Yahoo!’s board has fired CEO Carol Bartz. CFO Tim Morse ws named interim CEO, and an Executive Leadership Council was set up to find a replacement. Carol Bartz took over around two years ago from Terry Semel, but was unable to turn the company around. Results have been disappointing, the strategy is unclear, dissatisfaction is growing among staff, and the share price is underperforming. The stock market reacted positively to the news of Bartz’s departure. Looking ahead, rumours will start about who the new CEO will be, as well as possible mergers (AOL?) and takeovers (private equity, which could sell the Asian activities and break up the rest; see our commentary ‘Yahoo! for sale’).
Yahoo! is a good example of how standing still is not an option. While the other big internet players continued to invest in new products and services, takeovers and R&D, Yahoo! was largely turned inwards. This also adds to the company’s attractiveness for private equity; there are various things to change at management level, which is probably what is causing the undervaluation of the company’s stock.
The real problem is Yahoo!’s strategy. The company does not seem able to choose: is it a technology company like Google, or more a media company? The technology side has been to some extent abandoned due to the deal with Microsoft to use its search technology, while on the ad market (display advertising), Yahoo! is losing market share. On both fronts it’s losing out to Google (even if Microsoft’s Bing is not doing half bad) and Facebook. Yahoo!’s portals are still very popular (especialy Flickr is a strong asset), but they face tough competition. The solution may be for Yahoo! to look for new revenue sources, as it did around ten years ago. Then the strategy was focused on diversification, as the high dependence on advertising made the company’s results too cyclical. Google is also busy diversifying. Web services and various takeovers (Motorola Mobility, the Zagat restaurant guides) are ensuring that the category ‘other’, alongside advertising, is generating a growing share of revenues. In 2006, ‘other’ contributed 1.1 percent of sales and in Q2 2011 the share had grown to 3.4 percent. Still small, but with Motorola and other expansions the dependency on the ad market will gradually decline.
Yahoo! Connected TV offers rich opportunities, but in this highly fragmented market, the service is making little progress. The service is installed already on over 8 million TVs, according to Yahoo!. Agreements with operators could lead to new sources of income, such as fees and revenue sharing. Hulu offers a further chance. The video site, with catch-up TV from the major US networks NBC Universal, Fox and ABC, is up for sale, and according to market rumours, Yahoo!, Google and satellite TV provider Dish are in the running. Yahoo!’s independence may give it the advantage with Hulu’s shareholders (Comcast, Disney, News Corp and Providence). Google is often seen as a competitor, while Dish is already a distribution partner. The question is whether Yahoo! can bid enough, as Hulu could cost as much as USD 2 billion. Still, there are other acquisition possibilities; the connected TV market is highly fragmented and offers several opportunities. Rovi (EPGs and other content discovery tools) is a big fish, with a market capitalization of USD 5 billion, and probably a bit too big. Numerous other candidates exist however, such as Jinni (recommendations) and Miso (interactivity, social TV). A takeover like the Motorola/Google deal is also possible, as there is still fragmentation on the set-top box market. Candidates could include Pace, Technicolor, Amino, Humax or Netgem, not to mention Boxee or Roku.
While it may be pure speculation, on paper TV is not a bad direction for Yahoo!. Expansion in the mobile market is risky, putting the company up against big players such as Google and Apple, but this is less the case for connected TV. Furthermore, Yahoo! is a neutral content aggregator, which can offer its content both on the computer as well as the TV (or any other screen). And also important: Yahoo! is likely to be more accepted by the content world than Google or Apple, which are sooner seen as rivals.
