What's a Yahoo! to do?

Post ImageAlmost every day now I read something about Yahoo! and its “problems” and/or “options”. Those are in quotes because it seems people are very divided on Yahoo! – some think it’s in trouble, others don’t. I’ve been a Yahoo! user since the days of the grey page-background, and if you count sites like Flickr and del.icio.us, I’m still a pretty active user. Allow me to put on my Yahoo! pundit hat for a moment.

I guess Yahoo!’s main problem is Google. Now that there’s a search-media company consistently outperforming Yahoo!, it makes them look old and stagnant. It’s actually pretty unfair, because let’s be honest, no one has the kind of growth that Google does. Yahoo! actually does pretty well in terms of search traffic, advertising dollars, and all that other stuff, but where they seem to be lacking is in respect.

So what’s a Yahoo! to do? Here are the most commonly suggested strategies I have come across:

Replace CEO Terry Semel
This suggestion is actually fairly new, and if you read Eric Jackson’s open letter to Yahoo!’s founders, it starts to make sense. Seems to me this is a relatively short-term fix though.

Buy AOL
Apparently Yahoo! has approached Time Warner about purchasing AOL. I think this would be a good deal for Time Warner, and a not so good one for Yahoo!. It would bring the failed AOL Time Warner merger to a complete end, but it would only provide a minor increase in Yahoo’s traffic and advertising, all things considered.

Buy Facebook
This rumor has been floating around for months actually. It might bring some more eyeballs to Yahoo!, but it would do nothing to help transform or improve the company. And besides, from everything I’ve read, Mark Zuckerberg (Facebook founder) is no Caterina Fake (Flickr founder).

Merge with eBay
The two companies might seem complimentary because of their completely different focuses, but that might present a problem rather than a solution. I agree with Fortune: I think this one is unlikely, because I think integrating eBay and Yahoo! would prove extremely difficult.

Sell to Microsoft
This one is my favorite, and it has a long history too, first appearing in June. Microsoft certainly has the cash, and it turns out that the two companies are fairly well-aligned – Yahoo! has made heavy investments into IE7, is a PlaysForSure supporter, and has hooked up with Microsoft on a number of initiatives ranging from Sitemaps to Instant Messaging. According to the latest comScore data (released today), a combined Microsoft-Yahoo would have around 40% of the search market compared with Google’s 45%. Of course, there are some easy to spot problems with this deal – mainly that Microsoft has invested heavily in Live Search and adCenter already. That’s not a total deal-breaker though.

Stay the course
The people that don’t view Yahoo! as floundering like this suggestion. Sure Google is #1 for now, but it can’t stay that way forever, right? Seems like this is Yahoo!’s currently preferred course of action. If they could somehow turn around their disappointing sales and profit numbers, this one might be the best option after all.

The Microsoft option is especially appealing to me, because it would have extremely broad ramifications for the industry. It also seems somewhat unlikely, given Microsoft’s huge investments in their online properties (MSN, Live.com, etc). That said, purchasing Yahoo! would instantly make them the leader on the web, a position they have long sought after. I wouldn’t be surprised if Yahoo! ended up staying the course though, and in the end, maybe that’s better for everyone – Yahoo! included.

Update: Here is more excellent commentary on Yahoo’s current situation.

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