Saturday, 17 September 2011

Sharks Surround The Sinking Yahoo Ship

The recent sacking of former president and CEO of Yahoo Carol Bartz has revealed deep weaknesses in the internet giant.

Where it all went wrong

Described in an article on Forbes as "an ad agency," Yahoo has been struggling to regain the market ground it has lost to Google because it has consistently failed to innovate and adopt new technology and follow the market where it leads.

The telephone firing of Ms Bartz and her subsequent announcement in an email blast to Yahoo employees has raised questions about its possible future.

The problem, it seems, is that the company adopted an "if it ain't broke, don't fix it" strategy and hog- tied innovators and technologists - anyone who told them they were wrong. Predictably, Google and Microsoft, both of which are technology- driven innovators, soon left it trailing in their wake. In the last ten years, all the market dominance once held by Yahoo has been lost to its competitors.

What this means for us is uncompromising in its evaluation, calling Yahoo "the Web's walking dead."

Yahoo and AOL earn revenues the old-fashioned way—by employing rafts of reporters and maintaining costly ad sales teams to make sure the articles and deals keep flowing. It’s a model with lots of competition. “Switching costs are pretty low for [visitors to] both of these companies,” says Citigroup’s Mahaney. “There’s no real way for them to lock in customers.”

As a result, Yahoo and AOL have to spend a lot just to keep pace, and they lack the profits to pay the table stakes of playing with the Internet’s premier companies.

Stories of investment banks being hired to provide advice – which can only lead to recommendations for selling all, or pieces, of the company – may well prove to be correct, with Silver Lake Partners, Providence Equity Partners being named in internet news blogs as possible takeover candidates. Hedge funds such as Daniel Loeb's Third Point have already acquired a 5.2 stake and plans to buy more, according to If this happens, the company may well be broken up by asset strippers and sold off piecemeal, which may be good for investors, but what about those of us who use services like Flickr, Yahoo Mail, or the Developer Network?

Yahoo has been offering then taking down services for years. Those that have not been simply shut down have been sold on., for example, was sold to AVOS, owned by YouTube founders Chad Hurley and Steve Chen, on April 27 2011. Geocities has already been abandoned as a free webhost and is only available as a paid service as of October 26, 2009, so it's not unrealistic to think that the other services will follow suit.

Possible solutions

Adam Hartung in an article posted on Forbes says

Google was run by technologists who used technology to dramatically improve what Yahoo started. Their future scenarios were built on an explosion in users, web pages and advertisers. Yahoo was run by advertising folks, and they didn’t think through where the future market was headed – thus missing the technology upgrades and need for streamlined tools. Yahoo’s leadership locked-in to what it knew (advertising) and their slowness to introduce new solutions and products resulted in the company falling further behind Google every year.

Peter Burrows at agrees. He says that Geoff Ralston, a former Vice President of Engineering, Chief Product Officer and creator of Yahoo! Mail, suggests using Steve Jobs's method: cut more costs and me-too offerings and spend or acquire whatever it takes to create “consumer experiences that are unbelievably great,” a masterstroke that turned Apple around from its headlong descent into bankruptcy and made it a success.

Whether Yahoo will take the advice on board or not remains to be seen, but its future, for now, seems uncertain.

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