Behind the spin: Yahoo!

The search engine pioneer may like to claim it's still innovating, but as the web continues to move on its profits have suffered. What must Yahoo! do to keep up?

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Last Updated: 31 Aug 2010

THE DILEMMA

Yahoo!, the world's most visited website, seems to be stuck in the world of Web 1.0. Founded in 1994 and run by 63-year-old CEO Terry Semel, the internet portal/content-provider/search engine is losing out to younger, more specialist rivals like Google. Yahoo! recently announced a 38% drop in third-quarter profits, while Google trumpeted bumper results. Late last year, a damaging internal memo sent by a senior Yahoo! executive accused the company of being a jack of all trades and master of none. 'We want to do everything and be everything - to everyone,' wrote renegade VP Brad Garlinghouse. 'We've known this for years, talk about it incessantly but do nothing to address it. I've heard our strategy described as spreading peanut butter across the myriad opportunities that continue to evolve in the online world. The result: a thin layer of investment spread across everything we do, and thus we focus on nothing in particular.'

THE SPIN

Yahoo! said it welcomed Garlinghouse's memo - dubbed the Peanut Butter Manifesto - citing it as evidence of its open and collaborative approach. Chief product officer Ash Patel told the Sunday Times that 'People look at the financial results and don't always understand the full picture. Yahoo!'s core business is audience. We are innovating with great products and doing really well... If you try to run your company by what the press and analysts are saying, you'd be changing your strategy every two months.'

THE STRAIGHT TALK

'You were the future once,' David Cameron taunted Tony Blair. Could the same be said of Yahoo!? The company knows that reform is needed. 'I am not satisfied with our financial performance and we intend to improve it,' said Semel. 'We are not exploiting our considerable strengths as well as we should be and we are committed to doing better.' He has started a management shake-up, though he has yet to cut the headcount or services. He rests his hopes on a new ad technology due early this year. 'I'd put it up against any major product launch, ever,' he says. Google's highly effective ad technology generates an estimated 11 cents on each domestic search, compared with Yahoo!'s 4 cents at present.

THE VERDICT

The pressure is on - and could this be the kick up the backside Yahoo! needs? If Semel heeds Garlinghouse's plea, the company could be revitalised. A slimmer range of services will do Yahoo!'s content justice, and if its new ad technology takes off, it will give Google a good run for its money.

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