Opportunity is there - if only Yahoo can see it

Yahoo no longer dominates the internet but its fortunes can be turned around by concentrating on online social networking, mobiles and remote information storage.

Yahoo, once the world's greatest search engine, is on the verge of a decline unless it charts a future based on new technologies. Tony Avelar / Bloomberg News
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Yahoo, the once-great internet giant, appears to be heading for rock-bottom following the resignation of its chief executive, Scott Thompson, after revelations he had never earned a degree he claimed on his CV.

Mr Thompson's ignominious exit is the third departure of a Yahoo chief executive in a little over three years.

But however much the company appears to be lagging behind Web rivals such as Google and Facebook, it still has a chance if its new board plays its cards right. That is, however, a very big "if".

Yahoo must forget its history as the world's greatest search engine and instead look to a future built around new technologies and services. Although it made its name in internet searching well before Google, it has now very definitely left that game and outsourced search to Microsoft.

"With the Microsoft agreement, Yahoo is pretty much out of search, and unless they bought out of the agreement and were willing to spend billions to close what is now a massive technology gap, it is unlikely they will get back in it with their own technology," says Rob Enderle, a principal analyst at the research company Enderle Group. "They are now mostly a Web media company and that is likely where they will be spending their time going forward."

But Web media is a broad term used to refer to what appears at the moment to be a grab-bag of internet business models and assets.

However, in addition to its slowly fading brand, the company also possesses considerable internet technology and has other lucrative and established businesses.

According to Richard Edwards, a principal analyst at the research firm Ovum, the company's client base spans major corporations and private users.

"Yahoo is still a big player in the webmail market. The company also provides co-branded internet services to companies like BT [BT Yahoo]," says Mr Edwards. "Many people still have Yahoo configured as their browser's home page, unable to figure out how to change it."

But although Yahoo still attracts an estimated 500 million users a month to its various websites, that number is believed to be falling.

"I predict this number will shrink in real terms as consumers replace their old PCs and laptops with smartphones and tablet computers," says Mr Edwards.

Some investors are already fearing a lack of clear leadership on Yahoo's board. The interim chief executive, Ross Levinsohn, Yahoo's former global head of media, is best known for orchestrating News Corp's US$580 million (Dh2.1 billion) takeover of MySpace, another example of a Web giant that did not manage to weather the next stage of the Web's evolution.

Fred Amoroso, the director in charge of an internal inquiry into Mr Thompson's record, will be the new chairman. Third Point, the hedge fund that raised an outcry over the incorrect CV entry, is also represented on the board.

To turn the company's fortunes around, the new board's strategy must take full account of today's technologies and customer preferences for online social networking, mobile devices and remote information storage, generally called "cloud" computing.

"What is Yahoo to do next? This is the $64bn question," says Mr Edwards. "In my view, the company must focus on the three key areas of social, mobile and cloud".

He believes Flickr, Yahoo's Web-based photo sharing site, will be the linchpin of the company's social networking strategy.

Yahoo is also developing its non-English-speaking markets in locations such as the Middle East. "Yahoo does have offerings targeting Arab and Indonesian users, so there may be an opportunity in this part of the world," says Mr Edwards.

The company is also believed to be considering a multibillion-dollar sale of its stake in China's Web services company Alibaba Group to fund future development. Yahoo could also sell or leverage some of its own technologies in order to fund further global expansion.

"In addition to its brand value, Yahoo has an intriguing patent portfolio," says Mr Edwards.

But, to compete with the likes of Google and Facebook, Yahoo must now concentrate its resources on developing new mobile and cloud services.

"The Yahoo mobile offering is also pretty solid, with support for all of the major platforms including the iPad, but the company's cloud strategy is less clear," says Mr Edwards. "Maybe Yahoo should spend some of its billion-dollar war chest in this area."

Dovetailing its existing media and social networking businesses could also enable Yahoo to create and potentially dominate a new global marketplace on the internet.

"They were between AOL and MySpace on the social networking wave and eventually someone will figure out a better way to connect media with social," said Mr Enderle.

"I would suggest that Yahoo might be able to get that done first since they have a pedigree in both areas, but I doubt if they can see this strategic opportunity, given their tactical problems."

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