The current situation of Yahoo! (NASDAQ: YHOO) is potentially what business leaders are talking about when they offer the prophetic warning that taking your eye off the ball will allow misfortune to quietly creep in and wreak havoc. The company, an icon of early internet mail and search services, is currently at a major crossroads which threatens the brands entire existence as it fights to adapt to modern internet advancements.
Yahoo! mail and search was the entry point to the internet for many people. The very first thing I ever learnt about the internet in 1999 was how to open a Yahoo mail account, and send/receive emails on the Yahoo! platform. This Yahoo! Mail platform contributed to driving the website of Yahoo! to achieve the number one traffic ranking according to Alexa for so many years. How Yahoo! was unable to successfully tap into this priveliged position whilst leaving the likes of Google (GOOG) to storm right past it, is something that co-founder Jerry Yang may still wake up wondering to this day.
Yahoo! has simply been unable to unseat Google when it comes to online advertising. Google even came up with an email client that fast outpaced that of Yahoo! in popularity, forcing Yahoo! to make badly needed changes to the basic email interface that it had provided to users for years. Yahoo! has fallen seriously behind in the dynamism battle with Google, its old adversary from the days of the basic web search.
Yahoo!’s problem? Innovation and speed of adaptation are the two things that have dogged Yahoo! for years. But it seems that Yahoo! has decided to try out something new this year. It recently announced plans to shed 15% of its workforce, and to completely restructure its operations to enable it compete favorably with its age-old competitors Google, and an emerging one in Facebook. Things may not, however, all be bad for the former darling of the web as Yahoo! intends to revamp its services and roll-out an action plan which may prove its doubters wrong.
The Re-Organization Plan
Yahoo! intends to re-organize the company into three groups: consumer, regions and technology. Although this shows a willingness to reevaluate its business model, there still exist several major weaknesses and obstacles to its rejuvenation.
Yahoo! has placed its social media and flagship business of offering free mail and advertising under the Consumer Group. However, it is unclear at the moment how Yahoo! intends to outdo Google which already has a very firm foothold in the ecommerce industry with Google Checkout. Google Checkout already has advanced usage, especially as users of other paid products from Google such as the Android Developer Marketplace are firmly integrated into the Google Checkout ecommerce platform.
In order to boost its market share in the advertising market, Yahoo! has partnered with Microsoft’s Bing to provide a much better internet search experience using Bing’s advanced search algorithms. Although clearly a sign of its aspirations to better itself, combining with a direct competitor such as Microsoft (MSFT) could be seen as a sign of the company’s weakness and capitulation by many investors.
Going forward, it is very difficult to see Yahoo! regaining any piece of the market share which has been lost to Google, as Google seems to be ahead of the game in all departments. Yahoo! currently trades around $15 a share. Any upside movements (and the keyword is ANY) is not likely to cross the $18 mark. If there is any direction I expect Yahoo! stock to go it is south. For me, the company simply lacks the imagination or the drive to do what it needs to do to offer any significant and sustained challenge to the might of Google. Furthermore, many are beginning to doubt that the company will even be able to maintain its independent status for too long.
If you compare the innovations of the two companies over the last five years, there is a lot that can be applauded in terms of Google’s development but very little offered by Yahoo!. Google has expanded its Google Checkout system whilst also rolling out a hugely popular android operating system for mobile technology. Not only has Yahoo failed to move sufficiently with the mobile information revolution, but it is also finding itself falling behind mobile hardware designers who are moving to compete in its markets. Hardware giants Apple (APPL) have already launched their icloud internet service to rival the domination by Google and Yahoo in online email services.
Google have also moved big-time in to social media, creating the Google+ network which has the potential to be a direct challenger to Facebook who have a highly publicized stock launch later this year. It has also been striking deals with mobile phone operators, such as Motorola whilst Yahoo! has failed to think so pragmatically about maintaining its popularity in the mobile generation.
But what can we say for Yahoo!? Sadly, there is very little to talk about. We need Yahoo! to start becoming aggressive and capitalizing on the declining popularity that it still commands if it is to look at all attractive as an investment. Yahoo needs to become creative with product lines, reaching out to consumer demands and producing innovative products that provide high-quality and competitive services. Not only is it getting beaten in the US in terms of popularity but it is only making half-hearted entries into lucrative markets such as China. Dynamic search engines such as that provided by Baidu (BIDU) are outcompeting Yahoo! as a direct result of this slow entry. The key to rejuvenating Yahoo!’s fortunes is aggressive marketing and innovation. Perhaps the company needs to stop competing with Google altogether and forge a different niche for itself. Their news service is one key area where Yahoo can attempt to dominate if it can make further inroads alongside its recent partnership with US giant ABC news although it will still remain far behind specialist providers such as Thomson Reuters (TRI). It is therefore left to see if the restructuring of the company will yield fruit but, frankly, Yahoo! needs a lot more for investors to become excited about if it is to break out of the restrictive $18 price range during 2012.
Tristan Goldthorpe currently lives in Madrid working for an international private sector development consultancy. He completed a postgraduate degree in London two years ago and has since been studying, trading and writing about politics, economics and the forex markets in his spare time. His particular interests are the use of support and resistance to determine price movements and the tendency for markets to become over-extended. Over the past few years he has researched and experimented with different techniques and strategies and now enjoys analysing and discussing potential trade opportunities and fundamental economics.