Thursday, October 12, 2006

Can Yahoo! be classified as a slowpoke? (Sorry, Hootan!)

A recent New York times article notes that Yahoo! may be losing speed and innovation relative to its competitors.

Yahoo! was interested only a few weeks ago in buying YouTube, but deals fell apart in the 11th hour, and Google swooped in and closed the deal quickly.

According to this article, this may be a sign that Yahoo!'s enormous size and scope may be preventing it from moving as fast as its competitors.

"Yahoo has lost the favor it enjoyed a year or two ago,” said David Cohen, a senior vice president of Universal McCann, a media buying agency of the Interpublic Group. He said his clients were reducing the share of their budgets they allocate to Yahoo in favor of newer sites, like MySpace, and sites developed by big media companies like Viacom.

“There are more players in town, and the others are closing the gap relative to the things Yahoo is good at,” Mr. Cohen said.

One of the main reasons that Yahoo has slowed down is due to the freezing of its text advertising business, which is being held hostage due to implementation of a new software system. The upgrade is more than a year late and the delay has sucked up the company’s engineering resources and prevented it from developing new advertising products. Yahoo’s system produces much less money from every page than Google, a handicap in bidding for advertising deals.

Moreover, Google has so much cash and market value that it can afford to take riskier acquisitions than Yahoo!

It will be interesting to see how the horserace between Google and Yahoo! plays out. On one hand, Google's cash-rich state and innovative platform make it look very attractive. HOwever, Yahoo still retains the most users on the web - and in a world of social networking, users are key. Hopefully Yahoo can use recent acquisiton of myspace to help build an innovation platform and move forward.

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