Yahoo sinking deep: How to survive

Internet search and advertising giant Yahoo! has been a household name almost from its inception in March of 1995. During the dot-com bubble, Yahoo! shares sold at a record $118.75 a share. Thirteen years later, Stanford alumni and Yahoo! co-founder Jerry Yang has lost his position as the CEO, over a thousand employees have been laid off, and the company missed its opportunity for a great exit. In order to survive and restore its position in the market, Yahoo! must now undertake drastic measures and survival tactics.

Yahoo! has seen a deep corrosion of its core business over the past few years. To make matters worse, the boon in market share that Google has enjoyed seems to have been cut directly from Yahoo's market share. MSN/Live, Ask, and AOL have seen small gains or remained fixed for the most part.

To remain a profitable business, Yahoo! needs to refocus on the search market. The primary revenue generator for both Yahoo! and Google is search and its highly coveted advertising space. The search market, in other words, is the lifeblood of the company's business model. With its search market share dropping sharply, the company and its investors have every reason to be alarmed.

With Jerry Yang gone, the board of directors in upheaval, and employees demoralized after a round of layoffs, the company clearly lacks the bold leadership that it needs in this moment of crisis. Worse yet, the company seems to be everywhere at once, investing in a dizzying array of services that do little to enhance its search standing:

What does a search and advertising company need with Flickr, Yahoo! Greetings, Yahoo! Personals, Del.icio.us, Yahoo! Pets, Blo.gs, Upcoming.org, Yahoo! Music, Yahoo! 360, or Webjay?

These services have, thus far, offered little value to Yahoo!. The company has spent its time and resources maintaining services with a huge, financially unjustified overhead; all the while, its search market share continues to dwindle. In contrast, Google, realizing its product line was stretched too thin, has spent the past 2 years aggressively vertically integrating its various product offerings as features ported across its services. While Google has certainly expanded its horizon, advertising and search technology remain its unwavering focus.

Yahoo! needs to reassess its position and eliminate services that do not complement its core business, or increase value through growth, or add dollars to its bottom line. With the majority of its income coming from search advertising, it is difficult to see how many Yahoo! services justify the brand disambiguation it has created. Yahoo! needs to sell off its various products or vertically integrate them within its core business -- just as Google did.

Yahoo! needs to refocus on the search market. The digital dinosaur is simply not in the position to continue experimenting or investing in markets that it doesn't already have a significant command of. By spending time and money building a gamut of Web 2.0 services, Yahoo! is unnecessarily competing with hundreds of companies, when it should be competing with just two: Google and Microsoft. The company should let users build the content and focus instead on helping others effectively find it.

Should Yahoo! continue to lose market share in search, the company will be unable to continue its operations elsewhere. Shutting down or selling off ineffective segments of its operation, such as Yahoo! Music, would go a long way towards retaining profitability and reigniting the search effort. Such cuts would undoubtedly require significant staff reductions; unfortunately, though, with dwindling profits and a bad economy, Yahoo! simply cannot afford to continue operating like the bloated behemoth it is today.

To survive, Yahoo! must approach the problem tenaciously, with a willingness to slice off the fat. This degree of bold change will require bold leadership. Leadership is unfortunately a quality that Yahoo! appears to be lacking at the moment, and unless the company is able to streamline its operation, the future looks grim. This is not to say that Yahoo! is doomed. Apple found itself in much the same situation around 1997, only to see a resurgence under the leadership of the resurrected Steve Jobs. Yahoo! is in desperate need of fresh direction under a leader like Jobs if it is to win the battle against other giants. Yahoo! does not need a new religion. In fact, it needs to rediscover what it lost to ambition. It isn't too late yet, but Yahoo! needs to get off its butt and start fighting for its life.