Yahoo considers sale of shopping service Kelkoo, after bad performance

Yahoo said it is considering the sale of Kelkoo, its online shopping comparison service, only three-and-a-half years after it acquired the company for €475m ($672m).

The move, reported by the FT last night, comes as Yahoo is struggling to redefine its business strategy, and after evidence that Kelkoo hasn’t performed to expectations.

The Kelkoo purchase was another one of those “What were you thinking?” moments, when industry experts were widely perplexed at why Yahoo had paid so much for what many considered the king of spam, a second rate service that bought most of its traffic from other search engines such as Google.

The news comes a day after eBay, another Silicon Valley company, admitted that its Internet phone company Skype, has performed badly. Like Yahoo’s deal with Kelkoo, eBay’s purchase of Skype for $4.1 billion was another one of these deals made by a company desperate to show some sort of long-term growth strategy, but where the company failed to articulate how the acquisition would make it money. Apparently its time for companies to take their lumps, now that others are doing it.

Before the Yahoo purchase in 2004, Kelkoo was paying for ads on Google’s search engine — so that people searching for a refrigerator, for example, would see a Kelkoo ad for refrigerators beside Google’s search results, and click through to Kelkoo’s site. It was great at getting traffic, but its results were poor. People thought Yahoo had way overpaid.

Yahoo hasn’t disclosed revenue numbers for Kelkoo since the acquisition, but it hasn’t made much headway in Europe, where the Paris-based company was supposed to help Yahoo expand. In fact, it appears to have lost momentum against its rivals, such as Google. Google was the most visited internet site across most European countries in June, followed by Microsoft and then Yahoo, according to comScore, the traffic measurement company.

Yahoo tried to integrate Kelkoo’s offering with its other search marketing property, Overture, but the effort never went anywhere. Yahoo’s large base of advertising clients never saw any reason to use Kelkoo. Two big competitors have overshadowed it. Shopping.com has remained a front-runner in the U.S. And in Europe, a Swedish company named Pricerunner, bought by Valueclick, has won customers from Kelkoo. For example, Kelkoo had powered search for MSN in the UK, but Pricerunner stole that account.

The move also comes amid speculation that Yahoo has talked with Google about pulling out of the search engine game altogether and letting Google handle its search business.