Tuesday, October 24, 2006

How Yahoo! Can Beat Google

The recent quarterly earnings announcements from Yahoo! and Google show just how far Google has come. Google's market cap is now a mind-bending $144B at last glance - 4 1/2 times that of Yahoo! Google seems to go from strength to strength while Yahoo! - once the darling of the web - now looks lost.

Can Yahoo ever regain its pre-eminent position on the Internet? Not if it continues to compete head to head with Google. Google has the financial and intellectual firepower to outgun just about any company that goes at it head-on. Instead, Yahoo! needs to focus its relatively limited resources in a few key areas and make some difficult strategic decisions:
  • Concede search to Google. It may sound heretical for Yahoo! back off on search, but the fact is that Google has won the search battle and the sooner Yahoo! realizes this the better off they will be. Yahoo! is plowing untold resources into its long-delayed Panama project in an effort to catch up with Google's extraordinary search and advertising platform. But it seems unlikely that Yahoo! will ever reach parity in this area and the company could redirect those resources into areas where it can win.
  • Go vertical. It's easy to forget that Yahoo! is still the most visited site in the world and the way it got there is through strength in applications like email and depth in vertical areas like finance, shopping, etc. Google's attempts at breaking into vertical areas has been their one notable mis-step. With one or two exceptions, Google's entries into verticals like video, finance, email have not been barn burners. Yahoo owns vertical and it needs to extend its lead in this area by making sure all of its categories - from autos to yellow pages - are best of breed. This is a core competency that Yahoo! has and must build on.
  • Tap into blog power. Blogs are huge and only getting bigger - 75,000 new ones surface every day - but neither Yahoo! or Google owns this area. Yahoo! should buy Technorati, which has become the default blog search engine. Combining Technorati with Yahoo's recently acquired Del.icio.us social bookmarking site could be the start of a blog portal. Yahoo! started life as a directory of web sites (a quaint notion that you could actually list and categorize all the web sites in the world, back when there were 50 or so), so it knows how to organize information. This is different than searching - with searching you find what you're looking for. By organizing blogs, Yahoo! could help people find what they didn't know they were looking for.
  • Power up video ads. With Google's acquisition of YouTube, it's a foregone conclusion that video will be the next - and possibly most lucrative - form of Internet advertising. Yahoo! needs to recognize this trend and get in front of it. Yahoo! should actively work with its advertisers to start deploying video ads throughout its sites. This is an area that Yahoo! must choose to expend resources in a very visible way. Even with the YouTube acquisition, there won't be a clear winner in video ads for some time. Yahoo has lost the battle of text ads - it can't lose the battle of video ads.
Most of all, Yahoo! needs to recognize that the landscape has changed forever and that it needs to start being proactive about forging its future. There's still a good chance that Yahoo! can compete with Google, but the time to start is now.

Monday, October 23, 2006

CNET's Results: Some Positive Signs

This afternoon CNET released its quarterly results (although it only released revenues and not earnings due to the ongoing stock options investigation). CNET is clearly in a challenging environment, but I found some positive takeaways:
  • While page views declined, visitors were up. This supports my earlier analysis that CNET's page redesigns were responsible for the page view decline, not an overall drop in visitors. It's also worth noting that CNET's page views declined only 13% year-over-year, not the 50% that was being bandied about the blogosphere last week.
  • CNET continues to efficiently monetize its traffic. The company's revenues increased 13% year-over-year even though its page views dropped by the same amount. This indicates that CNET is pumping out more sales leads per page view to its participating merchants - in other words it's getting more efficient in converting readers to buyers.
  • CNET is broadening its footprint. In the last quarter CNET launched sites on food and television, further cementing the company's recent move out of the tech sphere. I think this is a smart stategy, although I don't yet see how CNET is tying all of these sites together - in fact there's no link to any of the non-tech sites from CNET's home page.
  • CNET is poised for the oncoming onslaught of branded advertising. A recent study indicated that brand advertising on the Internet will grow much more quickly over the next few years than the direct-response type of text ads Google has grown fat off of. Over the last 10 years CNET has pioneered the development of online branding opportunities for marketers and I believe this work will be rewarded in the coming quarters.
To be fair, not everything is looking up for CNET. The company has to resolve the stock options issues quickly and definitively before the stock will go anywhere. CNET also has to get its debt rating up, which will hopefuly happen if the company pays off its $125 million in notes with the cash it has on hand.

With new leadership in place at CNET there will likely be a transition period during which the company finds its feet. But I believe once it does, the company has shown its ability to execute which will put it in a good position as tech advertising bounces back.

Full disclosure: I am long on CNET. I used to work at CNET several years ago, but have no inside knowledge of the company at this point.