Yahoo! (NASDAQ: YHOO) shareholders were ready for a change when Carol Bartz took over as CEO at the beginning of 2009. And judging by the overtures of a buyout by AOL (NYSE: AOL), they may get more than they bargained for. But if the AOL talk comes to nothing, YHOO still faces some serious growing pains.
Bartz’ arrival signaled a potential end to the Internet company’s ongoing identity crisis, a recovery from the disastrous botched Microsoft acquisition attempt, and a return to growth in the advertising sector after yielding its one-time dominance to an ascendant Google (NASDAQ: GOOG). Now, as 2010 begins to wind down, Yahoo! shareholders continue to wait patiently for the changes promised by Bartz. While claims of a unified brand identity have been talking points for what used to be one of the most valuable Internet companies in the world, it remains an unrealized goal.
Earlier this year, Yahoo! tried to bolster its community features by incorporating Facebook and Twitter functionality into its websites, letting users access Facebook update feeds without having to leave Yahoo!’s portal. Partnering with the most successful privately owned social networks in the world — both of which are expected to deliver IPOs in the near future — was a move that at least helped Yahoo! to feel more relevant than it has in some time. Now, however, Yahoo! is looking to compete with those networks. The Wall Street Journal reported today that Yahoo! is developing its own tool called Y Connect. The goal is to introduce the same cross-website functionality for Yahoo!’s own community features, driving users from other media, community and publisher websites back to Yahoo!’s dying portal.
On the surface, this appears to be a huge misstep on the part of Yahoo!, especially after the wise move to partner with Facebook and Twitter rather than build its own devoted social networking tools. How can Yahoo! hope to compete when it already has so little cache with users on the Internet in the United States? Its diminished reach in the west, however, may prove to be a non-factor in Y Connect’s success though. While Facebook commands a base of half a billion users, they are largely in the United States. Yahoo! on the other hand, gets the majority of its traffic from users outside the U.S. There is a chance that Y Connect could capture some of the users in India, Brazil and other nations where Facebook has yet to cut into Google’s Orkut social network. Then again, it’s more likely that Y Connect will be as successful as Google Buzz (or, worse still, Yahoo! Buzz.)
Yahoo! shareholders have been enjoying a slight uptick in recent weeks. After a sharp dip at the end of the summer, Yahoo! is trading at $15.61 today. That’s down 4% from just last Friday, but still up 17% from the 52 week low of $12.94 it hit in August. Investors who have held onto Yahoo! after this long should be concerned by the announcement of Y Connect. It means that the company is pouring its resources into initiatives that will not revitalize it or help it decide on an identity going into the current decade. Innovation, not imitation, is the only thing that will help the company survive.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
