriteWeb about Yahoo, much is being made of development platforms but there is something to be said for creating platforms that serve as glue between multiple properties, either belonging to the same parent company or owned by separate business entities. Yahoo needs such a platform and until it figures out a way to integrate the different fragments it already has, I would argue that it should hold off on bringing yet more fragments in. Oh and before anyone suggests it, an RSS-fuser like Yahoo Pipes doesn’t count as a proper platform in the way that I mean.

Scott Rafer

Let’s not confuse monetization with non-linear market growth. Verticalization may well be the key to Y! making more money, but it has nothing to do with whatever the next Internet cycle will be. Dotcom I was dial-up internet, Web2 has been consumer broadband, and the third Internet cycle will also be tied to an order of magnitude improvement in connectivity that allows an entirely new class of horizontal applications to disrupt the status quo.

Paul

Agreed – this is a very good post. Yahoo! has huge upside potential.

Yahoo! has for years had problems not just with monetization, but generally with thinking through their products and completing them. While Apple shows us how important it is to focus on critical features and pare away complexity, a lesson taken (perhaps too far) by Google, Yahoo! often lets ‘bolt-on’ features or graphics pile up on both their browser-based and client-based applications, and their QA is inadequate.

On the browser side, there is the ugly, puffy interface for adding new content to a MyYahoo! page. Big logos, no tags, no ‘popular packages’, no social links, no third-party brand promotion. On the client side, the Yahoo! Messenger sets off a small circus every time it launches, and the toolbar looks like a 1994 design. Their new webmail interface is beautiful at least, but s…l…o….w.

Their initial version of Wallet made it impossible to recover your secret user key (different from your password) unless you knew the birthday you had supplied with your account (tough luck for typos or amnesic privacy freaks), forcing users to open new mail accounts if they lost this code.

Their first Music client was so shaky that it felt like a UFC cage match to get it off of my computer.

Such indifference to product quality has made it obvious for years that the company has been suffering from sloppy management.

These lapses are all the more frustrating because of the company’s history of invention. Their original webmail stayed the best out there for years. MyYahoo! was a brilliant initial execution, from UI to incorporation of multiple feeds, to feature integration through in-house widgets. Sports still leads the pack, getting better every year. Just the idea of putting all these things together…

I root for Yahoo! (believe it or not), and it is sad to see them piss away inspired products with partial, shoddy execution. I hope they lay off the right people and re-work their product management or engineering to get back on track.

stone

At Yahoo, you have a deadly combination of arrogance and low morale. The very senior folks are still very arrogant, running around the world tempting little start-ups with their talk of acquisition while their ‘rank and file” play with the tumbleweeds bouncing down the hallways. They are losing in many key areas and do NOT stand for anything anymore. Yahoo is a dying company — will take many years to shrink in size, but shrink it will.

eusmwl

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.

Eyal

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

Parul Bindra

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

Bill

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.

Nitin Reddy

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.

YDrive

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.

Alex

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<<

Neil

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…

will

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.

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