Deals

Poor Yahoo, here's a defense

Looking around the Internet, it’s hard to find arguments in favor of Yahoo handing its search technology to Microsoft. Mahalo founder Jason Calacanis calls the move “seppuku,” and the Guardian’s Charles Arthur said the gains for Yahoo are “invisible.” The stock market wasn’t too friendly to Yahoo, either.

So call me a fool, but I’d like to take a shot at defending Yahoo.

What sticks in my head is Yahoo’s dominance in the content market. Check out some recent coverage from GigaOM on what comScore says about the company: In June, Yahoo got more unique news traffic than both the New York Times online and CNN.com, it beat ESPN.com for sports and easily topped AOL Money & Finance. In May, Yahoo’s OMG! entertainment page bested AOL’s TMZ.com by more than double the traffic.

Then, there’s e-mail. Yahoo’s total unique visitors in this category exceeded 100 million last month — more than double the traffic of Hotmail and nearly triple the unique visitors to Gmail and AOL.

The blogosphere may guffaw at Yahoo’s abandonment of search, but maybe the company has a point about focusing more on its content portals. We all know display ads are in a rut right now, but that will change. And if Yahoo can innovate and figure out ways to make display ads more valuable to its clients, it’s already sitting on a goldmine of eyeballs. For a cash-starved company that, let’s face it, had very little chance of beating Google, dropping the dead weight of search isn’t a horrible idea.

Calacanis says Yahoo should have innovated and fought harder, just like in video games, where Microsoft’s interest indicated a strong market. Sure, Nintendo innovated and prospered, but that doesn’t mean everyone will find success. Consider how Sega abandoned consoles just before Microsoft entered with the Xbox. In hindsight, that was a good idea. Yahoo has been trying to make a better engine ever since it dropped Google Search in 2004, and still can’t win. Even if Yahoo could have done a better job, the point is that it failed, and it’s time to move on.

Certainly, there are pitfalls to the portal model. ZDNet’s Larry Dignan says the Microsoft deal makes Yahoo look eerily similar to AOL. That poses a problem, because Yahoo is no longer in control of its search mojo. But the agreement says Yahoo will still own “the user experience for search,” meaning it can continue to funnel traffic towards its content sites. And Yahoo never controlled the vast majority of Web searches anyway.

Besides, being a portal like AOL isn’t necessarily a bad thing, we just see it that way because AOL’s stock in trade used to be something else. Yahoo, on the other hand, was always a content filter. The site didn’t launch as a search engine, but as a place where people could find hand-picked links to the Web’s best offerings. As the founder of Mahalo, Calacanis should certainly understand the value in that.

Having said all this, even I’m skeptical that Yahoo can pull it off. The site still needs people to come through and search, but it also needs to strengthen its identity and innovate as a content provider while working to make display ads more lucrative. Only when Yahoo fails both of these things can the company turn the blade on itself.