Monday, November 17, 2008

It’s time to bust up Yahoo

With Yahoo’s disparate components worth more than the whole and its stock near a nine-year low, this would be a great time for a smart investor to buy the company and break it up.

If Yahoo were sold off in pieces, it would mark the end of the first new media company that tried to act like an old one. And its fate would serve as a lesson to any old media company that still thinks a one-size-fits-all business model is sustainable in an age of limitless consumer choice.

A major potential obstacle to the prospective unbundling of Yahoo was overcome today when founder Jerry Yang agreed to resign as soon as a successor is identified.

His departure will be small consolation to the stockholders who watched their shares dwindle to a third of what they were worth earlier this year when Jerry refused to sell the company to Microsoft. Yahoo today closed at $10.63, gaining slightly in after-hours trading when Jerry’s promised departure was announced.

Now that the founder is ready to relinquish a job that probably was not the best use of his talents, an objective assessment of the company’s prospects is possible. Any clear-eyed observer can see that Yahoo’s patchwork of unrelated business units is unwieldy and unsustainable. This year, it has been steadily less profitable, too.

There are more than 100 different ways to Yahoo, ranging from search to free email, from stock prices to horoscopes, from greeting cards to posting photos at Flickr and from a social-bookmarking network to help-wanted ads at HotJobs.

Because Yahoo is forced to juggle a portfolio of so many unrelated products, many of its subordinate sites (the YouTube wannabe in the klutzy embed below, for example) have failed to achieve technical or market dominance in their verticals. Because there is no obvious relationship between a build-it-yourself website and a forum on reptiles (unless someone wants to build a site for newt fanciers), there is scant synergy among the audiences of the many unrelated Yahoo efforts.

Even though Yahoo was one of the original Internet search sites, the company lost its way so badly for a time that it actually farmed out search to the then-upstart Google. Until a few weeks ago, Yahoo was set to turn over a portion of its search-ad inventory to Google before the rival company became worried about potential antitrust implications.

With due respect to the revenues Yahoo derives from classified and keyword-search advertising, the chief business model at this pioneering Internet company has been to generate as many page views as possile to accommodate what it hoped would be an endless stream of banner ads. In other words, it was a modern-day reprise of the old-media trick of maximizing reach in order to sell bellybuttons by the carload.

But big, undifferentiated audiences don’t cut it in a world where advertisers can pinpoint their prospects by subject matter, demographics, geography and much more. Instead of building a portfolio of carefully selected sites and making them the go-to places for their intended audiences, Yahoo spread itself even thinner than a schmear of Skippy.

Now, Yahoo is such a sticky mess that the best use of all those pieces and parts would be to auction them off to the highest bidders.

Hot Girls Burping Symphony @ Yahoo! Video


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