Yahoo! Comes Out Swinging In Search Engine Wars
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I find the continual fist fights and jockeying for position among the major internet search engine contenders to be among the most entertaining in the financial world.
It may be that I have a natural soft spot for the underdog in any industry, but I have always had sympathy for Yahoo! (NASDAQ: YHOO) Despite Yahoo! being one of the most visited websites in the United States, and despite being almost as old as the internet itself (Yahoo! was founded in 1994), Yahoo! has historically been out-competed by “young turks” such as Google (NASDAQ: GOOG) and Facebook.
Despite its established reputation, multinational establishment and 14,100 employees, Yahoo! could only corner 15% of search engine traffic in the US, as opposed to Google’s 65% share. Yahoo! is considered a safe bet for investors in internet industries, albeit not a very exciting one.
However, the writing on the wall suggests that this status quo might be about to change, with Yahoo! making a bid for greater power and influence in the search engine market. The change was heralded by Yahoo! taking on Scott Thompson, the heavyweight former President of Paypal, as its new CEO in early January. The news was greeted with modest optimism in the market, with Yahoo!’s common stock breaching $16 in price for the first time in several months. Yahoo!’s latest campaign has been characterized by a combination of brilliant opportunities, misfortunes and an unfortunate result of restructuring.
Yahoo! fights back
Any “search engine war” is going to be fought on the battlefield of technological innovation. Social media is changing rapidly, with integrated and mobile technologies changing every day. Google and Facebook, Yahoo!’s key rivals, are undisputed masters in this field, having on their payroll some of the best brains in the industry. Google and Facebook also have the advantage of flexibility – their systems are open and flexible enough to allow independent developers a wide scope to develop their own features and applications within the system. Currently Yahoo! is faced with the challenge to compete, and a good gauge of its success will be Yahoo!’s ability to develop an open and non-linear social media platform. Without this, internet users, developers and investors will continue flocking to Google, whose stock is currently riding high at around $656.
It is also predictable that a board room takeover usually results in a purge in high level staff. In Yahoo!’s case this cull has involved some of its most innovative software developers. This is the unfortunate result of Yahoo!'s restructuring.
New York based Yahoo! Research described itself thus:
“Yahoo! Research is the central advanced research organization of Yahoo!, a leading global Internet brand and one of the most trafficked Internet destinations worldwide. We’re responsible for big inventions– our goals are nothing short of inventing the future of the Internet and creating the next generation of Business for Yahoo!”
In short, it was Yahoo!’s foremost development think-tank, employing dozens of academics, egg-heads and development geniuses. In March the decision was taken to fire the lot, an announcement that met with shock within Yahoo! and untrammelled joy by Google and Facebook.
All indications are that Yahoo!’s rivals are swirling like sharks at feeding time to snap up its technology executives. The first big scoop was Microsoft’s acquisition of “Data Management Systems” author and former Yahoo! researcher Raghu Ramakrishnan. Ramakrishnan was formerly responsible for developing Yahoo!’s search and cloud platforms and will now be working on developing Microsoft’s SQL technology. Rumours have it that Ramakrishnan is just the first of a potential exodus of executives from Yahoo!.
Not everyone is happy with Yahoo!’s recent corporate shake up. The company’s investor Third Point LLC, a hedge fund that owns a 5.8% stake in the internet firm, was pressing shareholders to vote its four nominees onto the Yahoo! board.
Despite the ostensibly shaky start, Yahoo! CEO Thompson has announced the advent of “bold times” and “real changes” in the months to come. Indeed, some events are giving him cause for confidence.
In February 2012, for instance, Yahoo!’s partnership with ABC News, owned by Disney, produced record traffic, hosting an estimated 50% of the total number of global video views and news streams (814 million views). This is a phenomenal achievement by any standard.
Yahoo! is also making quiet progress in its alliance with fellow internet “old guard” companies Microsoft and AOL. In March 2012 an advertising alliance between the three companies became operational. From now on, online advertising companies will be given the opportunity to advertise across all three platforms - Microsoft Media Network, AOL’s Advertising.com and Yahoo! Network Plus – giving participating advertisers formidable internet coverage.
The revolution continued in mid-March with Yahoo! signing a deal with Fandango, owned by Comcast. The agreement makes Fandango responsible for Yahoo! Movies, opening up Yahoo! to Fandango’s 30 million American customers.
The larger audiences attracted by Yahoo!’s new content and advertising initiatives are bound to have a knock on effect on its share prices and foreshadow greater market success despite losing the technological edge to Google and Facebook.
I believe that Yahoo!’s search engine war is still far from over and that we can look forward to seeing many more advertising and content partnerships over the next fiscal quarter. All in all I think that buying the stock at current values would be a very sound investment.
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