Yahoo, the next eBay?

Yahoo reported last night, and Marissa Meyer gave a plausible and even convincing argument on how she plans to revive growth.  While most of the Wall Street analysts are understandably still cautious, I think it is time to bet on Mayer. 

Her task is similar to what John Donahoe faced at eBay, but is considerably more challenging: first she needs to stabilize the core business, just as eBay did, and next create a new growth area.  In Yahoo’s case, the growth cannot happen unless Yahoo ‘re-connects’ with users – giving them a reason to consider Yahoo as part of their daily activity, a reason for Yahoo to regain share of their minds.  In my focus group meetings several years ago, Yahoo consistently declined in users’ share of mind, while Google gained (and Microsoft never mattered).  How can that mind share be regained?  It’s not just by ‘going mobile’, though that is certain to excite investors.    Yahoo needs to create  a different offering that users want.   Google has the search and many other utilities; Facebook has the communication and entertainment platform; Yahoo needs to find what is missing, rather than trying to compete with the existing players.  

Two areas come to mind.  One is local.  No one has created a comprehensive and seamless platform for local connections,  that is,  finding, transacting with, and organizing all your local merchants, service providers, and helps.   Yelp is a good start, so is possibly a revised Groupon, beyond the daily deal biz.  Local connection is still in its infancy and needs a lot more technology, adoption, and integration.  Could an acquisition of say GRPN or YELP help Yahoo reach these goals? Quite possibly.

The second area is video.  There are numerous sites to find, rent, stream, and read about video content.  I see many start-ups trying to put an order to all this, but none has the clout and reach of Yahoo. Yahoo could even become a supplier with an acquisition of Netflix, which is pretty cheap these days at a mere $3.8 b, for a company that has over 25 m subscribers.

Yahoo’s core business, which Mayer needs to stabilize, are search, home page, as well as email, Y Finance, and Y Sports.  Yahoo mail is desperately in need of major tech upgrade and it could be used, similar to Gmail, as the gateway for various Yahoo services, including local and video.  Remember that email is still the most widely used application, and for good reason too – it’s effective, and easy to use and even Facebook couldn’t replace it.  Next, Mayer needs to undo the disastrous Microsoft deal that Carol Bartz signed.  Yahoo needs to focus on search and to continue to update it, even if it means a deal with Google.  Yahoo needs to let go of Microsoft, a company that just doesn’t get it.

So I am optimistic about Yahoo.  Mayer said all the right things yesterday and she seems smart enough to focus on the core problem: lack of connection with the users.

Disclosure:  I own Yahoo, Nteflix, and Groupon shares.

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