Yahoo Still Lacking Straightforward Strategy

by Jonathan Berr | September 20, 2012 9:13 am

Yahoo (NASDAQ:YHOO[1]) CEO Marissa Mayer’s plan to return $3 billion to shareholders — which will come from selling half of the company’s stake in Alibaba — is long on hype and short on specifics.

The former Google (NASDAQ:GOOG[2]) executive still has not spelled out exactly how the money will be returned, for one. It seems likely that it will be a one-time special dividend — the route AOL (NYSE:AOL[3]) took when it announced plans to return more than $1 billion to shareholder — but we can’t know for sure.

Even more importantly, though, Mayer needs to articulate a coherent vision of where she plans to lead the company in the months and years ahead. And that kind of existential question isn’t going to solved by money.

Writing in The New York Times[4], columnist David Carr summed up the situation well by saying, “Seventeen years after the company was founded, you still have to wonder whether the frothy trademark Yahoo! should be replaced with Yahoo? to convey the uncertainty of purpose. “

Yes, Yahoo is in desperate need of a strategy and has been for probably a decade or so. The sum of Yahoo’s parts makes, quite frankly, no sense because it tries to be all things to all people. No website being launched today would ever dream of offering such a wide variety of services — ranging from fantasy football to stock quotes to dating.

But while the company — whose shares have barely budged this year — may be a shadow of its former self, it isn’t chopped liver either. The company’s flagship site is the third-most visited on the web, trailing only Facebook (NASDAQ:FB[5]) and Google’s YouTube. And many of Yahoo’s verticals — including Yahoo Finance, Yahoo Sports and its entertainment and real estate sites — lead their prospective categories.

Unfortunately, though, said content prowess doesn’t do Yahoo as much good as it should.

During the most recent quarter[6], Yahoo earned $473 million in display advertising revenue, excluding fees of “traffic acquisition costs.” That was a whopping increase of 1% — and many of Yahoo’s rivals are doing better.

Google, which gets most of its revenue from advertising, recently reported quarterly sales of over $12 billion[7] — an increase of 35% from a year earlier. Even AOL advertising saw a bigger jump in revenue, which rose 6% to $338 million[8] in the last quarter, while Facebook’s advertising[9] revenue climbed 28% year-over-year to $992 million in the last quarter.

Yahoo is trying to boost advertising revenue, of course — namely by forming content alliances[10] with partners such as ABC News and CNBC. One problem with that strategy, though, is that it promotes content that is not unique and is thus be less appealing to advertisers than exclusive features.

But the other way to tackle this problem — pouring more money into original content — runs the risk of angering Yahoo’s existing publishers. And sure, the solution is obvious: Strike a balance between original and curated content. This, though, may be Mayer’s biggest challenge.

AOL, which started in the Internet’s early days alongside Yahoo, is faced with many of the same problems. Under CEO Tim Armstrong, the New York-based company has made a huge bet on original content. AOL acquired the Huffington Post for $315 million last year for example — an  acquisition that has seen seemingly never-ending boardroom drama.

AOL also launched more than 800 Patch sites to establish a foothold in the local media space. Patch still has huge problems, though, because AOL rolled the offering out before working out the many kinks in its business model — and the jury is still out on whether Patch will ever be financially viable. In fact, I wouldn’t be surprised if AOL is forced to close some Patch sites and merge together others.

And AOL’s struggles show just how tough it can be to successfully create original content, especially while trying to also continue curating other content.

For now, though, Yahoo at least needs some kind of clear strategy to tackle this problem. And if if doesn’t come up with one soon, Yahoo could become a distant online memory just like other once-dominant Internet firms like AskJeeves and  Friendster.

The time for Mayer to act is now.

As of this writing, Jonathan Berr did not own a position in any of the aforementioned securities. Follow him on Twitter@jdberr.

  1. YHOO:
  2. GOOG:
  3. AOL:
  4. The New York Times:
  5. FB:
  6. most recent quarter:
  7. of over $12 billion:
  8. which rose 6% to $338 million:
  9. Facebook’s advertising:
  10. forming content alliances:

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