Maturity

I was talking to my friend Mark about Yahoo! recently and he said something like "as long as they maintain their audience, I think they'll be in good shape".

The same point was made by Randy Befumo of Legg Mason, in today's New York Times in the piece about Yahoo! being a "value stock":

“If you have a traffic problem, then you have a fundamental business problem because you have nothing to convert into revenue dollars,” he said. “But if you have a monetization problem, which is what Yahoo effectively has, you always have options.”

So I went and ran some charts on Comscore. Here they are.

What these two charts show is that the top 10 properties (US and non US) are fairly mature with the exception of Wikipedia and Fox/Myspace. If you include a few more properties, you get this chart:

When you look at Yahoo! and many other properties on this list, you see that they are mature properties, even on a global basis and their audiences are growing in the single digits.

While the Internet may be far from mature, many of the leading businesses on the Internet are starting to be.

You can see this even more dramatically in the worldwide page view numbers below:

Yahoo!'s worldwide page views are flat, Microsoft's are in decline, as are eBay's and Time Warner's (AOL's). Only Google and MySpace grew last year.

Now some of this may be a move to ajax and other more interactive web page technologies that dampen page views. But I think its more likely the deportalization of the Internet and the move of audiences to other places where they get more value.

So I go back to Mark's post that I linked to at the top of this post. Mark says:

what i care about is that they deliver a high quality, targeted audience to major advertisers. if they lose share to myspace and google, it still doesnt matter because the overall market is growing rapidly and will bring them with it.

I am not sure that last sentence is accurate. The market Yahoo! and everyone plays in is maturing. Market share matters now. And Yahoo! is losing share to Google and MySpace and more importantly, the rest of the Internet (the long tail). That's what I think.

Comments

[Mayo]

And they will decline even more!

The fact is to be highly competing you have to introduce new technology every day like Google does, or other "new" companies do "web2.0".

Yahoo is still doing well for being a dinosaur. But i think ice age will come for them sooner or later if they don't take the leading edge in tech.

[Giordano]

One thing you should look for is the user growth in second and third world countries. Naturally you will not see much growth from US and Europe in the coming years, but you'll see millions of Chinese, Indian, Africans, Brazilians etc going online. From what I've seen by living and travelling in several of those countries, Yahoo until now got "local" better than Google.

Other important thing: much of this growth will not be done on a PC, and therefore tracked by Comscore et al, but on mobile phones.

Yahoo mobile efforts, while not yet good enough and not yet monetized, are surely better than Google's ones, which until now have been tentative as best. And Yahoo is buying some smart company in the mobile space.

So, maybe, the balance of power may shift while the focus shifts from web to mobile. Or maybe Google will catch up there too, and do better than Yahoo.

But this is unlikely right now, since most mobile operators are diffident of Google, and sometimes refusing to work with them... they would need to adapt to a different landscape, where they dont call the shots.

Naturally, an observer looking only at the US landscape its unlikely to notice this, but with 2.5 billions mobile phone users worldwide as of October 2006, this is were much of the growth will come from.

Cheers,
Giordano

[howard lindzon]

Mark's thesis has a fatal flaw with respect to buying down or averaging down.

The one time you are wrong, you get a loss that is hard to make back.

His style or momentum only work over time as long as you have strict sell disciplines.

better and easier to buy Yahoo higher when/is the outlook is better.

[Mayo]

Non sono cosi certo Giordano!

Look at the T-Mobile BlackBerry deal with Google, 3 mobile network in UK and rest of EU i think they are big also in Italy -- also Google integration. And what does Yahoo run i.e. fork money to -- Google search engine....

Maybe that Google will also spread too much peanut butter over their bread loaf, but because its run by mostly by nerds(god forbid that they loose them - in this case say: Bye Bye Google - all AI is made by Ph.D's and not by management!!) it will thrive forward against Yahoo who it seems are by the VP's letter real Yahoo's! :)

[Maddux Sports Blog]

Only time will tell, but it seems like Yahoo has been on a slow decline and isn't doing well to keep up with Google.

[Gio: rdano]

@Mayo: for sure, Google has chances to play a big role in the mobile space, and the deals you mentioned are in place, but in talking everyday with mobile operators from all around the world, the recurring theme is that they are more diffident than eager to get Google onboard. Some think that the Google brand could obscure their brand, some complain that Google doesn't want to bend to their rules (something that everyone still has to do in the mobile space)etc... some told me that they would consider blocking traffic to Google on their networks if they couldnt agree on a suitable biz model (meaning, one where operators get the larger share of the pie).

And, I was mostly talking about Brazil, China, India and other markets that will soon account for more than half of the subscribers' numbers... in those markets, I see Yahoo more willing to adapt and play by local rules, while Google comes in and wants everyone to accept their vision. That could backfire in the long run.

[Steve]

fred, couldnt agree more

one thing you didnt cover -- has the internet ad *model* come into maturity?

i read a lot of blogging these days saying, yeah sure the web isn't new
anymore, and yeah sure myspace and youtube and the like cant seem to figure
out how to monetize traffic -- but the internet *ad model* is still brand new
and still being born, and new and amazing ad formats and models will arrive
soon that will unlock a huge new revenue gusher/marketplace for previously
seemingly un-monetizable page views and internet inventory

fred, do you agree?

i used to think so, but lately i am feeling more and more that it doesnt
matter about the tools and cool technology -- unsellable ad inventory is just unsellable. people's personal home pages and homemade videos may be cool --
and may even change the world -- but they can't and wont change the basic fact
that no advertisers want their messages to appear or be linked with unknown
or un-controllable content

so this fact may be a major ceiling to yahoo (and everyone).

caveat of course that huge numbers of advertisers and ad dollars have still
never migrated to the web, which will fuel growth for some time to come...

[Mayo]

Giordano, i agree with you -- but is Yahoo also capable of bending to local market?? Or is it time for new players??

Steve, about advertising potential throttle -- well i think it's the long tail that will profit mostly i.e. pretty narrow niches, just look at Reddit -- no advertising -- but a special niche -- programmers and techies!! Now would you more gladly pay directly to the long tail niche player(you could aggregate all, lets say tech players, pick the best of them and streamline the ads just for them). Having one key that fits all holes OR having one hole that fits all keys is impossible!!
It's like programming, you cant have a good program or website by using template!!!
You have to spend time and effort to specially craft your code!!!!

That means -- HAND PICK YOUR MEDIA! Where are you usually hanging around on internet, are you clicking those ads personally ??? Would you use those ads as a user??

I mean why use a one and only one streamlined molding of your ads, spice it, get out something that is buried inside your product, not everyone is searching exactly the same thing....

Only good thing i think that exists on the internet is affiliate, but not exclusively -- just look how Ebaum's world made money -- 10MM/p.a. without AdSense and other nonsense... just direct selling - like here cash out 3K$ per month and use our site promotion FLAT RATE! if clicking goes up, viewers come in price changes UP OR DOWN accordingly -- FLAT RATE, now if YouTube would make such deals... no fuss-muss :) here is the price -- take it or leave it! Take in 50 to 100 big players, even 500, charge FLAT FEE.. and you got pretty much cash in your pocket every month -- with a HANDFUL of accountants, maybe even just ONE!! ;) Now every one of those big players: lets say 100x100K$ == 10MM$/per month!! Only tell me that 100K$ is too much, and that you can't find 100 players with that amount of cash.... i think in a 2 year's time we will spend 50K$ on bandwidth monthly...

[Lloyd Fassett]

I remember your post from about a year ago that basically started with 'I have started everyday with My Yahoo since the 90's, but...' http://avc.blogs.com/a_vc/2005/12/my_discovery_pa.html

I too experienced the same thing. I don't visit My Yahoo much anymore. I visit my aggregator. I think it brings up two points.

> With the explosion of social media, there's a lot more interesting stuff available because of the explosion of the concept of channels. Your other general theme of the limitations of attention are kicking in for some people.

> Yahoo keeps revisiting media execs like they were owned by NBC. I don't think they'll lead users into new business models. I get the feeling they won't cannibalize current business models, and perhaps they shouldn't since that would wreck a publicly held stock.

> The 'some people' in the first point is interesting, because the top Consumer Package Goods are relatively stable - kind of like the charts in this post. Perhaps people will leave My Yahoo for new worlds, but perhaps that's just the vangard and outliers too? More importantly, how long will it take for mass adoption of new stuff like a flash desktop? My intuition is that Yahoo won't get it, but it will start getting bought out again and again as what powers the stock keeps drifting downward.

[dave mcclure]

fred, i'd interpret those graphs quite a bit differently. furthermore, they miss the point -- the real issue is monetization.

i'll make 3 points:

1) the graphs above indicate Yahoo is still #1 in both users & page views -- you'd never know that from all the carping & kvetching going on about Google search market share. search is certainly important, but page views & users count for a lot too. and while they may be losing ground to Google (& perhaps MySpace), they certainly aren't chopped liver anytime soon.

2) the real problem is that their monetization sucks, especially compare to google's monetization per page and/or per search. why is this important? because it means acquisitions cost more for Yahoo than they do for Google -- thus, google is always able to bid higher than Yahoo (& others) for the same property, given that their monetization works "better". same thing for partnerships. Google can always outbid anyone else for the same # users/page views.

3) IF, and this is a big if, Yahoo is able to get Panama out the door, and IF it works reasonably well, they should be able to improve on monetization. furthermore, and IF they can use point-of-transaction data (theirs & eBay's, due to recent partnership) to improve their costing / pricing mechanisms, they should be able to dramatically improve monetization by moving to more CPA-based costing. Google is trying to get there with both Analytics & Checkout, but they're not there yet. (and Checkout is currently sucking wind)

in summary: they don't have a traffic problem, they have a monetization problem.

contrary to Brad's memo, "lack of focus" isn't the problem... it's poor monetization.

if they had GOOD monetization, a strategy of diversity of content properties would actually be a GOOD thing... so he's off base at least on that point.

strategy for fixing Yahoo:
1) fix CPC-based monetization in the short-term, using Panama
2) implement CPA-based monetization in the long-term, using pricing & point-of-txn data from Y! Stores, eBay, and PayPal
3) step on the gas on acquisitions, and buy everything they can -- then monetize it using their own advertising engines.

got it. good.

[Dan Blank]

Once this groundswell of support rises for Yahoo! being the anti-Google, as Microsoft is the anti-Apple, is this an accurate reflection of the state of the large players online, or is everything being viewed through Google-glasses?

Great analysis, by the way, Fred. Also - you have some amazing commenters on your site.

[Mayo]

>3) step on the gas on acquisitions, and buy everything they can -- then monetize it using their own advertising engines.

Hmmm, i'm not so sure Yahoo is capable of picking good acquisitions ... they have Flickr, ... what for?? YahooIckr would be easily could be developed inside and marketed on Yahoo front page, like also YahooTube....
Ah, so much revenue lost for nothing.... :(

[Seamus McCauley]

it still doesnt matter because the overall market is growing rapidly and will bring them with it

I think this misleadingly oversimplifies the current state of digital media. There isn't one "overall market" to grow any more, if there ever was - different segments are growing at different rates. Too much of Yahoo!'s inventory is in areas that are likely to show longer-term inventory declines (especially email as teens desert it) and too little in areas with growth prospects (networking, video).

[Dave McClure]

>>not so sure Yahoo is capable of picking good acquisitions ... they have Flickr, ... what for??

mayo: umm... you're kidding right? Flickr has got to be one of the best [small] deals Yahoo has done recently. rumored cost around $30M for runaway growth post-acquisition?

check out the alexa stats:
http://www.alexa.com/data/details/traffic_details?q=flickr.com&url=flickr.com

as to whether they could / couldn't develop it internally -- same argument, how come Google Video lost to YouTube? how come Microsoft is still sucking wind on search & advertising, meanwhile Yahoo bought Overture and saved their own ass?

just cuz you *can* build technology doesn't mean it will become best in class.

[Steve]

Very interesting analysis.

But I'm not sure that I understand your graphs.

How can YouTube have growth in and outside the US of over 1000% each and have worldwide growth of less than 300%?

Am I reading that right?

Thanks.

[Gio: rdano]

Most of my observations are seconded by this GigaOm post:

http://gigaom.com/2006/11/20/google-mobile-search/