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... through the revolving door

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The lazy reaction to Yahoo!‘s latest attempt at revival is cynicism, but a closer examination suggests it is playing a mixed hand of cards as well as it can. As we all know Yahoo! lost the search wars to Google, as did a bunch of other vendors that appeared well placed at the time. One of them, Alta Vista, ended up being acquired by Yahoo, which has never entirely given up on its original core business.

But that was a decade ago, and since then Yahoo! has appeared to limp on like a white dwarf star, still alive but no longer a blazing member of the internet firmament it once was. This is perhaps a slightly unfair metaphor, since Yahoo! has at least partly reinvented itself as a digital publisher, with a reasonable presence in online news and associated content, and this has saved it from the oblivion that once threatened.

But the strategy of trading revenue for profit, in the hope that when the opportunities came along it would at least be in a position to seize them, appeared to have come rather unstuck by the end of 2011. Net income for the year was actually down at $1.062bn compared with $1.244bn a year earlier, on revenues reduced from $6.3bn to $4.98bn. These are worrying figures and explain Yahoo!‘s decision to cut its workforce by 2,000 from its 14,000 total in early 2012, but at least it is still substantially profitable.

The most notable manifestation of this strategy during 2011 was in Yahoo!‘s partnership with Microsoft, a company that tried to take it over back in 2008. This partnership involved use of Microsoft‘s Bing search engine to run the ads and back-end on Yahoo! search. Microsoft in return received 12 per cent of the generated ad revenue, equating to around $36m per quarter, denting Yahoo!‘s revenue. But at the same time it reduced costs, because it slashed Yahoo!‘s search development expenses. This was not before time, but has freed up resources for investment in Yahoo‘s video based news and entertainment ventures, including its TV companion App for iOS devices called IntoNow. This provides synchronised news headlines, sports stats, and tweets, and is currently available in the US with European launches expected later in 2012.

Copyright © 2012, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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