In my opinion, the top five companies that pioneered the Web are:
Google (GOOG) with its simple but powerful search engine, which made it possible for someone to discover websites he would have never known. Yahoo! (YHOO) with its diversified portal, allowing it to becoming a one stop place for browsers to spend time and explore various applications including mail and chat. Amazon (AMZN) which pioneered business to consumer (B2C) e-commerce, which taught people how to shop online. eBay (EBAY) which revolutionized customer to customer (C2C) e-commerce, which enabled small businesses, who virtuallly created global businesses without real infrastructure and massive operating expenses. MySpace, which made it possible for everyone to create a personal page to display for everyone else on the Web.
If you look at the list, every one of the above in the list has tried to be the everything of the Internet, and they have competed fiercely with each other. Google vs. Yahoo!, Amazon vs. eBay. MySpace vs. Facebook, are becoming Web 2.0’s own version of Pepsi (PBG) vs. Coke (KO) and SAP (SAP) vs. Oracle (ORCL).
Far from the hype of the pre-dotcom era, today, some sense prevails in the Internet Industry. Internet companies have realized that they need to make profits, and I guess that at least four of the five (except for MySpace), are making profits. (MySpace is now part of News Corporation (NWS) and does not declare independent results.)
The Internet Wars have thrown some clear Kings, some temporary Princes, and some lazy falling Monarchs. While Google has established itself as a premier search engine, thereby becoming the face of the Internet, Amazon is coming back into some solid profits, and has innovated by giving space for third party enterprise class merchants to sell stuff on the Internet.
The warriors who were supposed to give a tough fight to Google and Amazon, Yahoo and eBay respectively, are falling behind. On Tuesday, news came in that eBay’s CEO Meg Whitman was set to retire, while Yahoo! was expected to announce some large scale people layoffs. Amidst all these rumors are terrible concerns about the long-term strategy of their respective businesses.
eBay has lost its vision as to where its strengths are.
In these years since the dotcom bust, eBay has also tried to diversify into needless areas without an effective profit-making strategy. While its $1.5 billion acquisition of PayPal was a shot in the arm for expanding into customer payment systems, it has acquired companies like Internet phone service provider Skype ($2.6 bn acquisition) without a clear monetization- market related strategy. Last year, eBay wrote down as much as $1.4 bn of its purchase of Skype.
Whereas where its vision of e-commerce is headed isn’t yet obvious to a lot of people, and it will have to synthesize its many ventures into a cohesive strategy, it seriously has to keep its sellers happy before they migrate elsewhere. eBay has tried numerous initiatives to simplify its auction Web site, which contributes almost two-thirds of its $6 bn in revenues. But this has not helped much as its auction business has at best remained stagnant if you go by its third-quarter listings of auction items for sale, fell 3%.
A key reason for this is a lack of eBay’s efforts to understand sellers' problems. Amazon is looking at restructuring its listing fees structure in order to improve seller sentiment and increase listings activity as sellers pay as much as 50% of their eBay fee for insertion, and the remaining 50% is all they make from the final value of goods they sell. What really hurts here is that all the sellers are individuals or small enterprises with virtually no marketing power. Since a lot depends on how they place their listings on the eBay website, they are getting hurt a lot in the process.
When you compare this with Amazon’s third party partners who are taking eBay’s market share, many analysts logically expect eBay to cut insertion fees. To me, this is another case of having an enterprise oriented strategy vs. an amateur lose its vision-oriented strategy.
Although the internet, with all its noble intention of making people equal was laudable to start with, companies really need to start thinking about professional strategies to earn profits and strike enterprise class partnerships in order to evolve. This, I guess, is one area where eBay has failed, while Amazon with dependable enterprise partners, has taken the lead.
Yahoo! has focused on too many verticals without a profit motive.
It has focused on too many things, and despite its leadership in many of these like chat, email, finance etc., it has not made much money on its forays. While Google is clearly making money by smartly making use of its search engine and helping enterprises list simple but relevant ads, Yahoo’s clicks into monetization have so far been lackluster.
Reports have predicted that Yahoo! is set to announce layoffs ranging from the hundreds to several thousand this month, in addition to a refocusing of the company’s strategy. If you think that Yahoo! is the number one website in the world in terms of the number of users and clicks, this is very strange. Yahoo boasts of having almost a half a billion users, but it has not really made them pay for those visits.
Yahoo has lost as much as $20 billion in market cap over the last two years, and has officially confirmed that we can expect signification strategy shifts in the coming days. And I quote:
Yahoo! has embarked on a multi-year transformation that includes making tough decisions about the business to help the company grow. Yahoo! has focused its efforts to support its strategy to become the indispensable starting point for consumers, advertisers, publishers and developers. Yahoo! plans to invest in some areas, reduce emphasis in others, and eliminate some areas of the business that don’t support the Company’s priorities. Yahoo! continues to attract and hire talent against the company’s key initiatives to create long-term stockholder value.
Yahoo will announce its quarterly earnings on Jan. 29th, so experts expect that the company will see the stock market’s before announcing these restructuring efforts/layoffs.
Unlike Yahoo, which has attracted visitors with its communications applications like email and chat, Google relied on search to draw visitors.
According to estimates, close to 90 percent of Google's visits are search-related, compared to about 10 percent for Yahoo. Google has also proven that search offers better profits, with revenues exceeding Yahoo’s by as much as $4 billion.
Besides falling behind Google in the lucrative Internet advertising market, Yahoo is also facing pressure in trying to hang onto younger visitors who are now spending more time social networking websites like Facebook.com, and MySpace.com.
These problems have clearly decelerated Yahoo's revenue growth even as spending on online ads accelerates. Yahoo! is still trying to re-position itself as the Web's most popular "starting point" while building a compelling ad network, but his progress hasn't impressed investors so far. Earlier this month, Yahoo opened its mobile platform so that third party programmers can develop new applications for Yahoo pages accessed on mobile handsets. Yahoo hopes that such mini-applications will bring the company more money from advertising, as it expects mobiles to be the next frontier of the Internet advertising battle.
A common thread - Are they enterprise class?
To me, the common thread behind Yahoo!’s and eBay’s struggles is a lack of enterprise oriented efforts to make money, and both companies dependance on a loose vision of empowering amateur users. Yahoo and eBay could merge in the coming days, but if this happens, success depends on a strong central leader. But, my guess is that Microsoft (MSFT) may buy one or both of them. Let’s keep our fingers and investments crossed on the big restructuring news we are going to hear in the coming days.