What’s Next for Yahoo!?

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When Microsoft first put in a bid for Yahoo, I thought the deal would probably happen.

Maybe a hard sell, but it would happen. It just made sense.

As we’ve known now for several weeks is that Yahoo’s Jerry Yang will do anything to keep that from happening. While Microsoft is now saying they really aren’t pursuing Yahoo! anymore, that could be posturing. It’s still possible for the two to team up in some way, but at this point, it’d help neither.

  • Microsoft – MS’s unsolicited bid for Yahoo! showed its hand: They are really stuck in the mud on searh/ad positioning. They can’t court Yahoo! forever; they have to pick a new path and spend some of its $X billion war chest on carrying out that mission. The web is not static; move fast or die.

  • Yahoo! – Yahoo is in even worse shape than Microsoft. This battle over the soul of the company has cost it dearly – in the last couple of years, more than 100 managers have left Yahoo!, including 18 top execs this month. This makes the company – whether purchased by Microsoft or going it alone – that much weaker/less attractive to investors and so on.

Both Yahoo! and Microsoft are getting bitch-slapped by Google (the reason for MS wanting to purchase Yahoo!), but MS still has its desktop offerings – the cash cows that are Windows and MS Office – to at least delay disaster. Yahoo! doesn’t have anything but online properties, and Yahoo! is in trouble here, as well. While Yahoo! has done an admirable job over the past few years in acquiring useful internet tools/sites – such as Flickr and del.icio.us – the founders of those companies have recently bailed from Yahoo!. Sounds grim there.

So what options are open for Yahoo!? I just don’t know.

I’m getting more and more convinced that online search/ad placement is a winner-take-all proposition. And – today – that winner is clearly Google, which keeps increasing its lead over Yahoo and MS every month. Just a sliver at a time, but Google already has about double the combined search use of Yahoo+Microsoft; in ad sales, I’d guess (but I don’t know) the spread is even wider.

On the ‘net, winner takes all is often the norm, rather than the exception, especially for revenue-generating sites:

  • Classifieds – Craigslist is killing newspapers. (And most of the ads are free – but that’s part of its appeal.) There really isn’t a decent online competitor except for jobs listings and for sale stuff, which are only two of dozens of Craigslist’s offerings.

  • Job listings – Monster.com beats anything else out there, though Craigslist is having an impact on it. But CareerBuilder, HotJobs (another Yahoo! purchase) and others are decidedly second-tier players.

  • Auction sites – Ebay rules this roost.

  • New books/CDs – Amazon. In this space, there are hundreds of other players, some that do well – but on a much, much smaller scale than Amazon. And Amazon continues to innovate, so I think they will remain top dog in the near future.

That’s not to say that these so-called winners will always be on top. For a long time (in internet time), Altavista was THE search engine. Then came along this minimalist upstart with the funny name….Google.

But unless MS and/or Yahoo! can come up with some innovative twist on search/ad serving, I don’t see Google’s dominance decreasing. Its dominance is going to increase, at least in the next few years.

As I said, MS can survive (short-term) on Windows/Office, but Yahoo! doesn’t have that luxury. And Yahoo! can’t compete with Google on search/ad serveing (Note: The chief architect of Yahoo’s new ad platform – Panama – is one of the high-ranking execs to bail. Whoopsie…).

I don’t want to see Yahoo! – the brand or the innovative ways – go away.

But I don’t want to see it maintained in the way Netscape has maintained its brand. It’s almost as though they just left the servers running. Sad. Netscape has no relevance today; an internet pioneer and icon that many younger users of the ‘net aren’t even aware of. Again, sad.

Yahoo! is going to have to have the epiphany Microsoft had when MS realized the web mattered. Bill Gates – to his credit – radically changed the way MS did business in a remarkably short time once he (belatedly) understood the ‘net.

WWYD? (What will Yahoo! Do?)

Update 6/29/2008: I was looking at news.com’s gallery concerning the one-year anniversary of the iPhone. And there’s a path for Yahoo: Look to Apple.

Once Apple and Microsoft went head-to-head, but – once Jobs came back to Apple – Apple decided to just build best of breeds. People will pay for quality and so on. While it’s decidedly different for an online company, this is a path Yahoo! could take. Pick a path, make it the best, and have solid profit on MUCH less revenue.

I doubt that’s an option a company the size of Yahoo!, but …