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July 21, 2010

Yahoo struggling with low profits

TECHNOLOGY - Yahoo! Inc. has been playing second fiddle for years now, ever since Google became the hot profitable company.

The problem with Yahoo! is that they haven't really done anything new and exciting for many years now.

They bought Flickr in 2005 and they bought Geocities in 1999 (and cannibalized that website without realizing its true potential since it was a precursor to sites like MySpace and Facebook). Otherwise Yahoo! is so old now its become stale and boring.

Its one of those companies which have now become focused on "trimming costs" in an effort to keep their profit margins slightly higher.

What they should be doing is investing in their ability to make new things, like games and other items. They have been passing opportunities to reinvent themselves and create something new and profitable.

CEO Carol Bartz, who was hired 18 months ago to lead the company out the financial funk it is in. Yahoo!'s global profits from 2009 did total $1.13 billion USD, which is comparable to Google's profits of $6.52 billion USD... and yet Google's stock is valued at 8 times that of Yahoo! Inc.

Microsoft tried to buy out Yahoo! Inc. in 2008 for $49.5 billion USD, but was turned down. At the time they were bidding $31 per share, which is more than twice what Yahoo! stocks are currently worth. And frankly what is the point of investing in an old company that isn't making anything new? Their infrastructure is old and they're not trying to compete and create something new and exciting.

The only going for Yahoo! is its brand name, the fact its been around since 1995 and has a huge network of websites, and the fact it is more popular on a global scale than Google (which is more focused on English-speaking countries).

CEO Carol Bartz would be wiser to expand Yahoo!'s game division, create a popular gaming/social website (or acquire one and make it better). History has shown Yahoo! past acquistion tactics have been to cannibalize other sites, instead of just letting them stand on their own and improving them. Yahoo! needs to change their tactics by making things better. Buying and devouring smaller companies isn't profitable.

And last but not least Yahoo! needs to fix their advertising program. This business of only showing ads to Americans when they operate a global network is like shooting yourself in the foot.

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