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With Yahoo CEO Jerry Yang stepping down, announced Nov. 17, industry experts disagree on the course of action the new CEO will have to take to put Yahoo back on the path of a productive, innovative Internet company.
Some analysts believe Yahoo should take pages from the playbooks of Google, Amazon.com and Salesforce.com to raise its Internet portal from the murky depths to which it has sunk. Others feel Yahoo should remain rooted in its consumer and media Web ways.
One thing seems certain: After 18 months of trying to restore Yahoo to glory, Yang has left the new CEO an almost untenable position. Yahoo’s stock price is mired around $12, down from over $30 a year ago. Yahoo has laid off over a thousand workers and lost hundreds more executives and engineers to a broad lack of confidence in Yang’s leadership.
One promising action Yang did oversee was the rewiring-some would call the modernization-of Yahoo to be a friendlier, more open portal that lets programmers have a hand in improving search results and communications for Yahoo’s millions of users.
Yet this Yahoo Open Strategy, at least in the near term, was clearly not enough of a statement to warrant Yang’s remaining in his spot at the top.
Burton Group analyst Drue Reeves told eWEEK that Internet search and socializing the inbox are no longer enough at a time when Google has won the search war and communications applications such as e-mail and instant messaging are moving into social networks like Facebook, or becoming the hubs of larger unified communications suites, such as Gmail in Google Apps.
This will mean Yahoo’s Web mail and IM user base could erode and get sucked into Facebook, Google or some other Web services network.
Reeves said Yahoo’s failed strategy shows not only an inability to compete in the search advertising business, but a lack of vision when it comes to potential new revenue streams, such as cloud computing services.
In that area, Reeves said he believes Yahoo should look at the Google App Engine PAAS (platform as a service) offering, Amazon.com’s Amazon Web Services cloud infrastructure wares, or Salesforce.com’s SAAS (software as a service) applications as models to offer some sort of cloud services that will add value for businesses and consumers. Reeves said:
“It’s certainly something they could and probably should do, or they won’t compete against Google, Amazon or Salesforce.com. They need to offer more than search, e-mail or social networking, and offer something like Salesforce.com’s CRM, or the ability for people to create PAAS like Force.com or Google App Engine, and really tap into that community because their customer base will dwindle over time.“
Of course, one of the problems is, quite simply, money or the lack thereof. Yahoo’s free cash flow for the third quarter of 2008 was $215 million, a 31 percent decrease compared with $310 million for the same period of 2007. With that money, Yahoo could fund half a data center needed to serve up SAAS or PAAS.
Other Analysts Say Yahoo Should Not Stray
Noting the lack of cash or data center infrastructure to serve SAAS or PAAS, Reeves said Yahoo should partner with a company that could provide such infrastructure, such as Verizon, BT or AT&T.
eWEEK ran these notions by Gartner’s David Mitchell Smith, who acknowledged that while cloud computing provisions from Yahoo are not out of the realm of possibility, these models don’t reflect Yahoo’s core competencies.
Smith dismissed the Salesforce.com comparison as something that would be “shocking” to him because Yahoo lacks the expertise to provide something similar to Salesforce.com’s offering. The closest Yahoo could come in this enterprise-oriented cloud would be something like the Google App Engine, where Yahoo would open up its data center for hosted application development.
Again, however, does Yahoo possess the necessary infrastructure and even the engineering talent to enable such a PAAS play? Smith said he doubts this very much.
Finally, Yahoo needs money, and Smith argued that SAAS and PAAS are not necessarily lucrative. “All of [these PAAS providers] are not making much money for anyone, or it’s not clear they’re making much money for anyone. Amazon doesn’t share whether they’re making money.”
However, the notion of Yahoo straying from its consumer-oriented Web services to help programmers build or support applications for businesses is anathema to Forrester Research analyst David Card, who has been following Yahoo closely.
Card noted that while Yahoo has already opened up a slew of APIs to let programmers build out search and communications, the idea that Yahoo would rent out its server farm for hosting “doesn’t feel to me that that’s what Yahoo is about.” He added:
“I think Yahoo needs to focus rather than spread itself a little bit thinner. It feels to me like their core competencies would be their core audience, those content services they have already, and their ad sales force and position in advertising. It feels to me they should exploit those assets a little bit better rather than sell Web services like hosting … They have an entirely different customer set. “
There is another elephant in the room when it comes to this topic: Microsoft. Despite CEO Steve Ballmer’s public refusal to bite on the question of whether Microsoft will renew acquisition talks with Yahoo, Reeves, Smith and Card all acknowledged the possibility of Microsoft coming back to the table to play another hand.
Reeves said he thinks Yahoo could support Microsoft’s Azure Services Platform in its data center. Smith suggested that Microsoft’s and Yahoo’s mutual advertising focus could be the tie that binds them together to tackle Google. Card would have preferred Yahoo to have been sold to Microsoft months ago, noting that if Microsoft is serious about search, it needs user eyeballs, which means it needs to buy a big property like Yahoo or AOL.
Microsoft Watch’s Joe Wilcox says Yahoo must do a deal with Microsoft to avoid dissolution.
What do you think? Does Yahoo have the intellectual property and talent to remain on its present YOS course, or does it need to grab an infrastructure partner and go deeper into the cloud for businesses? What about choice C, joining Microsoft?