An iMedia columnist examines how Yahoo! went from cool to lukewarm, and proposes actions the company can take to get back on top.
As it has for many other people, the acronym that is Yahoo's name has always amused me. When it became the brand it has become, Yet Another Hyperlinked Officious Oracle Database, with the D becoming an explanation point, it said a lot about the founders of this company. Mostly, it said that they thought of what they did as fairly simple -- definitely simpler than the rest of us could conjure -- and that they didn't want anyone to see them sweat. It made them sound smart and cool. Besides, as a brand name, the word Yahoo! doesn't exactly scream we're damn serious here!
Sure, as a brand expression, it's cool-- as long as you're on top. Today, however, Yahoo is decidedly not on top, Google is. And things appear to be getting very serious indeed.
The stats don't lie: According to comScore, Yahoo's share of search in the United States declined from 32 percent to 28.5 percent in the quarter that ended six months ago, after having held steady at 28.5 percent these past six months. Many analysts see it falling farther due to the deal volume that Google is accumulating and also due to long-anticipated improvements by MSN. Today, Google -- which to Yahoo old timers must seem like something of an upstart -- enjoys twice as much search volume as Yahoo.
That search volume translates into major differences in revenue, of course. The companies' TTM (trailing twelve months) revenue figures are further apart than you may think. Yahoo's is just less than $6 billion; Google's is nearly a third higher, at just more than $8.2 billion.
Going to Panama?
How can the company that made search ubiquitous for most U.S. consumers and who bought the company that invented the best way to monetize search AND who owns the homepages for something like 120 million people around the world have been left in the dust?
I'll get back to those home pages in a moment. They're the main reason why Yahoo has always been one of my favorite web media brands. But, while the fact that the company has been passed seems damaging to Yahoo for me, what really hurts is that their best means of recovery -- code named Panama -- won't be coming to the rescue any time soon.
As anyone in SEM knows, the launch of Project Panama -- Yahoo's new search monetization platform -- has been postponed twice. It was originally slated for launch this past June; then it was August. Now, the company has postponed its launch until some time in Q1 07.
Which is more damaging-- that it was postponed twice, or that the second postponement is so indefinite? When a company diminishes expectations on a sequential disappointment, aren't they saying something along the lines of "we’re not so sure this time?"
If they're not sure when it will launch, the folks at Yahoo must be feeling a ton of pressure, since Yahoo's search platform currently serves ads based on price only while Google's monetization is based on price and relevance. As search revenue has driven revenue for our entire interactive industry these past two years, Yahoo has been riding shotgun while someone else has been driving. As you consider this, think about the inner workings and how difficult it must be for the people who have been responsible for integrating Overture's technology these past few years and building it toward Panama, while watching Google's home-grown solution steal their lunch and chase them across the playground in front of their friends. It ain't pretty.
Is there good news?
Let's return to those 120 million home pages. Most industry observers think that the increase in brand and display advertising inventory will be driven primarily from new advertising opportunities, such as broadband video, which are increasingly in demand in our markets.
On an effective CPM basis, these types of ads are always worth far more than search or other performance-priced advertising. So, as a percentage of the whole, as more branding money enters the web, Yahoo should have more opportunity to make up lost ground. That is, if they do a few things very well.
Yahoo can IP target with the best companies online. They also have developed some compelling behavioral models with companies that are among the best in that space. Claria and Yahoo drove a ton of revenue before Claria got out of their adware business, and there was talk of some tremendously intriguing behavioral-performance models that Yahoo was developing with Revenue Science a year or so ago.
But, other than these means and the many partnerships they've developed, how does Yahoo monetize their many millions of user homepages?
Do they target ads based on interest taxonomies built against individuals' stock portfolios or news groupings?
Do they target ads locally in ways beyond reverse IP targeting?
Do they target ads back to consumers based on their searches in following days?
Yahoo remains one of the most premium web brands, as well as one of the few web brands with the wherewithal to make the coolest ideas in our business into a reality. One of our industry's leading analysts for publicly traded companies, WR Hambrecht + Company's Denise Garcia, calls their stock a buy. But, their guidance is down more than 20 percent, and even her expectations have been reduced significantly.
Has one of our industry's coolest brands become a bureaucracy that can't accelerate into the future as nimbly as its competitors? I sure hope not-- and with a still-robust P/E of nearly 32, let's not panic. But right now you have to admit that Yahoo's business strategists and engineers have their work cut out for them.
Mark Naples is managing partner at WIT Strategy. Read full bio.