If you try to deliver all things to all people, you run the very real risk of delivering nothing to anybody. That's one of the biggest problems with Yahoo! (NASDAQ:YHOO). It's a phenomenon known as di-worse-ification, when a company branches out too far past its zone of competency, stretches itself too thin, and falls flat on its face.

The good news is that Yahoo! may seem to be starting to realize this problem. After all, it has completely thrown in the towel with its Yahoo! Photos and its Yahoo! 360. The bad news, though, is that even in places where it still tries to compete, it seems to be doing an ever poorer job. Take its recent round of email enhancements. Call me old-school if you must, but I downgraded my Yahoo! mail back to classic mode about 20 minutes after I took the upgrade. The new interface was significantly slower, busier, and harder to read on my system, making the upgrade not worth whatever new features I never even bothered to explore.

Even worse for those of us who invest, its Yahoo! Finance seems to be on a slow, painful decline. While I used to rely heavily on its historical quotes and charts functionality for research purposes, the data quality seems to have noticeably deteriorated. Here are just a few pretty well-known companies where Yahoo's! data is lacking, compared with another data provider:

Company

Yahoo! Finance
Earliest Date

BigCharts
Earliest Date

Berkshire Hathaway

1/12/1990

10/14/1976

Intel

7/9/1986

11/16/1972

Pfizer

1/4/1982

1/2/1970

Schlumberger

12/31/1981

1/2/1970

Texas Instruments

12/31/1981

1/2/1970

Bristol-Myers Squibb

1/3/1977

1/2/1970

For this investor, anyway, Yahoo! Finance had long been the best reason for sticking with the site. But given the seriously lacking historical quotes data, the new charts that take too long to draw, and a financial message-board community that can't hold a candle to the Fool's in terms of quality, even that crown jewel is losing its attractiveness.

Then, of course, there's search. Yahoo! is a distant second to industry leader Google (NASDAQ:GOOG), and recent data indicates that the gap just keeps widening. In fact, Google seems to be eating everyone's lunch -- including Microsoft (NASDAQ:MSFT), IAC/InterActiveCorp's (NASDAQ:IACI) Ask.com, and Time Warner's (NYSE:TWX) AOL. In a business model where content is given away free thanks to ad support, search market share is important. But monetizing those page views is even more important.

Therein lies part of Yahoo!'s problem. With such a large Web scope that includes email and Yahoo! Finance, it can't efficiently capture advertising revenue compared with Google. As Fool Rick Munarriz pointed out, it actually captures more total Web traffic but commands only a fifth of Google's profitability.

Yahoo!'s world of hurt
All you need to do is look at its most recent quarterly report to see how Yahoo! is starting to suffer. Not only did its most recent quarter's earnings drop more than $7 million from the prior year's, but fiscal year-to-date earnings are down an astonishing $28 million. With chief competitor Google growing revenues and earnings like wildfire, Yahoo!'s earnings drop is all that much more painful.

It's rather apparent from its income statement that Yahoo!'s strategy of trying to deliver all things to all people isn't working. For Yahoo! to be worth my investment cash, it needs to prove to me that:

  • It knows what its core competencies really are.
  • It knows how to positively differentiate itself and exploit its strengths.
  • Its enhancements to its email and finance areas make the products better and faster.
  • It can successfully monetize its own capital investments.

Unless and until all that happens, Yahoo! looks to me as though it's poised to continue floundering, unable to gain ground against its better-focused -- and more successful -- competition. As a formerly satisfied Yahoo! customer who is actively branching out into better services provided elsewhere, I sincerely hope the company rights its ship quickly. As a potential investor, though, I'm not willing to commit my cash until I see its operations actually move in the right direction.

You're not done with the Duel yet! Go back and read the other entries, sound off in CAPS, and then vote for the winner!

Yahoo! and Time Warner are Motley Fool Stock Advisor picks. Intel and Pfizer are Inside Value selections. Berkshire Hathaway is recommended in Stock Advisor and Inside Value, and The Motley Fool owns stock in it, too.

At the time of publication, Fool contributor Chuck Saletta owned shares of Intel and Microsoft. The Motley Fool holds stock in Berkshire Hathaway. The Fool's disclosure policy is really good reading.