What Will It Take to Fix Yahoo!?

Analysts: Ditch Yang, Get a Strategy, ‘Grow Up’

“The best option to unleash Yahoo!’s value is to re-engage in talks with Microsoft for a search-related deal,” Sandeep Aggarwal of Collins Stewart wrote in an Oct. 22 research note.

Similarly, Troy Mastin of William Blair said a “marriage with Microsoft may be the best alternative for both companies.”

There are reports, though, that Yahoo! could thwart a Microsoft union by attempting, once more, to team with AOL. In the meantime, Yahoo!’s greatest hope lies in the possible Google collaboration.

“Right now the relationship between Yahoo! and Google really looks like the enemy of my enemy is my friend — they have a common foe in Microsoft,” Krishna said.

For Yankee Group’s Taylor, a Yahoo!-Microsoft pairing doesn’t pass muster anyway.

“Microsoft clearly doesn’t have all the answers because they haven’t been able to make money in this business,” he said. “At least Yahoo! knows how to make money here,” he said, referring to Yahoo!’s third-quarter profit of 36 percent. The company’s net income was 64 percent lower than the same period a year earlier, but income is still income.

“This isn’t an issue where Yahoo!’s going into bankruptcy. Yahoo! isn’t in the General Motors situation,” Taylor said. But that doesn’t mean Yahoo! doesn’t face dire straights, he added.

“When you adjust for inflation, the company’s actually contracting in size.”

Yahoo! is responding to its troubles, in part, by cutting 10 percent of its workforce — arguably an elite brain trust — by Dec. 31. Deal said he expects such reductions to come in the short term as Yahoo! devises a long-term restructuring plan.

Over the next few months, Yahoo! has to streamline what Taylor called its “disjointed” approach. The way a user experiences Yahoo! on the Web is different from how he or she experiences Yahoo! on a mobile device, he said. It would be better if Yahoo! chose whether to be a technology or media business, then consolidated platforms to provide “cumulative sums of the whole.”

Yahoo! further needs to own the mobile Internet space from a content perspective, said Deal.

Above all, Yahoo! execs “should stop doing what they’ve been doing,” said Taylor.

“The time has come for Yahoo! to grow up.”

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