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Is Content Or Web 3.0 The Answer For Yahoo?

Posted on Thursday, Jan 27th 2011

According to ComScore, for the third quarter of last year, Facebook led the display ad market in the U.S. Overall display ads grew to 1.3 trillion displays, registering 22% growth over the year. Facebook alone had 297 billion display ad impressions in quarter, translating to 23.1% market share compared with 9.2% in the previous year. Yahoo! came in second with 140 billion impressions or 11% market share, followed by Microsoft’s 5% share or 64 billion impressions. To counter Facebook’s growth in the display ad business, Yahoo! seems to be focusing on improving content.Yahoo! Financials
Yahoo!’s (NASDAQ:YHOO) Q4 revenues fell 4% over the year to $1.21 billion. They managed to exceed the market’s estimates of $1.19 billion. During the quarter, search revenues, excluding traffic acquisition costs, fell 18% over the year to $0.39 billion. Display revenues grew 16% over the year to $0.57 billion. EPS of $0.24 was also ahead of the Street’s target of $0.21.

Within search, ComScore reports show that Google continued to gain search market share. In December 2010, Google sites claimed a 66.6% share in the U.S. explicit core search market compared with a 66.2% share in November. Market share of Yahoo! sites fell to 16.0% from 16.4%, while Microsoft site shares registered a minor increase from 11.8% to 12.0%. ComScore also computed the market share of algorithmic explicit searches that are powered by Google and Bing. Google’s “powered by” share included searches conducted at Google entities, as well as branded searches at AOL and Ask. Bing’s “powered by” share is composed of searches conducted at Microsoft entities as well as branded Yahoo! entities. In December, 69.4% of searches carried organic search results from Google, while 24.4% of searches were powered by Bing organic results.

For the current quarter, Yahoo! projected revenue of $1.02 billion–$1.08 billion, missing the market’s estimates of $1.13 billion. Projected operating profits of $130 million–$160 million were also short of the market targets of $201.8  million.

Yahoo! as a Content Company
Yahoo! is focusing on being a content company with a vision of offering “personalized content for [ . . . ] every user”. They hope to achieve that through relevant ads, investments in both search engine optimization and content development in their finance, entertainment, news, and sports verticals, and by hiring more content editors and bloggers to offer customized content across different sites to deliver “a very personalized media experience.” As part of the strategy, the company recently introduced Yahoo! Contributor Network, a platform that lets authors reach a wider audience by publishing their work on Yahoo!

For content in television, Yahoo! is discussing with Disney the possibility of television content being available through Yahoo!’s Internet TV software. Disney is expected to create widgets for their ESPN, ABC, and Disney networks to be transmitted over the Internet to Yahoo! Connected TV sets. Yahoo! claims that nearly 6 million with their connected software TVs have been shipped since launch.

There is also speculation of a potential merger of AOL with Yahoo!. Analysts believe that AOL’s strength in maps, entertainment news, and blogging will complement Yahoo!’s content and may be an “ideal fit for Yahoo properties related to sports, finance, and e-mail.”

Yahoo!’s New Offerings
Yahoo! is also focusing on innovations such as a new Yahoo! instant messenger application with features that include being integrated with Zynga’s online games and capability to share status updates from Facebook and Twitter.  They integrated Twitter with Yahoo! accounts so that users can see and share Twitter updates on the Yahoo! pages. Also, Yahoo! is expected to launch a Yahoo! Finance app for the iPad shortly. Meanwhile, the company also announced its intention to shut down Yahoo! Buzz, a tool that allows user votes to influence the content shown on the Yahoo! homepage or increase traffic to their own sites.

Yahoo!’s Local Deal Offering
Like Google, Yahoo! understands the potential of local deal sites. Before rejecting Google’s $6 billion offer, Groupon had already rejected Yahoo!’s informal offer of $3 billion–$4 billion. Recently, Yahoo! announced the beta launch of Local Offers, a program where they have tied up with online and offline local “deal” providers, including Groupon and LivingSocial, to build a comprehensive repository of local offers on the Internet.

In Australia, through Yahoo!’s joint venture with broadcaster Channel 7, they recently purchased Australia’s leading daily deal site, Spreets, for $40 million. Spreets boasts of more than 500,000 members and will now be distributing deals on the Yahoo!7 portal.

Yahoo! and the Social Network
According to ComScore, the average U.S. online user spent 59% more time on Facebook than on Yahoo! at the end of last year. ComScore also claims that nearly 25% of U.S. display ads popped up on Facebook during the third quarter compared with 9.2% a year ago. Yahoo! was a distant follower with an 11% market share of total display ads, compared with a 13.5% share a year ago. Yahoo! needs to come up with a strong social network strategy. But, as of yet, I haven’t seen decisive action from Carol Bartz and the executive team to counter this growing competitor in their core eyeball business.

The market has been abuzz with rumors that Yahoo! may be working to sign a deal with NewsCorp’s social network, MySpace. While both Yahoo! and MySpace have remained silent, for Yahoo!’s sake, if this is true, I hope they stay away from this deal. MySpace has been in decline and recently announced layoffs for nearly 47% of their employees. And Yahoo! has troubles of their own; the company doesn’t need to add lackluster MySpace to their portfolio.

Yahoo!’s focus on content and display ads is at best a Web 2.0. strategy and, sadly, does nothing to help them grow into the Web 3.0 era. Yahoo! has leading sites in the form of Yahoo! Finance and Yahoo! Sports. According to Compete.com, the number of visitors to the Yahoo! Finance site has increased 28% over the year to 25.4 million unique monthly visitors. The site has remained a market leader in its vertical for 36 consecutive months. Yahoo! Sports has also maintained its leadership for the past 33 months and now has over 30.4 million unique monthly visitors, recording growth of 23% over the year.

While content for these sites has been exceptional, Yahoo! hasn’t done as much to improve either their community or vertical search features, nor personalization. Yahoo!’s strength lies in their finance, sports and news verticals and to compete with Facebook, they need to do some serious Web 3.0 planning around these verticals, including drawing in more user-generated content. I’d like to draw their attention to a couple of posts from a good five years back where I have suggested some ideas: Web 3.0 & Sports and Web 3.0 & Personal Finance.

In addition, to enhance their user-generated content strategy, now may be a very good time to buy SeekingAlpha in finance and Bleacher Report in sports. SeekingAlpha has 3.4 million unique monthly visitors compared with 2 million a year ago. The site claims to publish over 250 articles a day written by fund managers and other investment experts. Bleacher Report claims that they attract over 17 million unique hits per day due to the close to 500 stories that they publish a day. Recently, both sites have started paying members for their contributions. In 2009, each site raised close to $7 million in funding. Last month, Bleacher Report completed another round of $10.5 million in funding.

Yahoo’s stock is trading at $16.02 with a market capitalization of $21 billion. It touched a 52-week high of $19.12 in April of last year.

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