How bad are the problems at Yahoo!? The Web’s largest media company has seen its share price hammered this year and its chief executive Terry Semel has appeared uninspiring.
Among the most frequent criticisms of Yahoo! is that it is falling behind Google and News Corp, which have paid top dollar for the next generation of websites like MySpace and YouTube. The pressure is on for Yahoo! to do its own big dumb acquisition.
It’s now clear that investors’ frustrations are mirrored within Yahoo!. Brad Garlinghouse, a senior vice-president, gained notoriety this month after his memo about the company’s deficiencies was leaked. It was soon dubbed the "peanut butter memo" after his description of how Yahoo! spreads itself too thinly across too many areas.
The missive is full of clichés – which is apt because that lack of an independent vision is what Garlinghouse accuses his employer of. He says Yahoo! is unfocused – it should shed 20% of its staff and restructure around a few key services.
Yet News Corp and Microsoft also operate in many different areas. Google can’t diversify fast enough, though it has yet to have much success in areas like word processing or e-mail, which means it is focused on search by default.
It’s the latest reminder of the last bubble, when established media companies, racing to catch up with the market, paid large amounts for businesses with few profits or viable revenue streams.
By spreading its bets Yahoo! might be better-placed in the long-term. There are, in any case, some successes it can point to. It looks to have the edge in mobile after replacing Google as Vodafone’s search partner. New search engine technology, due early next year, could help it catch up with Google online too.
Yahoo! still doesn’t make as much money from advertising as rivals and that’s its main problem. But to make a large acquisition of a Web 2.0 company, as some are urging, won’t help much – most of those companies don’t have any idea how to monetise their audience either.
Garlinghouse’s idea of selling non-core divisions also means losing part of its key asset – its huge audience. Yahoo! would be better off doing what it already does in a smarter fashion – trying to make more money from its users, rather than making a big acquisition just to keep Wall Street happy. Whether its management team can resist the pressure is another question.