Yahoo’s Overall Survival Strategy

Jawad Shuaib wrote a guest post for ReadWriteWeb today called “What Yahoo Must Do to Survive”, and I thought it was worth some comments as I have some disagreements with it.

First, for disclosure purposes, I work for Yahoo! running the product marketing for our display ad platforms. This gives me some internal perspective, but also may leave me somewhat biased for many reasons. Additionally, I have no special insight into what the search business at Yahoo is doing, nor do I control overall company strategy. Display ad platform strategy is a different story.

That being said, the summary of Jawad’s article is that Yahoo! should abandon many of its efforts in multiple areas in order to refocus on search (and I assume search monetization).

I’ve heard this strategy a few times. My main thoughts accompanied with some questions are:

1. Is search a battle Yahoo! can win and gain back significant market share?
I think Yahoo! has done some great things recently like opening up search with BOSS, but Google has effectively become the consumer brand of choice. It will take something major to change that. It can happen, and perhaps Yahoo! can do it, but is it the most likely bet for the company to succeed?

I’m not sure succeeding in search is a matter of Yahoo! not putting enough resources against it or a lack of focus. Perhaps it was a lack of resources and focus three years ago when the market share gap was closer, but I think now it will take a radical innovation that changes the way people search to unseat Google. Yahoo! could do it, but I don’t think it needs the entire company’s focus to make that happen.

2. Yahoo’s strength and success over the past couple of years has been in building amazing web properties that lead their vertical and then monetizing those properties through display ads. These properties also help drive/maintain search market share from users visiting the properties using Yahoo’s search which is integrated into them. One common business theme is that a company should focus on its strengths. Would abandoning those things to focus on search satisfy that?

Now to address some of Jawad’s specific points:

To remain a profitable business, Yahoo! needs to refocus on the search market. The primary revenue generator for both Yahoo! and Google is search and its highly coveted advertising space. The search market, in other words, is the lifeblood of the company’s business model.

Lifeblood is too strong a word. The display and services businesses at Yahoo! are not small potatoes. Of course Yahoo! should be concerned about search market share dropping, but it’s not the only thing going.

Worse yet, the company seems to be everywhere at once, investing in a dizzying array of services that do little to enhance its search standing. What does a search and advertising company need with Flickr, Yahoo! Greetings, Yahoo! Personals, Del.icio.us, Yahoo! Pets, Blo.gs, Upcoming.org, Yahoo! Music, Yahoo! 360, or Webjay?

I’d agree that the company has invested in too many areas. A couple of the aforementioned properties have already been shuttered, others got hit hard in recent layoffs, and I expect 2009 will trim it up even more. One thing to remember though, is that many of the properties and services don’t require massive investments to keep them operating and profitable.

These services have, thus far, offered little value to Yahoo!. The company has spent its time and resources maintaining services with a huge, financially unjustified overhead; all the while, its search market share continues to dwindle. In contrast, Google, realizing its product line was stretched too thin, has spent the past 2 years aggressively vertically integrating its various product offerings as features ported across its services. While Google has certainly expanded its horizon, advertising and search technology remain its unwavering focus.

Some of the services may have not offered a ton of value, but others have added tremendous value. I’d argue Google has also expanded beyond their core focus. Google Docs isn’t really search or advertising related, etc. Yahoo! has also always been more of a consumer portal from the start. It didn’t start as a core search business like Google.

Yahoo! needs to refocus on the search market. The digital dinosaur is simply not in the position to continue experimenting or investing in markets that it doesn’t already have a significant command of. By spending time and money building a gamut of Web 2.0 services, Yahoo! is unnecessarily competing with hundreds of companies, when it should be competing with just two: Google and Microsoft. The company should let users build the content and focus instead on helping others effectively find it.

I don’t think Yahoo! is really heavily investing in Web 2.0 technologies at this point, and didn’t really in 2008 either. The companies it did buy before that like Flickr and Delicious have continued to be successful assets that were bought very cheaply. Letting the users build the content is also very much a Web 2.0 idea that Jawab is arguing they should move away from. I think the right path there is to focus on high value audiences and combine the creation of good unique content with also empowering users to contribute content. I’m not in the audience business either though…

Should Yahoo! continue to lose market share in search, the company will be unable to continue its operations elsewhere. Shutting down or selling off ineffective segments of its operation, such as Yahoo! Music, would go a long way towards retaining profitability and reigniting the search effort. Such cuts would undoubtedly require significant staff reductions; unfortunately, though, with dwindling profits and a bad economy, Yahoo! simply cannot afford to continue operating like the bloated behemoth it is today.

Again, many of these properties don’t require much investment, but I agree with the general statement here that Yahoo! should cut properties that aren’t profitable and focus on a smaller number of areas. The company has already been making this move throughout 2008 and I suspect it will continue through 2009. Probably every technology company should listen to that advice in 2009.

This is not to say that Yahoo! is doomed. Apple found itself in much the same situation around 1997, only to see a resurgence under the leadership of the resurrected Steve Jobs. Yahoo! is in desperate need of fresh direction under a leader like Jobs if it is to win the battle against other giants. Yahoo! does not need a new religion. In fact, it needs to rediscover what it lost to ambition. It isn’t too late yet, but Yahoo! needs to get off its butt and start fighting for its life.

I imagine a new CEO will provide some of this leadership, but I’m also not sure Apple is a great comparison. I think Jobs actually helped provide new innovation at Apple, but I’m not an expert on their story.

Jawab’s theme is correct that Yahoo! does need to think hard about what it wants to do and streamline and focus on that. I just disagree with the conclusion that focusing only on search is the answer.