Yahoo's strategy: Stay out of Microsoft's crosshair?

Yahoo's media focus likely to keep it quietly at forefront of the next generation of Web players, say experts at Wharton.

13 min read

Yahoo's strategy: Stay out of Microsoft's crosshair?

According to Dreze, "Yahoo is fighting to own as much as possible" in order to build a massive audience. "Yahoo is trying to be everything. Sure, Yahoo isn't in the line of fire, but it's also not great" in any one area. While offering a broad array of content, commerce and services, Dreze adds, the risk of Yahoo's strategy is that the company loses focus. "Everyone knows what Google does; it's a search engine. We know what Google is good at, but Yahoo is less clear. If Yahoo keeps trying to be all things to all people, it could become vulnerable." For instance, Yahoo trails Google in search. According to ComScore Networks, Google's share of the search market in October was 39 percent compared to Yahoo's 29.2 percent and MSN's 14.6 percent.

Whitehouse notes there's more to Yahoo than search, but that means the company will have a tough time defining itself. Nevertheless, there are numerous Web markets for Google, Microsoft and Yahoo to thrive in. In fact, it's possible that all three could build perfectly good businesses with minimal direct competition. As Werbach states, "Google and Microsoft are probably Yahoo's closest competitors in the sense of being similar companies. However, as a major Internet player with interests in several areas, Yahoo competes against almost everyone on some level. The Web isn't a zero-sum competitive environment, so it's not a simple matter of whether Yahoo or someone else will win."

The Web 2.0 war
Another battlefront where Yahoo is a relatively quiet player is the development of the next-generation of the World Wide Web, frequently dubbed "Web 2.0," a reference to attempts to build a Web-based computing platform with easy-to-create services that will replace what desktop software does today.

Whitehouse says future development of the Web largely depends on which company's application program interfaces (APIs) become the standard. APIs are a set of routines, protocols and tools for building software applications. "One reason Microsoft is so concerned about Google is the battle to control the APIs for future Web development," says Whitehouse. "If Google becomes the platform for Web 2.0 development, it would go to the core of Microsoft's historical advantage."

What's interesting about the API bake-off is that while Google gets most of the attention, other companies such as Amazon and Salesforce.com have made their APIs available in order to hasten the development of Web services. But Yahoo is also an emerging player, says Whitehouse.

While Yahoo seems to have its tentacles in dozens of markets, what may be emerging is a prototype for what a media company will look like in the future.

For example, Yahoo has been innovative with its use of Macromedia's Flash software for its mapping services and has acquired Flickr, a site that allows its users to tag and share photos across groups. "Yahoo is in a position to sew it all together into a comprehensive collection of services," says Whitehouse. "These moves could eventually put Yahoo in the forefront of online services."

However, neither Google nor Yahoo can dismiss Microsoft, says Huesman. "The rapid shift in direction to Web services is obvious to everyone, even Microsoft. Microsoft's task is to slow that migration down, if possible, until it can reposition its enormous resources to overwhelm or acquire the technology leaders."

The media company blueprint
While Yahoo seems to have its tentacles in dozens of markets, what may be emerging is a prototype for what a media company will look like in the future. For example, it might need to develop content, but also be well versed in software, services and commerce.

Wharton management professor Keith Weigelt notes that Yahoo has been positioning itself for the convergence of television and the Internet by building a search engine for video, forging partnerships with producers such as Mark Burnett, who created "The Apprentice" and "Survivor," and building facilities in Santa Monica, Calif., just outside Hollywood. "Yahoo has a good plan," he says.

Werbach adds that it's unclear what the media company of the future will resemble, but chances are the leaders will look more like Yahoo, Google and Microsoft than ABC, CBS and NBC. "As convergence progresses, the definition of a media company will become less clear," he predicts. "Yahoo, Google and Microsoft are all companies that aggregate lots of users, content, tools and applications."

The primary reason Yahoo may be a leader is the Internet's role in dismantling traditional media distribution. "The continued migration of Internet users from dial-up to broadband bodes extremely well for Yahoo's content oriented sites," said Clayton Moran, an analyst at the Stanford Group, in a November 16 report. "As opposed to Google, which is still essentially a search site and is known as such, Yahoo provides information and entertainment content, including interactive content. Yahoo is positioned to benefit from the proliferation of high speed Internet services like interactive gaming, streaming video, video and music downloads, and real-time media events."

This means that traditional media companies will see Yahoo as both a partner and competitor as it increasingly creates its own content and integrates media with information created by its users. Already the lines are blurring. On Yahoo's earnings conference call, Semel noted that the company is "still at the beginning of significant long-term opportunities" and highlighted the media group, which is "expanding its content initiatives and its integration with community features."

For instance, Semel noted that Yahoo has integrated professional news sources with "citizen journalism through the integration of blogs, Flickr photos and My Web Links." One of Yahoo's most interesting innovations has been to integrate RSS feeds (used for distributing content from blogs) with e-mail alerts. This means, for example, that a California resident who subscribes to a feed from the U.S. Geological Survey could be notified about an earthquake warning as soon as it is issued with an alert message zapped to a cell phone or PDA. Yahoo executives discussed this feature at length in a podcast hosted at podtech.net.

It's too early to tell how Yahoo's focus on the media business--and the development of the next generation of the Web--will ultimately pan out, but at this point, bets are that the company will be a leading player. As Whitehouse notes, "By focusing on being a media company and a content delivery platform, Yahoo may be able to stay out of Microsoft's crosshairs longer than some of its competitors. And history has shown that the consequences of tackling Microsoft head-on can be dire."

To read more articles like this one, visit Knowledge@Wharton.

All materials copyright © 2005 of the Wharton School of the University of Pennsylvania.

Interested in more research studies like these? If so, sign up for the Knowledge@Wharton Newsletter, a free service of the Wharton School of the University of Pennsylvania.