WSJ’s recent Yahoo story does not sound very optimistic about Yahoo’s potential to recapture the former glory Yahoo enjoyed in terms of stock price. The gist is that new CEO Yang is not going to “overhaul” the company, especially in the area of advertising sales where Yahoo clearly has enormous potential for bigger profits, and even a shot at eventually co-dominating the online advertising landscape.
It is this potential that interests me as a YHOO investor. Google’s done a fine job of monetizing internet activity in the search space, and GOOG’s capitalization of some 160 billion dollars reflects this fact. Yahoo was arguably too early to the PPC game with the purchase of Overture – the early leader in the PPC space. My assumption is that this kept Yahoo from innovating aggressively and allowed Google to sweep in with their contextual matching brilliancy and eat Yahoo’s PPC profit lunch. This feast continues despite the fact that Yahoo retains a significant portion of total online search activity and also remains in a position to monetize a large amount of other types of internet traffic.
Also, Yahoo’s making great strides in the Web 2.0 space thanks to a kick-ass developer team. Yahoo’s Flickr remains the best photo sharing application with a huge community. If Yahoo could use their 2.0 cleverness to crack the nut of better monetizing the traffic spawned by Flickr and even other non-Yahoo online communities like Myspace or Facebook it would be helpful to the bottom line.
Yahoo remains capitalized at a small fraction of Google – about 20%. This is consistent with the pessimism expressed in the WSJ article but does not seem consistent with Yahoo’s profit potential in the exploding world of online advertising.
There used to be a game where Yahoo employees would sneak into the Google lunch room to eat a free and delicious Google lunch. Jerry Yang, how about providing a free lunch at Yahoo and then focusing the employee’s attention on taking back all those free and delicious PPC profits?
Less glibly I’d suggest you focus on the Yahoo Publisher Network evangelism and monetization. So far Yahoo has failed – fairly dramatically – to gain publisher interest and loyalty in this lucrative sector of online advertising. Google adsense publishers are ripe for change and innovation in this space. Make it so!