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Yahoo Stops the Bleeding

Despite reporting a (small) revenue increase, the heirloom Internet company faces difficult challenges ahead.
David Rosenbaum, CFO.com | US
April 18, 2012

Announcing a 1% increase in revenue Tuesday for the first quarter of 2012, Yahoo broke a streak of 13 straight declining quarters. Tim Morse, CFO of the 17-year-old Internet company long described as long-struggling, called the earnings uptick "an important milestone for us," but added that "we still have a lot of work to do," pointing to the need to increase the pace of top-line growth and, most importantly, to improve the ways in which Yahoo leverages and monetizes its still-large user base.

Earlier this month, Yahoo said it would begin eliminating 2,000 jobs, or 14% of its workforce, in order, as Morse said in yesterday's earnings call, "to streamline" Yahoo's cost structure and improve its margins. Morse estimated it would take a year to realize the cost savings from the workforce reductions.

Even so, he emphasized, Yahoo must lift margins in order to gain the capital it needs to improve operations, diversify its revenue streams beyond search and display, and, in general, revamp its business model. That was a sentiment echoed by new Yahoo chief executive officer Scott Thompson, who said on Tuesday that he wanted to see the company's revenue growth mirror the growth in online advertising (20%) and was far from satisfied with the announced 1%.  

Thompson, sounding combative, maintained that Yahoo has a "firm and valuable foundation" upon which to build, referring to the half a billion worldwide users the company claims, as well as its number-one ranking in sports (17.6% visits share), and its high rankings in other content areas. It is still the fourth most visited U.S. website, trailing Facebook, Google, and YouTube. In order to leverage all those users, Thompson said, "we don't need to reinvent who we are, but we do need to reinvent the experience users have with Yahoo" on PCs, tablets, and phones. "We need to get good real fast in mobile and devices overall, and we're not there today," he admitted.

The reinvented user experience, Thompson said, would come from focusing on core products and services. Yahoo, he added, has been "spread too thin," doing too much and doing only a few things well. Thompson announced that Yahoo would shut down 50 properties going forward and focus on news, finance, sports, and mail — the areas of primary user engagement and revenue. He said the company would allocate its engineering resources to its newly formed "commerce" division and continue working to deploy new, integrated computing platforms.

Yahoo will attempt to use Big Data both to personalize the user experience and provide more granular information to Yahoo advertisers, thereby enabling them to improve the ROI of their ads. The goal, said Thompson, is to use the data Yahoo collects to "connect what users are looking for with what advertisers are trying to sell to them" by providing advertisers with real-time data and analytics.

Thompson said that at the moment Yahoo's Big Data work was being conducted organically, in-house, and absent the emergence of a company "with a unique technology to really leverage insights from all this data to help our advertisers," it would continue to be done that way.

Spread Too Thin
However, given the disaggregated nature of Yahoo's current technology resources, as evidenced by Thompson's admission that the company has long been "spread too thin," a Big Data initiative will present serious challenges. As Jill Dyche, vice president of Thought Leadership for DataFlux, has written, "If your company doesn't have an effective data management organization in place, adoption of Big Data technology will be a huge challenge." Also, the marriage of transactional data, contained in enterprise-resource-planning systems, to discrete analytics systems is far from easy. That makes Thompson's desire to help advertisers by delivering real-time data on user behavior far easier to say than to do.

And there are other challenges. Yahoo used to dominate Internet search, but when people search today, they "Google." When another company's name becomes a verb for a service you offer, that's not good. Morse acknowledged yesterday that regaining search market share was something Yahoo could not control and therefore would focus instead on search revenue growth.

Getting good "real fast" in mobile is another challenge. Just last week, Google, in announcing its first-quarter earnings, reported that the cost-per-click (the money advertisers pay Google when anyone clicks on their Google-served ads) fell 12% year-over-year — due, said Google CFO Patrick Pichette, to the fact that mobile ads are less expensive than those served on desktops. So Yahoo will confront the double difficulty of improving performance in a market where competition is fierce and margins are constrained.


It all adds up to an identity problem for Yahoo, a company that began as a portal to the web. Today, the very idea of a portal seems anachronistic, replaced by apps that immediately serve up whatever anyone is seeking. The difficulty of defining what Yahoo is today, and what it may become tomorrow, may make challenges like Big Data, mobile, and new computing platforms seem trivial.

 

 




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