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Yahoo! 101

By Anders Bylund | More Articles
April 8, 2009 | Comments (5)

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So take these broken wings
And learn to fly again,
Learn to live so free
-- From "Broken Wings" by Mr. Mister

It looks like Yahoo! (Nasdaq: YHOO  ) is going back to the basics, refocusing on the qualities that set the company apart from the competition in the first place.

There's a deliciously ironic twist here -- because Yahoo!'s greatest strength comes from the competition. This company is never more comfortable than when it's leaning on Time Warner's (NYSE: TWX  ) AOL, Google (Nasdaq: GOOG  ) , or other net-savvy giants. So when I hear Yahoo! say that its foray into music services is over, dumped for a music portal that pulls together the best of YouTube, Pandora, Apple's (Nasdaq: AAPL  ) iTunes, and Amazon.com (Nasdaq: AMZN  ) , among many others, I sense a return to Yahoo!'s roots.

See, Yahoo! became an industry titan on two strengths: an early jump on the nascent Internet bandwagon, and an enormous talent for making 2 + 2 = 5, or more. Nobody could make a mishmash of other people's content look so good. But it seems like management forgot about that part in recent years, focusing instead on largely irrelevant ventures like search and advertising platforms, or challenging eBay (Nasdaq: EBAY  ) with the now-defunct Yahoo! Auctions.

It's back to Portals 101 for Yahoo!, and not a minute too soon. Imagine what this company could have been today if it had stayed on target through the years. Google used to run Yahoo!'s searches, and could have done a much better job monetizing that massive portal traffic than the in-house gang did. And with one exclusive goal at the top of everyone's mind, I believe that Yahoo! could have grown its global user base much further and faster. Diversity isn't for everyone.

Not every "back to the basics" effort pans out, but this raises fond memories of my days at CSX (NYSE: CSX  ) , when management kicked off a "Railroading 101" program right after I started working there. In the nine years since, the S&P 500 has lost 45%, while CSX has more than doubled. Fundamental skills win championships in any sport.

I believe that Yahoo! is setting itself up to do the same thing in the business world -- if the new attitude of Yahoo! Music spills over into the company's many other silos. Good work, Carol Bartz. Yahoo! seems to do better under your wing.

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eBay is a Motley Fool Inside Value recommendation. Google is a Motley Fool Rule Breakers selection. Apple, Amazon.com, and eBay are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. He really did work for the railroad, feeding and grooming their computers. You can check out Anders' holdings or a concise bio if you like. The Motley Fool is investors writing for investors.


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 08, 2009, at 2:41 PM, pondee619 wrote:

    From YHOO's annual report 2008:

    "USER OFFERINGS

    Our offerings to users on Yahoo! Properties currently fall into six categories: Front Doors, Communities, Search, Communications, Audience, and Connected Life":

    Front Doors

    Our Front Doors offerings include Yahoo! Front Page, My Yahoo!, and Yahoo! Toolbar. These offerings are generally provided to users free of charge. We generate revenues from our Front Doors offerings primarily from display advertising"

    "Communities

    Our Communities offerings, including Yahoo! Groups, Yahoo! Answers, and Flickr, enable users to organize into groups and share knowledge and photos. These offerings are generally provided to users free of charge. We generate revenues from our Communities offerings primarily through display advertising"

    "Search

    Our Search offerings include Yahoo! Search, Yahoo! Local, Yahoo! Yellow Pages and Yahoo! Maps and are available free to users and are often the starting point for our users navigating the Internet and searching for information. We generate revenues through our Search offerings from search and display advertising"

    "Communications

    Our Communications offerings include Yahoo! Mail, Zimbra Mail, and Yahoo! Messenger and provide a wide range of communication services to users and small businesses across a variety of devices and through our broadband Internet access partners. We offer some services free of charge to our users and also provide some of our services on a fee or subscription basis. We generate display advertising revenues from these offerings."

    "In addition to our free e-mail service, for a subscription fee, we offer Yahoo! Mail Plus, a premium mail service providing features such as a display-ad-free interface. "

    "Audience"

    "We generate revenues from our audience offerings from display advertising and fee-based services"

    "Connected Life"

    "We generate revenues from Yahoo! Mobile by selling traditional display and search advertising on the mobile phone"

    My point?

    Front doors-display advertising

    Communities- display advertising

    Search- search and display advertising

    Communications- We offer some services free of charge to our users and also provide some of our services on a fee or subscription basis. We generate display advertising revenues from these offerings. we offer Yahoo! Mail Plus, a premium mail service providing features such as a display-ad-free interface

    Audience- display advertising and fee-based services

    Connected Life- display and search advertising on the mobile phone

    From the above, Yahoo makes it's money selling ads. Newspapers made their money selling ads, TV makes its money selling ads, radio makes its money selling ads. Newspapers are closing, TV and radio are sucking wind. All cite a lack of Ad dollars.

    My question is: Will there continue to be enough ad dollars to be spent to make Yahoo, Google, Face Book, My Space, Twitter, AOL ...etc. profitable for the long term? How much money can be spent on Ads?

    We generate display advertising revenues from these offerings. It that all there is? It that enough to make a long term investment? OR, will the fee based services be embraced by the public to make continued profiatility of these companies likely?

    Ads, it that all there is? Is that enough?

  • Report this Comment On April 08, 2009, at 3:12 PM, SereneDay wrote:

    >It's back to Portals 101 for Yahoo!, and not a minute too soon. Imagine what this company could have been today if it had stayed on target through the years.

    It would be the equivalent of the largest online newspaper & magazine?

  • Report this Comment On April 09, 2009, at 10:53 AM, pondee619 wrote:

    Hello? Anyone? Have I stumped the "aggregated intelligence" of the Fool community?

    Before anyone invests in a company, shouldn't he/she/they know how it will make money both for the short and long term? My question is basic for all non-fee based web sites- Google, Yahoo, Facebook, MySpace, Twitter etc. Other than ad revenue, how will they make money? If it is just ads, is there enough to support all these companies? Are these companies just modern day yellow pages? Why will they survive/prosper when other ad based companies,( newspapers, magazines, TV, radio) are suffering?

    If, after free use has become the norm, will users pay up(pay a fee) to use these sites? Is there a way i am missing to make these sites profitable?

    Anyone?

  • Report this Comment On April 10, 2009, at 5:23 AM, TMFZahrim wrote:

    > Why will they survive/prosper when other ad based companies,( newspapers, magazines, TV, radio) are suffering?

    Note that Google, Facebook, Twitter etc. are still growing traffic, growing revenue, growing ad sales, while the old-line media you mentioned are all shriveling up. In most cases, the ads are moving online where they can be highly targeted (=good ROI) and meet growing numbers of eyeballs and itchy mouse-trigger fingers. TiVo and other DVRs are partly killing TV ads; the networks are helping by creating sucky shows nobody wants to watch; and Google is in on a corner there, too.

    It's the new way of the world, amigo.Newspapers etc are becoming niche, boutique items faster than you seem to think.

    Much more to say... thanks for the article idea, pondee619!

    Anders

  • Report this Comment On April 11, 2009, at 7:43 AM, pondee619 wrote:

    Anders:

    Thanks for the reply. Looking forward to the article.

    It's true "TiVo and other DVRs are partly killing TV ads'. But isn't that because no one want to look at them? Aren't online ads as easy to ignore? I don't argue that thses sites can make money selling ads. I just don't see them as the profit centers they are hyped to be. Maybe I'm just too old. I remember the 70's. But I can't see a dozen companies making a fortune selling on line ad space.

    The fact that old line media is shriveling up is cited by me to wonder how the "new way of the world" can continue. How can the new way avoid the fate of the old line? Won't that fate happen quicker as everything happens quicker now a days?

    Thanks:

    Frank

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