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Why Yahoo Must Buy Twitter

This commentary was written by Christopher Lochhead, a former technology executive who now works as a strategy advisor.

Carol Bartz took over a dejected Yahoo in January. Talk about entering
the lion's den. In her quest to restore the company to its former glory,
she has to overcome years of blunders, a bad economy, and the continued
beatings dealt out by Yahoo's dominant rival, Google. In this game of
corporate survivor, it's going to take all of Bartz's moxie-and then
some-gained during years as the successful CEO of software maker

On the surface, at least, it appears that she signed up for Mission
Impossible. Google has been body slamming Yahoo for years. It lays claim
both to a superior search technology and a stronger advertising business
model. As for Yahoo, well, think of Mickey Rourke's character in the
film, `The Wrestler': a one-time star with fading looks and dwindling
skills in search of one more win.

Then, last year Microsoft's Steve Ballmer came calling. Microsoft
offered to buy the company for $44 billion, a 62 percent premium over
Yahoo's share price at the time. Like a drunk who won't go to rehab,
Yahoo's board of directors said no. It was a bad bet. Today, Yahoo is
only worth about $20 billion.

But give Bartz, who came on board this winter,some credit for trying to improve the company's execution. She's not been afraid to make the tough decisions to reduce costs by laying people off and shedding dead weight. The company recently announced it would shut down GeoCities an early Facebook-like web site that Yahoo purchased during the Internet bubble. That's probably not going to be the end of it. Recent rumors have it that Yahoo plans to sell HotJobs(an online employment site that has consistently lagged as well as Yahoo Personals in an effort to get the company more focused on its core business.

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To be sure, Bartz has got a lot of work to do just to get Yahoo back into fighting trim. The company needs to improve search results and services like
email, news, weather and sports-all the while reducing costs and
improving results for advertisers. But that won't be all. Bartz also
needs to make bold moves to get Yahoo growing. Specifically she needs to
expand her focus on the future: social and mobile computing (the company
is No. 1 in mobile search, according to
a new report by Gomez, Inc. anddotMobi. That's a good start but Yahoo still lags behind when
it comes to the social revolution taking place on the Internet. To wit,
Facebook now claims 200 million users.

This is where Twitter comes in. Twitter has experienced mind-boggling
1,382% year-over-year user growth, according to Nielsen Online. It's not
just the geeks: Twitter has attracted the likes of Ashton Kutcher, P.
Diddy and CNN et al. to the service. In the process, Twitter's got both
Facebook and Google running scared.

A Yahoo/Twitter combination-I hereby dub it, "Yatter"-would allow Yahoo
to combine all of its email and messaging with Twitter into a modern,
social communication platform. If done well, it would be a very
compelling service where users could integrate all of their Web
communications in one place.

What's more, it would provide Yahoo with explosive new user growth, not
to mention, a "Who's Who" of celebrity users, and an opportunity to
cross-sell and up-sell Yahoo services to those tens of millions of
Twitter users. Even in a recession, advertisers are salivating like
starving dogs sniffing barbecue steak to get at all those tweets (the
messages & postings on Twitter). For advertisers, the ability to sell
ads around keyword searches and Tweets simultaneously could be

Buying Twitter would also rate as a savvy defensive move. If Google,
Microsoft, or Facebook got there first and snapped up Twitter, it would
leave Yahoo on the mat. Yahoo already missed out on buying MySpace and
YouTube. Microsoft was first to do an investment in Facebook and now
there are rumors that Apple might bid $700 million for Twitter. Yahoo
can ill-afford to let another new Web sensation slip through its hands.

Also, if the ultimate plan is to sell Yahoo to Microsoft, a Twitter deal
makes good sense. Who knows? With a few more quarters of clean-up, an
uptick in the economy, and a growing user-base fueled by Twitter,
Microsoft may yet be inclined to pay a significant premium (again) for
Yahoo. Given a second chance, Yahoo's new board hopefully will be sober
enough to do that deal.

By Christopher Lochhead

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