As Yahoo Struggles Can It “Bring Sexy Back”?

Yesterday Yahoo released Q3 revenues. While they generally met expectations, and operating income came in at the “high end” of Yahoo’s guidance, overall revenues and profit declined:

Revenue excluding traffic acquisition costs (“revenue ex-TAC”) was $1,072 million for the third quarter of 2011, a 5 percent decrease from the third quarter of 2010. Income from operations decreased 6 percent to $177 million in the third quarter of 2011, compared to $189 million in the third quarter of 2010. The year over year decreases were primarily due to the revenue share related to the Search Agreement with Microsoft.

Display ad revenue, Yahoo’s bread and butter, was also flat vs. a year ago.

On the search side, Yahoo again blamed Microsoft for some of the poor performance. However it also announced that the Microsoft “RPS” search revenue guarantee had been extended in North America through March of 2013. Financial analysts commented that this will make Yahoo more attractive to a prospective buyer. The company is currently shopping itself and there are a number of parties potentially interested.

Source: Mary Meeker/comScore

Yahoo’s lackluster financial performance for the past couple of years is a by-product of a number of factors including the economy and ongoing vision and leadership challenges. Through it all however the Yahoo brand has largely seemed to maintain its appeal among consumers and large advertisers. In the earnings press release Yahoo reminds us that it “is home to 10 number one properties globally and ranks among the top three in 21 categories worldwide.”

Yet the myriad internal reorganizations, the departure of numerous talented personnel and intensifying competition from Google and Facebook have taken a toll. Yahoo was once the leader and innovator in local and mobile — two now critical areas — but it ceded those leadership positions to Google. There are other examples, including of course search where it was once highly innovative and competitive and now largely sits on the sidelines.

The Yahoo brand, which has been one of the company’s chief assets, may be starting to suffer from the company’s drama and internal distractions, which have contributed to its inability to innovate at the level of its principal rivals.

While the brand’s strength is a function of myriad variables if the brand suffers Yahoo will likely see further deterioration in financial performance. As one example, if users abandon Yahoo Mail for GMail because Yahoo is no longer “cool” – just as users shed their AOL addresses in the past — Yahoo will see a decline of a major source of display ad impressions. Brand advertisers, interested in being associated with a “hipper” or more innovative source of impressions will shift some of their budget to Facebook. Google is also eating into Yahoo’s reputation and historical edge with display advertisers.

Once the brand loses its luster it becomes very hard to win users back. AOL is a great example. MySpace is an even more extreme case. While some companies have come back in the real world, IBM and Apple are prominent examples, there are almost no such examples of Internet companies that have fallen from grace and returned to their former glory.

Accordingly if Yahoo “loses it” it’s very unlikely that a private equity company or other strategic buyer will be able to “bring sexy back.”

Related Topics: Channel: Display | Features: Analysis | Yahoo: Business Issues | Yahoo: Display Ads

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About The Author: is a Contributing Editor at Search Engine Land. He writes a personal blog Screenwerk, about SoLoMo issues and connecting the dots between online and offline. He also posts at Internet2Go, which is focused on the mobile Internet. Follow him @gsterling.

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  • http://about.me/alexedlund Alex Edlund

    No Greg, I don’t think they can. It’s not that the company doesn’t still have an incredible amount of talent (although that is slowly being drained). I think they are doomed to fail because of the corporate culture they haven’t fostered. You can’t afford to make the kind of mistakes that they repeatedly have.

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