11/3/2019 Update: As time has proven Yahoo! did not end up recovering. However the premise of the Gold Rush is over was disproven through (1) the rise of Infrastructure as a Service: Azure, AWS, Twillio, and Stripe; (2) the scale of Content as a Service: Spotify, and Netflix, Twitch and (3) the rise of Ecommerce Infrastructure as a Service with Shopify et al. A decade ago Yahoo could have made any one of these consumer internet investments and rode the wave of a continued Gold Rush.
A few weeks ago I came across an article by 24/7 Wall St titled: Why Yahoo! (YHOO) WIll Never Recover.
I fell for the hyperbole and read through the article.
What I uncovered was more notsocommoncents.
The general premise is that since Social Networks are challenging Yahoo in page views, and Microsoft has the money advantage in search (BING!) – Yahoo is lost and stuck in its low margin business of only $121 million on $1.82B Q1 revenue. Some excerpts:
Yahoo! has not developed any effective strategy to have any presence in the fast-growing social network sector. The same can be said of Microsoft (MSFT) and Google (GOOG). Each company may regret its lack of success in entering the the online world created by MySpace (NWS), Facebook, and Twitter. Because of its size in relationship to Microsoft and Google, Yahoo! can least afford to let major opportunities pass. It is still questionable whether social networks will make money…
Yahoo!’s most important strategic blunder is likely to be the refusal of CEO Bartz to form a search partnership with Microsoft quickly after taking the top job. The industry has known for months that Microsoft was about to launch the next generation of its search product. Bartz and many experts believed that Microsoft did not have the product development and engineering expertise to build a highly competitive search engine. This turned out to be an underestimation of Microsoft’s resolve, its willingness to invest great sums of money on risky ventures, and the prowess of its developers.
The fundamental flaw with this analysis is the assumption that there are only two potential ways to generate profit online, social networks (though their profit potential is unknown) and search. The fact is when you apply unproven present day constraints to the future outlook of an opportunity- you severely limit the way you see opportunity.
Lets call this: the gold rush fallacy.
When the California gold rush wound down, everyone who went there searching for gold probably was thinking: now what am I going to do to get by? The gold rush is over, all the ways to make real money are lost.
Yet for Levi Strauss the gold rush had just begun. So while everyone else had given up in despair- “woe is me the gold rush is over”, Levi Strauss was just digging in building a gold rush on the back of what were then, present day needs.
The fact is that each wave of new products and services we introduce into our life introduces a new wave of needs, be it sociological or physiological. Therefore The Gold Rush never ends.
Let’s take a look back at the Gold Rush Fallacy. After the dot com crash there was a Gold Rush Fallacy with regard to online advertising. Gold rush is over the bubble has crashed, there was no way to generate enough advertising revenue to sustain a tech business.
Along came Overture (And Subsequently Google Ad Words) – Illustrating that there was in fact a highly profitable billion dollar business to be had with online advertising, even after the “Gold Rush.”
Looking at this from an asset based thinking point of view: Yahoo has the top homepage of the internet, a top photo community, No. 1 in email, and No. 2 in messaging – world wide. Couple this with a technology portfolio that is rivaled by few companies, and probably the number one Question and answer communities in Yahoo Answers, not to mention their well recognized brand. With these assets, how could one really believe the gold rush is over?
I wish Yahoo much luck in uncovering additional business models, I specifically hope they ignore the wise business minds which would only encourage them to believe their opportunity to strike gold is over.
“What would I do? I’d shut it down and give the money back to the shareholders,” Michael Dell speaking on Apple’s prospects in 1997
The Gold Rush is only over if you believe it so.
Conversely the business models, products, and services that are economic drivers, will one day sunset to give way to another gold rush. But don’t take my word, ask Levi Strauss:
“In the old days, people used to risk their lives in India or in the Americas in order to bring back products which now seem to us to have been of comically little worth.”
– Levi Strauss
mikalfm 
I think we’d both agree that at this point. With a new leader only seven months into her job, the step’s Yahoo would take to success are nearly indistinguishable from the steps that would certainly lead to failure.
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I agree that there are huge opportunities for Yahoo to leverage their assets … flickr, Yahoo Answers, and del.icio.us are dominant, their home page/mail/messenger combo is potent as well, and have great links to Hollywood. So far, as the article points out, they don’t have a strategy for building on this. I guess the question comes down to how likely you think Carol Bartz is to lead them to find one?
It seems to me that their their search market share is extraordinarily vulnerable. Microsoft’s Live Search Cashback threw down the gauntlet that MS was ready and willing to spend Yahoo into the ground. And their willingness to outsource their own search keyword advertising to Google to block the Microsoft deal highlights weakness in that business as well. If Bartz did indeed underestimate Microsoft’s engineering ability and was taken by surprise with Bing, it may prove a costly mistake.
Then again, there are still possibilities for search partnerships with Microsoft or potentially even AOL. So in that context, it’s another major asset.
Like you, I hope Yahoo! finds some new business models and recovers — they certainly have the opportunity. Sad to say, I’m not particularly optimistic.
jon
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