Wednesday, June 20, 2007

The Future of Yahoo

Can Yahoo revive its digital dreams?
By Tim Weber
Business editor, BBC
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Yahoo chief executive Terry Semel has been sidelined, and search engine co-founder Jerry Yang is taking the reins - but can he revitalise the struggling internet giant?
Jerry Yang, Yahoo's new chief executive
Jerry Yang was a student when he co-founded Yahoo
Let's make no bones about it: Yahoo is an internet giant.
The company has an annual turnover of $3.2bn, 12,000 employees and more than 500 million unique users.
Not bad for a venture that started as a small web site run by a couple of undergraduate students at Stanford University, listing cool internet links.
And yet, and yet.
Compared to market leader Google, Yahoo is an also run. They may have similar numbers of staff and audience, but Google towers over Yahoo, with sales that are about 50% higher, and profits that are four times larger.
And that's the reason, why all is not well in Sunnyvale, California, at the headquarters of Yahoo.

The professionals

When Jerry Yang and fellow-student David Filo founded Yahoo 13 years ago, they made all the right moves.
They understood the internet and had all the bright ideas, but got professional managers in to run the operation. That helped Yahoo to both attract investors and grow at a stunning pace.
When the first internet bubble burst, they made what seemed to be the next clever move - hiring Terry Semel, the co-chief executive of old-media giant Warner.
The man understood content, Hollywood, audiences - and was supposed to take Yahoo to the next level.
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The hitch
Mr Semel quickly proceeded to turn Yahoo into a media and content company fit for the internet age.
On paper (or the computer screen) it seemed to be a great strategy.
There was just one hitch: Yahoo's problem was not the lack of content.
Terry Semel
Terry Semel tried to turn Yahoo into a media company
Rather, it was the fact that Yahoo failed to focus on its core business: helping web users to find information.
While Mr Semel accumulated content, Yahoo's website got ever more cluttered and difficult to navigate, and the quality of its search engine fell well behind archrival Google.
This is the main reason for Yahoo's underperformance: Google's search results have made Yahoo's endless lists of sorted results somewhat irrelevant.
When Yahoo realised that it had to improve its search, it was too late. Buying several smaller search engines - from Altavista to Inktomi - did little to improve results.
Google, meanwhile, continued to build on its lead by drawing users ever closer into its universe, offering a multitude of tools from e-mail to online word processors, that were always a cut above Yahoo's offerings.
Because Google had realised that it didn't need to create its own output. It does not have to compete with the best the web has to offer as long as its software developers are able to write the algorithms that allow readers to find the content that is highly relevant to their needs.
No wonder people say that they have "googled" something. They don't ask "Did you yahoo today?".
Yahoo's broken business model
Most importantly though, Yahoo failed to match the success of Google's biggest money spinner - paid search advertising.
Next to every Google (or Yahoo or MSN) search, users also get a few sponsored links. Every click on such a link is money in the bank.
Google pursued a clever strategy. It deliberately limited the number of links on offer. What looks like turning down good business does actually result in more click-throughs - and thus more money.
As a result, Yahoo failed to turn its higher number of users and page impressions into equally healthy profits.
Less than a year ago, Yahoo identified the problem, and devised a strategy to fight back.
Code-named "Panama", a new paid link strategy was supposed to trigger the turnaround. But it was delayed, and initially produced mediocre results.
Yahoo says that Panama now beats expectations. That may explain why head of advertising Susan Decker has been promoted to company president.
Going one better
But 13 years after Yahoo was launched, has Jerry Yang learned enough to run the company?
More importantly, has the 38-year-old got the vision and strategy that can give the online media firm the focus it needs to score with its users?
For him, this is not about money. With $2.2bn in the bank, he is deemed to be the world's 432nd richest person.
But in Silicon Valley, money is a measure of success. And the two Google founders, Sergei Bryn and Larry Page, are much much richer - simply by building a better business.
Jerry Yang will be itching to prove that he can go one better than his fellow Stanford alumni.


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