Yahoo Earnings: Competition Is Print, Not TV, And That's The Problem

By now, anyone following Yahoo (YHOO) and its latest earnings announcement has likely heard the quote from CEO Carol Bartz: "Frankly, our competition is television." The context was discussing the company's display ad business, but both on that level and in a larger context, it's a wrong-headed sentiment that explains much about how the company is doing.

Conceptually, Yahoo is an online take of a print magazine. Not to dismiss the approach, as the company does it reasonably well, but that's the true comparison. I mean, display ads? How much more like a newspaper or magazine can you get?

Actually, I'm a bit off. A more exact comparison would be a print directory. Yahoo is a company that started, according to its own description, as an attempt by two Stanford EE doctoral candidates to track their own interests on the web:

The two founders of Yahoo!, David Filo and Jerry Yang, Ph.D. candidates in Electrical Engineering at Stanford University, started their guide in a campus trailer in February 1994 as a way to keep track of their personal interests on the Internet. Before long they were spending more time on their home-brewed lists of favorite links than on their doctoral dissertations. Eventually, Jerry and David's lists became too long and unwieldy, and they broke them out into categories. When the categories became too full, they developed subcategories ... and the core concept behind Yahoo! was born.

Bartz and company want to get excited about a ten percent quarter-over-quarter revenue growth. How do I put this nicely? Uh, it was the quarter encompassing the busiest shopping time of the year, so, yeah, big surprise, ad spending was up over the previous quarter, which was during late summer. Who'd have thought it? Revenue was still down from the same time in 2008, when full financial panic was in vogue and people hit the brakes in spending.

So much for nice. So much for "growth."

Yahoo is like trying to be cool by wearing a pair of Doc Martins. The company puts on a front, but is too thoroughly rooted in what has been, not what will be. Perhaps a more apt comparison would be the aging beauty who still insists on wearing skirts so short that only a leggy teenager can handle them. No matter how it wants to convince people that it's a vital and even hip part of the future of the Internet, Yahoo is mired in the past. It's not a good sign when company representatives want to discuss sequential growth, and all they can offer is the observation that they're losing revenue at a slower pace than the previous quarter. "Less loss" is this season's black ink.

Yahoo says that it wants to create content because, after all, that's what brings people online. That is why it hired Ben Silverman from Hollywood. But what content? Video, which people more typically look to find on YouTube or Hulu? News that you can find at the New York Times or even Google? What then, poetry? There is content a'plenty on the Internet, and places where people expect to find it. Remember that piece of instigating DNA: the core concept is being a directory. It's awfully late in the game to suddenly want to become a content provider.

To date, Bartz has tried rebranding to get people inside the company and out to believe. What the company needs is not belief and not another exercise in CEO ego (as building fancy new digs seemed to be), but action -- or acceptance that it is past its prime in serving a niche.

If Bartz really wants to change Yahoo, then she needs to find something that people want but aren't getting in the way they want it, and that, in turn, must fit into the sense of what Yahoo is and could become. It's not something that turns up from sequential "growth" or though declaring that your real competition is a medium that itself is in danger from the Internet.

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