Stephen Logan

Has Yahoo Jumped the Shark? (Following AOL and Netscape)

16th Apr 2010 News, Industry News 7 minutes to read

15 years ago, three of the biggest Internet brands were Yahoo, AOL and Netscape; so where did it all go wrong?

Yahoo look like they are starting to tread a well-worn path into online oblivion. Throughout its turbulent history, the company’s stock (both literal and hypothetical) has climbed the highest heights and plunged the lowliest of depths. But has Yahoo finally jumped the shark?

The problem, as with so many other Internet companies, appears to have been precipitated by a merger. In the past, Microsoft’s numerous (hostile) takeover attempts were rebuffed, as were linkups with Ebay and Google; Yahoo seemed to be flying against the prevailing wind and succeeding. Then, last year, they finally agreed to a search merger with Microsoft’s Bing. Water skis on, shark circling.

Before I go any further though, I feel it might be a good idea to explain what ‘jumping the shark’ is. Well, essentially it is the moment at which a successful enterprise takes an unfortunate, and usually unstoppable, nosedive – often as the result of an improbable or desperate last roll of the dice. The phrase comes from a Happy Days episode when the Fonz, somewhat unsurprisingly, jumps over a shark tank, which marked the downturn in the show’s fortunes.

AOL – A Lesson from History

Let’s go back in time to see where Yahoo, like so many others, could have gone wrong. First of all, there was AOL. In the 1990’s you couldn’t get a computer magazine without an AOL free trial CD attached. America Online were one of the foremost providers of dial-up services and used their market lead to build a strong online presence, to include email, search and various other elements. They saturated the market and reaped the benefits.

In 2001, AOL merged with Time Warner to create what was supposed to be the biggest multimedia company in the world. The super corporation had its fingers in many pies, including music, film, publishing, television and, of course, the Internet. AOL purchased Time Warner for a staggering $164 billion. It would never see a return on that investment.

AOL was always a subscription service. Whilst having free entities, they focussed on developing their membership products and increasing those who used their dial-up and broadband services. At their peak, in mid-2002, AOL had over 26 million subscribers in the US. By the middle of last year, that figure was just 5.8 million.

Decentralising Business and Google Dominance

AOL had decentralised. Google came along and took over search and telecoms companies slowly developed their own broadband services. AOL Time Warner simply couldn’t compete with the breadth of competition and the successes of individual rivals.

By the end of 2009, AOL was cast adrift of the Time Warner framework. It became an independent company once again. Whilst the stock has risen steadily since the split, it is still only 10% of what it was worth prior to the Time Warner merger.

The news got worse for AOL recently with the announcement that they were looking to offload the failing Bebo site. Again, Bebo is a social networking site that saw huge popularity dwindle in the face of a single popular adversary, Facebook (sound familiar). This might be a ruse by AOL to encourage interest, but in truth it is just another damaged oar on the sinking ship that is AOL.

Boom and Bust of Netscape

Netscape are another classic example. If you were using the Internet in 1996, you were probably doing so by way of the Netscape Navigator browser. With a 90% grip on the market, a future without Netscape seemed laughable in the latter part of the last century. Who’s laughing now? Falling to just a 1% share, Netscape Navigator was dissolved in 2008.

Who was it that bought Netscape in 1998 (at the peak of their powers), yep, you’ve guessed it, AOL.

So, back to Yahoo. The good ship Yahoo has been taking on water since it struck a Google shaped object back in the early part of the last decade. Like AOL, Yahoo made huge profits during the dotcom boom. Just 10 years ago, their shares were worth over $118 each (today they stand at $19). They had cornered search, email and news with their versatile homepage. Life was good.

However, over the next few years their dominance was slowly whittled away. MSN Messenger, Hotmail and Google search helped draw visitors away and the strength of the Yahoo brand was compromised. Somehow though, despite the slump in fortunes, the company has continued to maintain a strong presence.

Yahoo Away from Search

Much of Yahoo’s popularity today can be attributed to its services away from search. Their Mail still continues to be one of the most used platforms and Yahoo News have ensured that users spend more time on their site than they do on Google [see: Users Spending More Time on Yahoo than Google]. However, for a search engine, their main issues has been that they simply cannot compete with Google’s algorithm.

Ironically, it is the same decentralised model that has probably saved Yahoo all these years that has in turn lead to AOL’s downfall. Whilst news and mail online will always be popular, investments in social networking and other faddy procurements have undermined the status of both companies.

Challenging Dominant Specialist Services

Dominant, specialist services such as Google and Facebook have destroyed the old-style model that companies like Yahoo were based on. Yahoo got users in early, they got them to sign up for free email and read their news, over the years, this became force of habit to many. Rather than abandoning tried and trusted email, users flock back and take in the latest stories while they’re their.

AOL did the same of course. They got people to sign up for their Internet services, then provided them with email and search from their account page. However, as AOL are now finding, once those subscribers diminish, so too do your visitors. With slumping notoriety comes further retention issues and difficulties with attracting new customers.

By signing over the deeds to their search to Microsoft, Yahoo has surrendered its core business [see: European Courts Okay Yahoo and Bing Merger]. They are now a search engine that doesn’t do search anymore. If ever there was a potential jump the shark moment, this is it.

Are Microsoft the Benefactors?

Microsoft appears to have gotten the best part of the deal. Not only do they develop their own new Bing brand, they can also gain leverage off of an ailing giant that still attracts plenty of visits. They haven’t taken the gamble of buying Yahoo outright, but can benefit from their ad revenue. Whilst the gains might be minimised, so too are their risks.

In the meantime Yahoo just appears to be hitched on for the ride. Their search team will join forces with Microsoft’s to improve Bing, whilst the primary focus must surely be on developing the company’s other services.

The air of resignation surrounding the company is evidenced by the continual asset stripping that they are doing. Only a couple weeks ago we were reporting that they were shutting down the Yahoo Publisher Network [see: Yahoo Continue Cull with Yahoo Publishing Network Closure]. This is just one of many services that have fallen by the wayside.

Yahoo Bouncing Back

More positive news came when it was announced that Yahoo were tabling a bid to buy a stake in social media site, Foursquare [see: Yahoo Considers Buying Foursquare For ~$100 Million | Yahoo News]. This is an up and coming business with links to Facebook and Twitter. It could be the next big thing. Whilst Yahoo the company might benefit, Yahoo the brand almost certainly will not.

Market relevancy appears to be the determining factor in the demise of past greats. When Netscape were big, they were massive. But how many were bothered when they died just 12 years after the company’s pomp? Netscape stopped being a brand in the public consciousness, overtaken by Microsoft as the clear leader.

Outside of America, AOL is suffering the same fate; without search, Yahoo could well be next? It’s a slippery slope; sometimes you can gain traction, but regaining lost ground is often next to impossible.

The big challenge now for Yahoo is to prove their relevance. They survived (just about) the dotcom crash, now they need to show that they can survive this. Reinvention isn’t an easy thing to achieve, but for a long-term independent future – the like of which AOL is having to embark on now without Time Warner – they need to cling on to vital assets and develop new avenues away from their failed search engine.

Let’s turn this over to you now. What do you make of Yahoo’s situation? Can a search engine without search continue to thrive and develop, it does, after all, still have a decent revenue stream. Was the signed of the search partnership with Bing the moment they jumped the shark, was it earlier perhaps, or is it still as relevant today? Is it game over or the start of a new era?

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