Yahoo! and Microsoft: Kissing Cousins

Signing the prenup.

What business is Yahoo in? No-one seems to be sure, least of all Yahoo.

After Carol Bartz took the helm at Yahoo last January, she soon realised that she too had no clue what business she was in.

Yahoo publishes news, offers e-mail, streams video, advertises jobs, provides web hosting, hosts photos, operates a search engine and a finance portal, and does basically everything including the kitchen sink.

However, Yahoo is not the best at anything, and suffers terrible internal cross-subsidies.  It lacks strategic focus. It makes the bulk of its profits from displaying adverts to users of its sites, but vastly lags the more focused Google.

So Bartz followed the new CEO rulebook. She first moved the deck chairs around to seem busy and entrench her power. She then slashed the payroll. But cost cutting can only take you so far in the face of falling revenues. More was needed, so Yahoo revamped its home page. A deafening silence ensued.

So today, Yahoo announced that it will outsource its search advertising business to Microsoft. Yahoo saves the cost of running a search business, Microsoft gets search market share that brings it closer to Google and they split the revenue. The market was not impressed and the stock price fell by 12%. 

With all the obvious ploys exhausted, Mrs. Bartz must now face the harder task of streamlining Yahoo’s disparate businesses, excelling in something and growing revenues. The clock is slowly ticking.