Despite investor pressure and a gloomy outlook, it is not too late for Yahoo to engineer a turn-around. But the new Yahoo needs to be a much slimmer and more focussed company.
This is the analysis from Daniel Knapp, director of advertising research at IHS Technology, who states that Yahoo must realise that its main user base today is not the cutting-edge, ever-connected millennial, but that it makes 77% of its revenue from desktop users.
Although CEO Marissa Mayer has been on an acquisition spree to build Yahoo’s future, he points out that these acquisitions have now been entirely written off by investors.
Yahoo remains a desktop company in a mobile age. Media consumption is rapidly shifting to mobile platforms, and companies like Twitter and Facebook today generate the majority of their revenue from mobile. However, Yahoo still makes 77% of its revenue from desktop users. We do not see a clear strategy at Yahoo to change this. Yahoo has not adjusted staffing levels to its increasingly marginal role in the online economy. Yahoo has 12,000 employees and reported $4,9-billion in revenue. Facebook has 11 000 staff, but makes $15-billion in revenue. Yahoo’s announcement to cut 15% of its workforce is a first step to address this.
What the dial-up Internet business was to AOL, desktop users are to Yahoo. It’s is not a glamourous business, but a solid backbone in the absence of a mobile strategy that it needs to monetise for as long and focussed as possible. Yahoo must realise that its main user base today is not the cutting-edge, ever-connected millennial.
Marissa Mayer has been on an acquisition spree to build Yahoo’s future, but these acquisitions have now been entirely written off by investors. Famously, she bought social media firm Tumblr for $1,1-billion, but its revenues are stalling as Yahoo has not invested enough in the platform. Yahoo has made acquisitions in all important future growth arenas, such as social, mobile and video. While this looks good on paper, under Mayer, the company took a scattergun approach to buying its future, and there is no evidence of new products or synergies coming out of these acquisitions. They have not been properly operationally integrated and do not share an overarching vision.
Despite investor pressure and a gloomy outlook, we believe it is not too late for Yahoo to engineer a turn-around. But the new Yahoo needs to be a much slimmer and more focussed company. There is potential in its role in advertising technology. Yahoo has world-leading technology and skills in this area. Consolidating its advertising and analytics capabilities and building a third-party ad network could make Yahoo a compelling alternative for advertisers who do not want to be locked into Google and Facebook ecosystems.
