If you've asked yourself in the past year or so, "What does Yahoo! (NASDAQ:YHOO) really do?" you weren't alone. When it launched its first site in 1994, Yahoo! was the search engine of choice for a lot of us, plain and simple. That's since changed, of course, primarily because Google (NASDAQ:GOOGL) launched its own search engine a few years later and has dominated that market ever since.
As of October, Google owned 66.9% of all U.S. search-related traffic, followed by Microsoft's Bing with 18.1%, while Yahoo! sits in a distant third with 11.1%. Safe to say search is no longer where Yahoo!'s bread is buttered. But according to relatively new CEO Marissa Mayer, it's all right that Yahoo! isn't the king of search anymore -- she has other plans.
Phase one: mobile
Like Microsoft, Mayer isn't shy about admitting Yahoo! was slow to react to the mobile revolution. Talking with salesforce.com's Marc Benioff at his recent Dreamforce conference, Mayer said mobile "caught a lot of people by surprise," and that included Yahoo! Of course, the first step in fixing any problem is recognizing you have one.
According to industry data, half of smartphone owners use their devices as their primary Internet access device, and that number's likely to get bigger, not smaller. True, Yahoo! was late to the mobile game, but its improving in a couple of ways. For one, Mayer has changed Yahoo!'s culture as it relates to mobile, from what she called "everybody's hobby and nobody's job" to a point of emphasis. As Mayer told Benioff, now "we think of ourselves as mobile first."
Secondly, Mayer put significant resources behind the mobile shift. When she arrived in July of last year, Yahoo! had all of about 50 people working on mobile-related tools and technologies. Today, that number's grown to nearly 400. And now with an estimated 400 million mobile users, up from 340 million in July and equal to about half of all Yahoo!'s monthly active users, or MAUs, Mayer's mobile efforts are bearing fruit.
Phase two: entertainment
When Google came along with its plain-Jane search-engine page, it was markedly different from Yahoo!'s. For those of us who can remember having to log on to the Internet with painfully slow dial-up connections, Google's clean search page was a godsend. The need for speed is long gone, with lightning-fast Internet connections the norm, and that's changed Yahoo!'s playing field.
Now, Yahoo! doesn't have to fight the search battle to win advertising revenues, as there are other ways to engage and derive revenues from users. The transition to having Yahoo! become a destination site with an emphasis on entertainment has been in the works since Mayer took the helm. During Mayer's reign, Yahoo! has made about 20 acquisitions, including a couple of whoppers such as Flickr and its $1.1 billion deal for Tumblr.
A couple of recent Yahoo! "events" also demonstrate its commitment to entertainment. There are the Hollywood-esque content efforts, such as when Mayer recently moderated users questions for Hunger Games: Catching Fire star Jennifer Lawrence. Now rumor has it that Yahoo! will announce on Monday that Katie Couric will host an interview show, and there are rumors of a similar arrangement with Ryan Seacrest. Yahoo!'s transition to entertainment isn't all about Hollywood -- thankfully -- as the recent hiring of former New York Times tech guru David Pogue will attest.
When Mayer responded to a Benioff question at Dreamforce that Yahoo! is focused on mobile and "entertaining," she struck the right chord with investors: Yahoo!'s stock price closed up about 5% in the three days of trading since.
Yahoo!'s recently announced $5 billion stock buyback is a sound move and is in line with Mayer's objective of returning much of the gain realized from the sale of some of its ownership stake in Alibaba. But what's going to drive Yahoo!'s growth long-term are Mayer's two key objectives: mobile and entertainment. The question of what Yahoo! is has been answered, emphatically, and Mayer aced it.
Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Google, salesforce.com, and Yahoo! and owns shares of Google and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.