Yahoo!: Get Out of My Space

Many Internet giants have reason to be at least a little bit intimidated by the popularity of News Corp.'s (NYSE:NWS) MySpace. Recent data suggested that the social networking site was infringing on Yahoo!'s (NASDAQ:YHOO) dominance of Web traffic -- and the search giant bristled at the notion.

According to the data from tracking firm Hitwise, MySpace.com was the No. 1 most visited website for the week ended July 8, with 4.46% of all Web visits in the U.S., knocking Yahoo! Mail from the top spot. Yahoo! took exception to the rankings' comparison of all of MySpace with the Yahoo! Mail site, given that Yahoo! comprises a network of many different sites and services. I tend to agree, but the data is still interesting to contemplate, taken with a grain of salt.

Needless to say, MySpace last week also trumped Google (NASDAQ:GOOG), Microsoft's (NASDAQ:MSFT) MSN Hotmail, and the Yahoo.com main site. Of course, it's worthwhile to mention that Hitwise tracks total visits, not unique visitors. It's easy to see how fewer visitors, hitting MySpace more frequently due to its online party atmosphere, could make a difference in the data. Perhaps it's just a surge in bored, compulsive kids on summer vacation.

Meanwhile, Yahoo! Mail, the Yahoo! home page, and Yahoo! search collectively commanded more than 10% of the total U.S. audience. Yahoo! contends that it reaches a far broader audience than MySpace does, too -- 129 million unique users per month, or 74% of the online population in the U.S., compared to MySpace's 30% share. (And of course, the rankings didn't delve into international data at all.) Yahoo! also said that its users spend more quality time on its sites.

Regardless of all the MySpace hype these days, Yahoo! retains a large and loyal audience. It's been in the portal biz for a long time, and it's been working hard to benefit from some of the biggest trends on the Internet, bulking up services that feature social components through acquisitions like del.icio.us and Flickr. Amazon.com's (NASDAQ:AMZN) Alexa ranks Yahoo! as the No. 1 site in terms of traffic (admittedly, with Yahoo! Mail taking up the lion's share), unchanged for the last three months. On the other hand, as is common with such surveys of Internet usage, data tends to differ. For example, comScore said that while Yahoo!'s still No. 1 in traffic, its page views fell 11% on a year-over-year basis back in June. On the other hand, its streaming video related to the World Cup was also a big success.

Could Yahoo! fall from grace? Well, sure. Time Warner's (NYSE:TWX) AOL is a good example of how the mighty have fallen -- once a happening, subscriber-only hub, it's now mulling the free route. But it's also easy to look back over the years and see that AOL made many strategic mistakes as the Internet and its users evolved.

Regardless, the Internet giants need to watch MySpace these days, even if some of the headlines make MySpace's one-week "victory" seem exaggerated. Rupert Murdoch sees MySpace's future as a portal, and of course that's a real competitive concern for Yahoo!, MSN, AOL, and the rest. However, I've long contended that Yahoo! investors probably shouldn't worry too much. Although the company doesn't seem to get much respect these days, it's still innovating, even if it gets less attention than Google or MySpace in the process.

For related Foolishness, see the following articles:

• Thanks for the ad, MySpace.
• Yahoo! recently got a facelift.
• Murdoch has big plans for MySpace.

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Alyce Lomax does not own shares of any of the companies mentioned.