Wednesday, January 23, 2008

Deciphering Yahoo's Maladies: Is a Market Vertical Approach the Solution?

Sramana Mitra at GigaOM tries to makes sense of the recent reorgs, cutbacks and general malaise at Yahoo. Mind you it's sometimes hard to figure out how people can cluck about a company that has over 500 million unique audience members, but clearly a USD 20 billion loss in market capitalization since its peak is bound to bring soul-searching in many major company. Sramana's suggestion is for Yahoo to focus more on excellence in specific vertical markets rather than to get lost in trying to out-everyone everyone else. Oddly Sramana gives as one suggested change the addition of photo processing service Shutterfly to Yahoo's Flickr photo community, even though Flickr has had the QOOP photo printing service for some time now.

This points out a major problem that many content aggregators face: it's almost impossible for an all-singing, all-dancing content vendor to buy enough good content to compete cost-effectively with specialists in any one market vertical. Yahoo could buy its way into a more dominant position in verticals such as travel, jobs and real estate classifieds by purchasing market leaders and then position management that wouldn't stop until they had dominant positions, but there are only so many verticals in which one can dot this effectively and still manage to maintain both rapid responses to market needs and the advantages of scale. Thomson has discovered this to a large degree as it has chosen to divest itself of market verticals in which it was both not possible to dominate effectively and to take advantage of common infrastructure for legal, scientific and financial markets more deeply.

The main problem Yahoo faces is that its brand does not resonate effectively with many of its holdings as well as many of its core offerings. In terms of breadth of content that it licenses or manages there's no single provider larger than Yahoo in online markets. That's a fine position to be in if you're a Google with a brand that is functionally oriented more than vertically oriented, but when you're more about destination content it's hard to get a broad encompassing brand to work for both functionality and destination content - even when there's comparable functionality or content available. People gravitate to Google for search over Yahoo as much for branding reasons as they do for its technology: that is, Google is a "techie" brand, so it's viewed more as a tool for solving specific problems. Yahoo has great content, but with a handful of exceptions it's not really seen as a tech tool intuitively. Strangely Yahoo's focus on well-designed user interfaces only seems to exacerbate this branding issue. By looking more user-friendly and idiot-proof than Google and other tech-oriented brands it continues to send signals that it's a company focused more on destination content than leading-edge content technology.

I'd hesitate to call Yahoo a dying brand, for it has a wealth of assets that are hard to beat in many arenas. But it is a brand in search of its soul, captive in large part to an earlier generation of the Web when aggregating content from existing media brands seemed to be a lot more powerful business concept than it is today. Google's more agnostic approach to content aggregation and more askance perspective on marketing alliances with established content brands has enabled to keep its content acquisition costs relatively low and its ability to focus resources on transformative technologies and approaches to markets relatively high. In an era in which a brand creates trust moment by moment Google's more contextual and flexible approach to brand management carries with it inherent advantages, as do many social media brands focused on transformative technologies.

Yahoo need not become another Google from a branding perspective, but it does need to think about the positioning of its brand far more carefully before it tries to focus on improving existing product lines that may not be well aligned with a repositioned Yahoo brand. I remain optimistic that this can happen over the next few years, but I don't expect a short-term turnaround.
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