Yahoo - What Next?
The investment world is in a bit of a panic about Yahoo. The blogosphere is awash with worry and/or dire predictions. Om Malik asks whether the online ad boom is over. Some analysts are lowering estimates. Others like Safa Ratshcy are suggesting that this is all an over-reaction and calls it a buying opportunity. On thing to remember is that the sky is not falling in and Yahoo did not miss numbers. CFO Sue Decker simply guided to the low end of the range.
Let me jump into the fray from a "what next" perspective in terms of product. The ad boom is not over. It is just beginning. All the data I have seen points to a low ad spend per hour spent online when compared to TV or other media. What has happened is that Yahoo has lost the market in horizontal search to Google and Google is beating up on everyone in that space. Additionally, Yahoo has also trained the stock market to look at their new search engine monetization release (condenamed Panama) as the company savior in the hopes that this will juice Yahoo's relative performance in search vis a vis Google. That is a lot of eggs to put in one basket when Google is not sitting still.
Pay attention to the Yahoo announcement. They cited two verticals: Automotive and Finance as responsible for their weakness. They also seem to have led analysts down the path that the culprit of the poor results were Macroeconomic trends in those verticals. To me that feels odd. I can't prove it empirically but I think something else is amiss. I am not sure that the sectors are weak but rather market share is fragmenting to smaller and more dynamic focused vertical sites (more on this in a second).
In an attempt to leapfrog Google, Yahoo has also put down a stake in social (or Web 2.0) next- gen services. By buying Flickr and Del.icio.us and launching Yahoo Q&A, Yahoo is making a play for a horizontal young demographic that is generating tons of page views but not yet driving real revenue and, frankly, may never drive real revenue. These are big horizontal services that are a mile wide and an inch deep. They are also highly competitive (see Photobucket and ten other photoservices and foxmarks etc).
I think that if Yahoo wants to end-run Google and others, they need to head in a different direction. Yahoo's advantage over Google is in user engagement with multiple services. Remember the Hitwise data on Google's other services(chart below)? It showed that none of Google's services other than search were generating any real market share. Yahoo is a leader in categories such as Finance, Autos, Real Estate, Shopping etc. but the problem is that they have old and staid properties that are not deeply engaging. To use a catch phrase that I do not like - Yahoo's sites are sooooo 1.0. In my opinion, Yahoo got the engagement part right but picked the wrong segment by going after broad horizontal plays like Flickr.
I think that Yahoo needs to get after second and third generation vertical content plays with an aggressive acquisition strategy. They have the roadmap, it is the CPC values that advertisers are paying them in the general search context. Mesothelioma is often considered as the #1 keyword and I am sure Yahoo has the list of the next 10. There are widely read categories looking for content innovation and there are many startups pursuing these areas (putting up a list might be dangerous) who could be acquired by Yahoo and its $2.6Bn of cash. It may cost Yahoo more money than the ~$30 million that they have shelled out for each of Flickr and del.icio.us because most of the vertical plays are venture backed but it will be well worth it for Yahoo in the long run where online advertising is growing and migrating to vertically focused sites. The vertical plays exist in every high CPC category: automotive, finance, medical, legal, real estate, shopping etc. Yahoo can end-run Google with vertical depth that puts real context and content around advertising - not just the context of search terms in generic search. Pursuing deep vertical content plays feels to me like a better strategy than trying to one-up Google either in general search and CPC rates or by adding social features to the Yahoo portal. While I am sure Yahoo is concerned that many of these vertical properties are heavily dependent on Google's Search for traffic and Google has been rumored to remove links to companies that Yahoo acquires, I still think the positives of vertical content acquisitions far outweigh the negatives for Yahoo. And, were Google to remove the links, well then Yahoo would have a better search experience as well.
Let me jump into the fray from a "what next" perspective in terms of product. The ad boom is not over. It is just beginning. All the data I have seen points to a low ad spend per hour spent online when compared to TV or other media. What has happened is that Yahoo has lost the market in horizontal search to Google and Google is beating up on everyone in that space. Additionally, Yahoo has also trained the stock market to look at their new search engine monetization release (condenamed Panama) as the company savior in the hopes that this will juice Yahoo's relative performance in search vis a vis Google. That is a lot of eggs to put in one basket when Google is not sitting still.
Pay attention to the Yahoo announcement. They cited two verticals: Automotive and Finance as responsible for their weakness. They also seem to have led analysts down the path that the culprit of the poor results were Macroeconomic trends in those verticals. To me that feels odd. I can't prove it empirically but I think something else is amiss. I am not sure that the sectors are weak but rather market share is fragmenting to smaller and more dynamic focused vertical sites (more on this in a second).
In an attempt to leapfrog Google, Yahoo has also put down a stake in social (or Web 2.0) next- gen services. By buying Flickr and Del.icio.us and launching Yahoo Q&A, Yahoo is making a play for a horizontal young demographic that is generating tons of page views but not yet driving real revenue and, frankly, may never drive real revenue. These are big horizontal services that are a mile wide and an inch deep. They are also highly competitive (see Photobucket and ten other photoservices and foxmarks etc).
I think that if Yahoo wants to end-run Google and others, they need to head in a different direction. Yahoo's advantage over Google is in user engagement with multiple services. Remember the Hitwise data on Google's other services(chart below)? It showed that none of Google's services other than search were generating any real market share. Yahoo is a leader in categories such as Finance, Autos, Real Estate, Shopping etc. but the problem is that they have old and staid properties that are not deeply engaging. To use a catch phrase that I do not like - Yahoo's sites are sooooo 1.0. In my opinion, Yahoo got the engagement part right but picked the wrong segment by going after broad horizontal plays like Flickr.
I think that Yahoo needs to get after second and third generation vertical content plays with an aggressive acquisition strategy. They have the roadmap, it is the CPC values that advertisers are paying them in the general search context. Mesothelioma is often considered as the #1 keyword and I am sure Yahoo has the list of the next 10. There are widely read categories looking for content innovation and there are many startups pursuing these areas (putting up a list might be dangerous) who could be acquired by Yahoo and its $2.6Bn of cash. It may cost Yahoo more money than the ~$30 million that they have shelled out for each of Flickr and del.icio.us because most of the vertical plays are venture backed but it will be well worth it for Yahoo in the long run where online advertising is growing and migrating to vertically focused sites. The vertical plays exist in every high CPC category: automotive, finance, medical, legal, real estate, shopping etc. Yahoo can end-run Google with vertical depth that puts real context and content around advertising - not just the context of search terms in generic search. Pursuing deep vertical content plays feels to me like a better strategy than trying to one-up Google either in general search and CPC rates or by adding social features to the Yahoo portal. While I am sure Yahoo is concerned that many of these vertical properties are heavily dependent on Google's Search for traffic and Google has been rumored to remove links to companies that Yahoo acquires, I still think the positives of vertical content acquisitions far outweigh the negatives for Yahoo. And, were Google to remove the links, well then Yahoo would have a better search experience as well.
posted by Michael Eisenberg at 10:21 AM
10 Comments:
" young demographic that is generating tons of page views but not yet driving real revenue and, frankly, may never drive real revenue. "
I understand your point here, but wouldn't you agree YHOO's idea in purchasing these sites was to begin the process of brand introduction to these young web users. The first step is to get them to use their social media. The second step is to get them to use their established properties (i.e. mail, finance, maps, travel), the last step is to monetize their use and get them to use their search functionality.
yahoo's general autos site may be web 1.0, but the custom autos site is definitely web 2.0.
http://custom.autos.yahoo.com/
Well put problem statement, but then your proposed solution was somewhat self-serving i.e. buy (venture backed) companies with vertical depth.
Here is the problem with the logic:
1.) Adding or upgrading Shopping or Autos to a Web 2.0 product does not require an acquisition strategy rather good developers focused on the problem and Y! has plenty of those. One other responder noted the recent Autos upgrade which takes on many of the hallmark Web 2.0 features, then there is the recently launched Y! Tech property which not only has some nice Web 2.0 features but also targets a highly monetizable user base i.e folks exploring tech gadgets.
2.) Y! core problem is not one of engaged user traffic (even with all the recent noise around MySpace and others) rather one of monetization, and this is largely an execution problem as the current monetization products Sponsored Search and Yahoo! Publisher Network are simply not on par with the competition. Once these products establish parity or even close to parity with Google’s AdWords and AdSense then Y! has the opportunity to apply them both within its network and beyond. People are looking for alternatives to Google and while they would like to spend more on Y! pay for performance product they simply cannot rationalize it.
Yahoo! is better off building new killer monetization capabilities then it is buying some venture backed web 2.0 company for $100M that it could easily build in 4-6 months.
Ben -
You make a good point about Yahoo's intentions, I just question the logical progression in their thinking. I think the flickr crowd is a bit fickle.
Anonymous,
That is a good point about yahoo custom autos site. However, it is very light and the message boards remind me of the Yahoo finance message boards. But it is a good first step. I think other sites that are start ups seem to do better at the user dynamics of these types of sites
as said...
Great comment.
There is no question that Yahoo buying a venture backed start up is self-serving...but I do not know that it invalidates my suggestion.
I think there is a difference between engineering and engagement. You can throw an army of engineers at a problem and still get the User Experience wrong. For some reason (i do not know why), many of the start ups in this vertical content space seem to have engineered the user experience much better than Yahoo has (with exception of Yahoo Q&A but that is not vertical content). I don't know why. I just "calls em as I sees em."
I agree with your point on monetization but I suggest that you consider that these vertical sites could help with MOnetization both by expanding the possible revenue streams and by more deeply engaging users.
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Michael,
You are making some very valid points here yet... Something is amiss. Let's take the elevated view and reclaim perspective:
Yahoo's problem is a simple one. One that Google doesn't have. It's Programming. Not writing code. Programming in the good old media sense.
Web 1.0 was new yet contained many old media recipes such as....Programming.
Essentially someone (or a team)decides what to program on Yahoo's homepage. Someone makes a bet on what people want to see to attract, entertain and retain an audience. News that may or may not be relevant, features that may or may not be interesting, random ads etc.
Google is the antithesis of programming. There is none. No distraction. No bets on wether you will be engaged or not.
So Yahoo's problem is Programming. It should do less of that. No programming would mean Google. So Yahoo can do personalized programming. I make Yahoo my home page and I choose what I want to see when I open it. Just like NetVibes but with way more power due to Yahoo's ability to strike rich deals and traffic. Now I can not only engage users according to their likes without guess work and I can also deliver a highly targeted audience to advertisers. Imagine a user with a personalized auto box, personalized poker box and personalized football box. Instead of slicing and dicing sites and marketing them separately, you will generate three times the non targeted revenue. Simple no? :)
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