YAHOO! Seeking a Vision | INA Global

YAHOO! Seeking a Vision

Article  by  Erwan LE GAL  •  Published 09.01.2012  •  Updated 12.01.2012
The Yahoo! group, Web pioneer and symbol of the start-up years, bringing together sites and services visited monthly by over 500 million users in more than 20 countries, is now attempting to reposition itself.

Summary

The Yahoo! group, Web pioneer and symbol of the start-up years, brings together Websites and services visited every month by over 500 million Web users in over 20 countries. Having survived the bursting of the Internet bubble and a hostile take-over bid from Microsoft in 2008, before ultimately forming an alliance with the Redmond-based company, the Californian company is now trying to reposition itself in relation to increasingly powerful competitors in the search engine and social network sectors (notably Google and Facebook, respectively).

From start-up to portal

Founded in 1995 in California by two students, Yahoo!’s company history fits perfectly with everybody’s notion of what the Internet was about in the 2000s – a time of pioneers and entrepreneurs, start-ups and the new economy.
 
Its two founders, Jerry Yang and David Filo, were still students at the University of Stanford when in 1994, they created “Jerry and David's Guide to the World Wide Web”, a directory (“directory”) of Websites organised into categories. Unlike search engines using algorithms to index the Web automatically (like Google PageRank), the links were selected then added manually. The idea of Yahoo! was born: a site which editorialised content and guided Web-users as they surfed the Web.
 
In 1995, the personal guide was renamed and the company Yahoo! was officially born (the name is said to be an acronym for “Yet Another Hierarchical Officious Oracle”). The directory evolved towards the “portal” model, like most of its competitors at the time (MSN, Go.com, Lycos, etc.). The portal (which gets its form from proprietary software and closed networks offered by the first Internet providers) is both a way into the Internet for Web-users and a way of capturing their attention, by offering everything they could need on the Web, from content to services, in a single location. Yahoo! quickly offered its users Webmail and an instant messaging service.
 
By March 1995, Yahoo!’s reputation had spread far beyond the University of Harvard. Jerry Yang and David Filo managed to convince investors at Sequoia Capital to invest two million dollars in the start-up. Yahoo!, which employed 49 people, was floated on the stock exchange in April 1996.
 
The company then kicked off a frenetic round of acquisitions, buying out, for example, Geocities (a personal Website-hosting company, since closed) for $3.6 million and Broadcast.com (a Web radio station, now part of the portal) for $5.7 million. This figure amounted to 100 times the annual income of the company at the time. Back in 1999, like other start-ups, Yahoo! was part of the speculative bubble within the new economy, until this bubble burst in 2000. The share price of the start-up plummeted (from $475 to less than $16). Many employees, including the CEO Tim Koogle, were made redundant.
 
Yahoo! was one of the only survivors of the new economy and took advantage of this to consolidate its position - that of a portal site and a public crossroads that had to gain and retain the loyalty of Internet surfers. The company started another round of acquisitions, including the price comparison site Kelkoo in 2004, the “social bookmarking” service delicious, and the photo-sharing site Flickr in 2005.
 
Within the space of a few years, the directory had gone on to become an Internet media group or “an online media company” – a global Web giant for content and online communication services.
 
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An online mass media & display model company

In the early 2000s, Web 2.0”, “user-generated content” and social media were still only vague promises. The Internet was mainly dominated by large portals such as Yahoo!, which reproduced the economic model of the mass media online.
 
The challenge was thus to attract the largest possible audience and bring in a profit from advertising. Yahoo!’s income mainly comes from online advertising, in particular from the display model, based on banner advertising. Payment, at the time, was calculated more often on the CPM, or cost per mille (thousand) views, than on the CPC, cost per click.
 
Display is the concept at the heart of the economic model used by portals, and usually accounts for their main source of advertising income. In 2010, Yahoo! still enjoyed the number one position on the display market, with a 16.2% market share, amounting to over $9 billion.
 
This advertising model, which puts the emphasis on power rather than affinity, may have had its use at the start of the 2000s, but it was quickly outmoded by Google first of all, with its Adwords technology using contextualised key words and sponsored links included in the results of the search engine; subsequently, social and behavioural advertising came about, experimented with on Facebook, for example. In order to compete with Google, Yahoo! bought out Inktomi in 2002 (a search engine) and the following year it purchased Overture (a sponsored link service). However, despite offering search marketing and sponsored links in addition to its display service, Yahoo! never managed to catch up with Google (which now holds a dominant position in France, for example, with over 90% of the search and online advertising market).
 
In February 2008, Microsoft announced its intention to buy out Yahoo! for $44 billion. The offer was rejected by the board of the California-based group, which considered the proposal to be “under-valued”. Despite all of that, after months of dealing, Microsoft and Yahoo! came to an agreement and formed a technology and advertising alliance in July 2009.
 
From this moment onward, search and sponsored links were entrusted to Microsoft, which managed the technological base via its search engine Bing. On 3 August 2011, Yahoo! started to transfer its search results to Bing in Europe, focusing solely on display advertising. For the first five years of the agreement (which covers ten years), Yahoo! will receive 88% of income generated by advertising in the search results on its site.
 
Translated into figures, it would appear that despite the phenomenal growth of Facebook and competition from Google, Yahoo! has stood up rather well.
 
 
The group published a doubling of its net profits in 2010 (both for the year and for the fourth quarter), with a turnover that had fallen by 2%. The net annual profits came to $1.231 billion, while the quarterly profits amounted to $312 million. At the same time, the group made 600 people redundant (4% of the 13,000 people employed by the company).
 
Yahoo! remains profitable, and has retained a huge audience; but despite being the second or third biggest online search provider in the United States, after Google, it is no longer making significant progress, and the competition is getting tougher and tougher.
 
In August 2010, the  Nielsen Institute confirmed that the MSN/Windows Live/Bing search engine had overtaken Yahoo! for the first time, thereby taking up the second position in the search engine ranking.
 

Ranking of US search engines – August 2010 (Nielsen)
(MoM: month on month change; YoY: year on year change)
 
In November 2010, the number of unique visitors to Facebook overtook Yahoo!: 648 million, compared with 630 million (after Microsoft and Google). In terms of time spent, in one year, according to comScore, Yahoo! fell from first to third place. Generally speaking, all the large Web portals have been affected, and AOL has followed the same trend.
 
 
 
From the outset, the strategy of Yahoo! has been to boost the visitor figures for its portal, in particular in emerging markets like Asia and South America where Internet has been growing rapidly. The portal has increased its visitor figures through an alliance with Univision. Yahoo! has gained ground in Taiwan through the acquisition of the local portal Kimo. It then went on to make acquisitions in the Arab world, buying Maktoob.com, a leading Web portal in the Emirates, Jordan, Kuwait, Egypt, Saudi Arabia and Dubai, then in Indonesia, where Yahoo! bought out Koprol, an Indonesian social network based on mobile geolocation.
 
However, Yahoo! is apparently in negotiations to withdraw from Asia and sell the 35% that is holds in Yahoo! Japan. This operation would enable it to raise $8 billion to compete with Google and Facebook.
 
 
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Do you Yahoo!?

Beyond the rating figures, which are huge, and the financial results, which have been disappointing investors, but which have remained at an acceptable level, Yahoo! looks like “an empire in decline” compared with Google or Facebook – a company without a vision, poorly run and devoid of any real strategy.
 
Michael Arrington, star blogger of Silicon Valley, wrote last December in the TechCrunch blog  that Yahoo! was in “absolute disarray”. He wondered whether the company was still a new technology company, saying sarcastically: “I think it’s now clear to the world now that they aren’t. They’re just a nightmarish Dilbert-cartoon version of the old Yahoo, where employees fear for their jobs and stumble around the office trying to protect themselves, not build anything new and ambitious”. The group may have become a giant in the content sector (information, sport, etc.), but technical innovation is particularly rare and slow.
 
Yet, at the end of the 90s, Yahoo! was – just like Google today – on the cutting-edge of innovation. Services like Yahoo! Maps or Yahoo! Mail (one of the first Webmail services enabling the general public to send and receive e-mails from any computer free of charge) revolutionised communication and were a tremendous success with Web users.
 
The main error committed by Yahoo! was probably that it didn’t sufficiently realise the importance of the changes taking place in the Internet world, notably concerning the portal model. It abandoned its search business, leaving its competitor Google to emerge, but its main mistake was to have completely missed the turn to the social Web. Acquisitions in the field, such as Flickr or delicious (which Yahoo! apparently even considered shutting down) looked as if they had been abandoned. They were insufficiently developed and never really became an integral part of the portal.
 
In fact, as summed up by Paul Graham, a former employee of Yahoo!, in a bitter exclamation on his blog, “Yahoo treated programming as a commodity”, while it should have been at the heart of its strategy, like all Web companies. He relates the following anecdote: in 1998, he put forth the idea that David Filo buy Google. He and all of the company’s programmers used Google for their Web searches. The co-founder of Yahoo!, however, did not see the point of this acquisition. It should be mentioned that at that time, searches only accounted for 6% of Yahoo!’s traffic, while the company was growing by more than 10% per month…
 
In fact, Yahoo! settled comfortably into the gentle role of an online media company focused on content. Its competitors, however, such as Google and Facebook, placed innovation at the epicentre of their strategy and developed a different corporate culture: one of hackers, and of engineers, who advocated interactivity and the use of the collective intelligence of the Web and Web-users.
 
In January 2009, Carol Bartz, former CEO of Autodesk, a design and digital content software company, succeeded company co-founder Jerry Yang. She took the helm of a group at a time when all of the large portals were faced with the same identity crisis. AOL, as is demonstrated by the acquisition of the Huffington Post or the blog TechCrunch, had a clearer strategy, namely placing the company’s focus more on content and on gaining advertising revenue. Yahoo! was still trying to find its identity – portal, content editor, search engine… Carol Bartz, when asked during a conference how she would define Yahoo!, simply replied with four words: “content, communications, media and innovation”.
 
In the social Web field, having tried for months, without success, to develop social services to rival Facebook (the failure of Yahoo! Buzz, for example), the company, under the aegis of Carol Bartz, changed direction. The strategy for the portal was no longer to make new acquisitions nor to create its own social network, but to incorporate the most popular existing tools and services by forming alliances. Yahoo! Thus recently incorporated sharing tools and the “like” function onto its content pages so that its users can share content on the portal with their friends.
 
Just like other content publishers, Yahoo! hopes to take advantage of the huge number of Facebook members (over 600 million) to generate traffic to its site and consolidate its Web portal strategy, at a time when social networks are of such great import. The aim is to make it the only place online to send e-mails, search for and share information with friends on Facebook and Twitter.

After two years at the head of the company, and despite her efforts to bring the portal back to financial health, form strategic alliances and reassure investors, Carol Bartz announced that she had been fired to the employees of Yahoo! on 6 September 2011. The shareholders penalised the company’s bad performance on the stock exchange and certain questionable negotiations held by the CEO, such as the sale of delicious, the famous community bookmarks site, which was sold in April 2011 to the founders of YouTube.
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Back to its roots?

Yahoo! remains a portal; but at a time when the Internet is dominated by social networks and searches, and access from tablets and mobile devices is booming, Yahoo! must clearly display both its positioning and strategy.
 
In broader terms, like MSN and AOL, which are faced with the same challenges, the company must review its definition and the role of the Web portal in 2011.
 
Recently, Yahoo! announced the development of Livestand, an online magazine for iPad and tablets, which aggregates content from Yahoo! and other magazines.
 
The place given to the directory within the portal has shrivelled away significantly. And yet, this is where the strength of Yahoo! lay in the beginning: as a publisher, an editorial guide to wade through the huge quantity of content, a “curator”  – whilst, ironically people have never talked more about “curation”. At a time when the quest for real-time information and instantaneousness reign supreme, when people are increasingly talking about curation and recommendation, and given the vast quantity of information available on the Internet, Yahoo! has a real opportunity to “become useful again”.
 
Carol Bartz herself, during one of her speeches, hit on what the future of Yahoo! might be: “Yahoo! delivers quality content … the aggregation, creation and curation of content. That’s what we do, and what we do best.”
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Illustration credits:
© Yahoo! ;
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