Poor Yahoo, here’s a defense

July 29, 2009 | Jared Newman | Comments | |

Looking around the Internet, it’s hard to find arguments in favor of Yahoo handing its search technology to Microsoft. Mahalo founder Jason Calacanis calls the move “seppuku,” and the Guardian’s Charles Arthur said the gains for Yahoo are “invisible.” The stock market wasn’t too friendly to Yahoo, either.

So call me a fool, but I’d like to take a shot at defending Yahoo.

What sticks in my head is Yahoo’s dominance in the content market. Check out some recent coverage from GigaOM on what comScore says about the company: In June, Yahoo got more unique news traffic than both the New York Times online and CNN.com, it beat ESPN.com for sports and easily topped AOL Money & Finance. In May, Yahoo’s OMG! entertainment page bested AOL’s TMZ.com by more than double the traffic.

Then, there’s e-mail. Yahoo’s total unique visitors in this category exceeded 100 million last month — more than double the traffic of Hotmail and nearly triple the unique visitors to Gmail and AOL.

The blogosphere may guffaw at Yahoo’s abandonment of search, but maybe the company has a point about focusing more on its content portals. We all know display ads are in a rut right now, but that will change. And if Yahoo can innovate and figure out ways to make display ads more valuable to its clients, it’s already sitting on a goldmine of eyeballs. For a cash-starved company that, let’s face it, had very little chance of beating Google, dropping the dead weight of search isn’t a horrible idea.

Calacanis says Yahoo should have innovated and fought harder, just like in video games, where Microsoft’s interest indicated a strong market. Sure, Nintendo innovated and prospered, but that doesn’t mean everyone will find success. Consider how Sega abandoned consoles just before Microsoft entered with the Xbox. In hindsight, that was a good idea. Yahoo has been trying to make a better engine ever since it dropped Google Search in 2004, and still can’t win. Even if Yahoo could have done a better job, the point is that it failed, and it’s time to move on.

Certainly, there are pitfalls to the portal model. ZDNet’s Larry Dignan says the Microsoft deal makes Yahoo look eerily similar to AOL. That poses a problem, because Yahoo is no longer in control of its search mojo. But the agreement says Yahoo will still own “the user experience for search,” meaning it can continue to funnel traffic towards its content sites. And Yahoo never controlled the vast majority of Web searches anyway.

Besides, being a portal like AOL isn’t necessarily a bad thing, we just see it that way because AOL’s stock in trade used to be something else. Yahoo, on the other hand, was always a content filter. The site didn’t launch as a search engine, but as a place where people could find hand-picked links to the Web’s best offerings. As the founder of Mahalo, Calacanis should certainly understand the value in that.

Having said all this, even I’m skeptical that Yahoo can pull it off. The site still needs people to come through and search, but it also needs to strengthen its identity and innovate as a content provider while working to make display ads more lucrative. Only when Yahoo fails both of these things can the company turn the blade on itself.

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About the Author, Jared Newman

Jared is a freelance technology journalist based in Los Angeles. He covers all topics for VentureBeat, including digital media, social networking and mobile apps. Before going full-time as a tech writer, he earned a master's degree in journalism from New York University and wrote for a daily newspaper in Connecticut.

Elsewhere, Jared writes for PC World, Technologizer, GadgetCrave and The Escapist.

  • Gargamel
    Sorry bro, this was a complete bonehead move by Yahoo.
  • Gargamel
    Let's wait until the next 10K and see how much Bostock's banking buddies got paid to advise on such a heinous deal. They got $80million to "defend" Yahoo from MSFT 18months ago so hopefully they were able to outdo themselves this time around.
  • Definitely seems like a suicidal move to me - the search platform gave Yahoo a central pillar around which to innovate. The space is going to change radically again over the next 10 years - loosing something like this seems a bet that "search wont be that relevant" - why should either Google or Bing rank yahoo content highly? On the other hand theoretically the deal allows for some search technology to remain at Yahoo (but how much new stuff has to be shared?) so maybe they have a killer move up their sleeves.

    I hope that iniviatives like YQL don't get lost in the move.
  • Piyush
    Kudos to Ms. Carol Bartz for standing up to the harsh truth -- Yahoo stands no chance in the Search business game with Google and Microsoft battling it out. Folks booing her for throwing in the towel are, well, idiots! It *IS* the reality, the right thing to do and shows how strong Bartz is to drive this through Yahoo's "anything but MS" minded head-honchos. Execution -- exemplified.
  • Gargamel
    What are you talking about? No upfront payment, just cost savings and data loss. Yahoo is a joke in the advertising and tech community.
  • Piyush
    What are YOU talking about? There's absolutely *no* data loss. There's guaranteed BIG share of search revenue from Yahoo sites without ANY costs incurred in running the search itself. What's not to like?! No upfront payment? That's mere short-sightedness. What would yahoo do with that billion or even two? Make acquisitions? How about using the 4 billion dollars it already has? Plus, Yahoo now expects -- and this does sound reasonable as big advertisers truly embrace text-based ads -- that premium search ads are the next big thing, which Yahoo would be controlling with its sales force. And in doing so, bundle display ads on *yahoo's* property with the search ads -- win-win for Yahoo alone!

    Perhaps take a step back and think about what's not to like -- purging the inflated expectations you/we had set to begin with.
  • Gargamel
    Sorry bro, but Mr Market voted this morning. The deal is piss poor.

    Time will tell; you've never been involved in any type of partnership with this design. It has never worked and given Yahoo's less-than-brilliant execution in the past, this will fail as well. Yahoo can't sell eBay's inventory worth a damn. They can't sell Comcast's or Forbes either. In the meantime keep trolling boards pumping Yahoo.
  • Piyush
    If you are using market's reaction to judge the merit of this deal, sorry, you are way off to even begin discussing with. And nope, I ain't no troll. However, looks like someone is following the herd mentality in just following what everyone else is saying without a thought of his own. You are looking at Market reaction after all to justify your comment. Wall street's?! Really?!
  • JR Higgers
    I love the optimism, but you're buying into the best case scenario. Things almost never work out like that & this will be an executional nightmare for both parties. They've guaranteed 1+ years of integration headaches while Google laughs their way to the bank.

    Yahoo just had to wait to make this deal happen and lost $20 something billion dollars they could have had if they wholeheartedly wanted this deal to happen back in 2007. I agree with Gargamel, Yahoo is the laughing stock of the valley.
  • Piyush
    I think even in not-the best case scenario, things would be better than they being independent and Yahoo just not being able to stand on its own and just cornering itself into truly becoming AOL-ish -- jewels now long gone and hold no value.

    The market, however, seems to be taking the worst case scenario and pounding the deal. Yes, its not difficult doing any deal with such reach for even the best execution team around. And remember the fumbles of Yahoo were pre-Bartz and if not for Bartz (irrespective of what Yahoo's BOD had to say) this deal wouldn't have gone through IMO.

    Yes, Yahoo could have sold itself -- would have been great for Yahoo's shareholders but *that* integration would probably be 10 times as complex and would surely have wiped anything there was about Yahoo/MSFT competing in search ad business.
  • Let the Bing vs. Google wars begin.
  • engagoteam
    If you can't beat them, then join them.That's what Yahoo just did.
    Microsoft got a stronger Bing now and will be challenging Google.
    Google will need to stop a few of its' forever beta services.
  • spandana
    it's the young blond punks at google vs. the old grizzled war horses at microsoft. at least, this whole deal leaves yahoo to drive a lane that's free and clear. godspeed.
  • Nayak
    One thing in this economy, if you are not the number one, "get out". Yahoo finally understands its identity. It's number one portal and should focus on it. Web is moving to video and mobile and Yahoo needs to be still number one as Internal changes. There is no point obsessing about Search, it has lost its chance. Time to move on.