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Summary

  • Yahoo tries to expand its portfolio beyond the existing services.
  • Tumblr acquisition allowed Yahoo to gain a bigger share in the social media market.
  • Aviate acquisition allowed Yahoo to enter the mobile OS market in a considerable price, but was it the correct decision for the company?

In the last couple of years, since Marissa Mayer was appointed president and CEO of Yahoo (NASDAQ:YHOO), the internet company has attempted to break out of the search engine business to find new revenue streams. Firstly, Yahoo spotted the social media market and the microblogging scene. Even though Yahoo had Flickr in its portfolio, it was a niche social networking site that was focused on photo and video sharing and it competed with other similar niche sites. Yahoo needed a leading social networking site in its portfolio and it didn't have the privilege of designing and developing a new one from scratch due to its previous failures in this area, and the difficult financial situation the company was in.

In May, 2013 Yahoo announced that it acquired Tumblr, a microblogging and social networking site, for $1.1 billion in cash. The Tumblr acquisition allowed Yahoo to expand its social networking services, brought a lot of good PR to the company and made it a relevant competitor.

The second market that Yahoo spotted was mobile OS. Yahoo saw that Microsoft (NASDAQ:MSFT) and Google (GOOG, GOOGL) were launching operating systems for mobile devices and it was getting left behind. Yahoo could either ignore the trend, improve its current services and risk becoming irrelevant, or join in. Microsoft launched a phone/tablet operating system and iPad apps for its Office software, with Google leading the Android project. Yahoo needed to act, and the January announcement in Las Vegas was its response.

During the Consumer Electronics Show held in Las Vegas in January, CEO Mayer announced that Yahoo acquired intelligent home-screen startup Aviate - an Android app that organizes apps contextually and offers specific information and services according to the user's preference and past usage. The Aviate acquisition was the first step in Yahoo's attempt to enter the mobile OS market.

Six months after the Las Vegas announcement, Yahoo released Yahoo Aviate app at the Google Play store. Yahoo Aviate is an enhanced version of the Aviate app prior to the Yahoo acquisition and allows Yahoo a foot in the mobile OS market door. Although Aviate is far less impressive than Google's Android and Microsoft's Windows Phone, launching software having relatively low investment costs is Yahoo's way of sensing the market.

Yahoo had two alternatives in penetrating the mobile OS market. The first alternative is the expensive and risky one - developing a new operating system under its brand. Theoretically, this alternative should cost hundreds of millions of dollars, take a few years to complete, and is expected to face very strong competition from Google, Apple, and Microsoft. A standalone operating system may drive Yahoo into a battle that will not only harm the brand but will also have severe financial impact. The potential negative impact on Yahoo from launching a standalone operating system is bigger than the potential positive impact. Yahoo has a low chance to succeed in such a move. The other alternative is to launch a software product that is not a regular app and provide higher added-value to customers than just a new operating system. However, looking at the Facebook Home app failure shows how this move has risks, too. Facebook Home app was launched last year and was supposed to change the way people use their phone and interact with each other. Yahoo wanted to avoid the mistakes of Facebook (NASDAQ:FB) and acquired Aviate for their home-screen app launcher. After a few months of invited-only beta version, Yahoo released Aviate to all Android users.

Yahoo Aviate does not compete with the OS giants and can give Yahoo a pretty good idea of their chances of success in this market with relatively low investment costs.

Conclusions

Yahoo Aviate seems like a logical solution to a very complicated situation. On the one hand, Yahoo wants to deliver a quality software solution to penetrate the mobile OS market, but on the other hand, it does not want to invest hundreds of millions of dollars in an operating system that will have a very hard time competing against Android, iOS, and Windows Phone. Yahoo chose wisely to poke the operating system bear with a home-screen app launcher and not beat the bear with a stick to the head by launching a new operating system.

Only in a few months will we be able to tell if Yahoo Aviate is a success story. Aviate is more evidence that Yahoo is trying to stay relevant and to penetrate new markets. Whether Aviate is successful or not, this is a good attempt that indicates that good things are happening in Yahoo.

Source: Yahoo Pokes The Mobile OS Bear With Aviate

Additional disclosure: Information provided in this article is for informational purposes only and should not be regarded as investment advice or a recommendation regarding any particular security or course of action. This information is the writer's personal opinion about the companies mentioned in the article. Investors should conduct their own due diligence and consult with a registered financial adviser before making any investment decision. Lior Ronen and Finro Financial Consulting and Analysis are not registered financial advisers and shall not have any liability for any damages of any kind whatsoever relating to this material. By accepting this material, you acknowledge, understand and accept the foregoing.