The Biz of Coding

3 Waves of Consumer Web - Why Yahoo! Lost its Dominance

by Ujwal Tickoo on February 9th, 2008

The Microsoft Yahoo! Salsa is on. The End result will be Microhoo. What is the reason for this result? Yahoo! (YHOO) misread into 2 major waves of Consumer Web Search and Social Networking. Google has been very smart in acquiring Blogger, YouTube, Orkut - even at times when valuations looked ridiculous. Google (GOOG) is on its way to become the largest destination on the web as Yahoo! has had slowed and even negative growth. Combined the Social Networking/Web has grown over 100% in the last few years. In Market Cap terms the transition from Yahoo!'s portal wave to Google's Search wave happened in Oct 2004. Since around that time overall Yahoo! downslide has continued while Google's wave has been on a rise. There are other measures also — traffic stats have shown a similar trend Yahoo! becoming stagnant while Google and Social Networking/Web on a fast rise.

Here is how I look at the evolution of the consumer web:

 

 

 

 

 

 

 

 

The reality is Yahoo! is a big brand with little teeth left to bite into Online Search Revenue of Google or hurt the likes of Facebook, YouTube, Myspace in anyway. The reality is that Yahoo! is itself to blame for its current woes. The reality is that the window of opportunity for the next wave of Consumer Web has closed for Yahoo! You can't build a new Facebook or MySpace *all over again*.

NYT and others report that Yahoo! directors met and did the expected — rejected the Microsoft bid of $31 per share stating that this price *massively undervalues* Yahoo! I half-agree with the undervaluation perceived by Yahoo! Any valuation right now is in the eyes of Microsoft (MSFT) and they might even upbid the offer to buy off what they need to tackle Google.

Yahoo! has few options. If it partners with or outsources Search to Google — that could major cause anti-competitive reviews. However Microsoft + Yahoo! is still a distant Number 2 to Google, so that is much more viable. Techcrunch has also evaluated other options like breaking up Yahoo! into mini-yahoos. Not happenning, imho. The other possibility where Yahoo! opens up Search to Open Source community in a big way can happen — as long as Yahoo! can stave off the aggression of Microsoft Corp's takeover ambition.

Microsoft could go for ousting the Yahoo! board as NYT reports:

Microsoft has already intimated that it could seek to oust Yahoo’s board at its next election; it would have until March 13 to nominate a new slate of directors. Unlike other corporations, Yahoo has no protections to prevent an overthrow of its board.

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POSTED IN: Microsoft