Yahoo - You Could Have Been King

So, this week we find out that Microsoft (MSFT) shies away from their Yahoo (YHOO) courtship. It seems to be the pattern for this internet giant, to be jilted at the altar. After all, it wasn't but a few years ago they were being considered by Disney (DIS), Ebay (EBAY) and a host of others. There is no denying the power of brands, and when it comes to the internet...Yahoo is second to none. One of the most powerful and recognized names, have they capitalized on their brand for shareholders? That's clearly debatable, but if stock performance is the ultimate gauge, then the answer is no. What's funny (or maybe not so funny) is that Yahoo was well ahead of the game, all aspects of it. They had the gold, the kingdom and the people. Unfortunately, there was no leadership or management with enough foresight to carry their precious properties to unreachable heights. It is this failure to execute that has dogged Yahoo for years and the cause for years of underperformance. Let's take a look at history to see how this occurred.

Geocities - The First BIG Community

Geocities was a very expensive acquisition for Yahoo back in the late 90's. In those days, acquisitions were mostly done with stock as the currency, so dilution was the only factor. The stock would always rise (or so it seemed), so paying with stock made sense. Geocities was a community where you created pages and chatted with friends. Tons of people there and growing like crazy. But imagine a Geocities where you shared with a network of friends? Sound like MySpace and Facebook today? Sure does. For all the dollars spent, Geocities was never prominently displayed as a key property nor promoted as such. With some vision, the site could have been laps ahead of MySpace and other communities...and for a fraction of the cost (remember, they paid for it with bloated stock).

Broadcast.com - YouTube before YouTube

Yahoo bought this property also in the late 90's from Mark Cuban, entrepreneur and current owner of the NBA's Dallas Mavericks. This was a very HOT thing in the 90's. I remember the first big broadcast on the property was a Victoria's Secret fashion show, it received rave reviews (hey, why not?). That seemed to release the genie from the bottle for internet broadcasting, so Yahoo! ponied up some more stock to pick this off. A very strategic and savvy move, yet no vision for the future. How could it not see that internet videos would be 'cool' and 'popular'? YouTube came on the scene a few years ago and just ran with the idea, later getting snapped up by Google (GOOG) (more on them below). Other youTube knockoffs can be found today and are very popular. Again, Yahoo! dropped the ball after having first-mover advantage.

Paid Search - Making Overtures

Getting paid for search was a novel idea back in the early internet days, but once you go free it becomes hard to charge fees. Yahoo! is infamous for giving stuff away for free, a model originally started to get as many readers and viewers as possible. One thing that worked! How to get paid, that was the problem. Paid search was an interesting concept adopted by some firms, and Overture Services was the best back then. Yahoo made another acquisition here, once again very strategic. To repeat, no vision about how to monetize ads and search. About this time, Google was just getting started. They modeled after Yahoo with search...but managed to catch the one elusive element...getting paid for clicks! Google has managed to dominate the space like no other, tossing aside Microsoft and others in the competition. Game over in this area for Yahoo!

What Is Left For Yahoo?

Clearly Yahoo! has a future, as clouded as it may seem. There is value in the brand, Microsoft apparently saw it. But the execution of the company has been disappointing. The eye on acquisition has been tremendous, managing the properties has been a disaster. Just consider this: With these properties managed the right way, Yahoo! would be the biggest most valuable brand on the internet! How so? Put Google, MySpace and YouTube together along with the brand name, and you have it. Perhaps new management is in store, but that may be too little too late. Many shareholders are upset and frustrated and want out, a buyout being the only solution. The saga has certainly turned another chapter, hopefully not the last one for Yahoo!

Disclosure: None

Comments

[Tom B]

"Clearly Yahoo! has a future, as clouded as it may seem. There is value in the brand, Microsoft apparently saw it"

Umm-- wouldn't the Yahoo "brand" be irrevocably tainted by getting married to the "Windows Vista" company? A tech company so inept they can only gain traction through sheer brute-force monopoly power? A company that's been flat-lining on the Market for years?

[kmanm]

The average user doesn't know who owns who and what is tied/married to who. Only geeks and investors care about these things.

[bluesmoke]

If they're not careful, it may end up as Yah "who"?

[tradindaze]

Its sure easy to predict the future when you've already seen it. If only making decisions at the hard right edge was this easy.

[Tom B]

"Its sure easy to predict the future when you've already seen it."

The future? Most people have zero comprehension of the present. Or the past.

[User 66859]

The near to certainly mid term future is Asia including India and east Russia.

The leading properties making hand over fist are BAIDU, Yahoo ( Japan (and Chindia via Alibaba ) and Softbank.

This is what MSFT was after and Yhoo wanted more for....the future numbers for these sites are unknowable except for the fact that they will be going up exponentially.

I'm not sure if Yang is a dunce or smart guy ( possibly looking out for shareholder interest?....nah....his won ? YES!! )

I betting on the July and Octber 32.50 calls---IMO, a deal will be done before or in between.

[Muddling Investor]

The biggest blunder was leaving Google. Yahoo! invested in Google and used Google paid search for a while, i.e. before Google's IPO. They sold Google shares for around $200 and switched to their own search, both decisions cost Yahoo! billions.

[carlivar]

Just call this article "20/20 Hindsight". Terry Semel could have bought Google early on for a billion or two also. Oops.

The Overture acquisition details are wrong. When Yahoo bought Overture, Google wasn't "just getting started". Google had already gotten AOL as a customer away from Overture. Also the fundamental difference Google implemented was the search ad algorithm. Overture just displayed by order of highest bid. Overture still made a lot of money but Google blew them away. It took Overture over 3 years to finally switch to Google's way of thinking, by which time Google had refined their algorithm to the point of perfection.

[aztecs99]

thx, Carlivar....clearly the wrong move was buying overture and not investing in a better method (algorithm). Overture was still a paid search company. Google was indeed getting rolling back when this acquisition took place, look back at your history if you don't believe me.

What's wrong with looking at an historical perspective of mistakes? If these things were so apparently easy, why didn't they execute?

[WAKEUP]

At 1:00pm, today, Yahoo is at $26.06. Still headed UP.