June 13, 2008

Is this the end of Yahoo?

by Brian Turner

Is this the end of Yahoo?

Yahoo! remains one of the most popular sites on the internet, and their publishing strategy has reaped dividends.

Yet their inability to monetise their own ad platform has left the company underperforming.

However, a Yahoo!-Google partnership can only kill Yahoo’s long-term interests.

Today’s announcement of a Yahoo! – Google advertising relationship could signal the end of Yahoo! as a potential rival to Google.

Yahoo!’s popularity is unquestionable, as is it’s inability to properly develop a respected ad platform.

I’ve already reported on Yahoo!’s lack of focus on user experience as a fundamental flaw that leaves them trailing Google.

And Aaron Wall has also warned that any ad deal between the two would undermine Yahoo!’s long-term revenues.

This is not least on the analogy of Venice and Constantinople I’ve previously provided.

The historical example is simple:

- Constantinople developed at the centre of lucrative trade routes
- For a while Constantinople was the richest city in the world for it
- Poor management and underinvestment left Constantinople unable to capitalise on its position
- To address the problem, Constantinople signed away it’s trading rights to Venice
- The result? Venice became richer and richer, and Constantinople become poorer and poorer until it withered away and was easily conquered

The current deal underlines Yahoo! as Constantinople and Google as Venice.

And gives a clear warning – that if Yahoo! allows Google ads to be the centre piece of its advertising strategy, then it leaves Yahoo! as nothing more than a publisher with no ad platform to grow its own revenue future.

After all, if Yahoo! won’t even get serious with its own ad platform, how can others react positively to it?

And if Yahoo! can get comfortable on Google revenues, where is their incentive to continue to develop their own ad platform?

I think Yahoo! has amazing promise as an internet company – and is one of the few names to survive the dotcom bubble.

But lack of vision and poor management means that Yahoo! are slowly but slowly killing their future.

My brother-in-law used to run the server farm for Yahoo! Europe – then Yahoo! brought in Microsoft managers who demanded everyone work twice as hard for half as much pay. It was mindless corporate behaviour that saw skilled Yahoo! staff move out to other companies.

It’s no surprise to see this mindless corporate team destruction still happening – earlier this year they looked to shed key employees. Now both Jeff Weiner, VP of Y!’s network division and Jeremy Zawodny, database engineer and blogging star, are leaving.

And while Yahoo! allows its ad platform to be diminished, its skills team disintegrate, and Yahoo! user experience to remain second-rate, where does Yahoo! put it’s effort? A new logo, apparently.

A few months ago I wanted to invest heavily in Yahoo! shares because I thought the company had such great potential.

Now all I can see is ignorance of fundamental business principles in action, and a company that keeps looking at short-term fixes without long-term vision.

More than one search engine currently runs Google ads instead of it own. Usually as a last desperate act to monetise before slowly dying. Never has a search engine increased marketshare by running Adsense.

It remains to be seen whether anything positive will come from a Yahoo!-Google ad deal, but it’s hard to be optimistic for Yahoo!’s future.

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