Don't stare so hard at Google you miss Yahoo!
The Internet powerhouse may be growing slower than Google now, but it's well positioned for long-term success as a central site on the burgeoning Web.
Yahoo! is no slouch on search. A recent French academic study found that the quality of Yahoo!'s search results was just about exactly as good as Google's. One big advantage Google has over Yahoo! at the moment is its AdSense network for placing ads on sites all over the Web, not just in search. But Yahoo! is close to rolling out its own ad network, now in beta.
Yahoo! is superbly on top of one of the Internet's most important trends -- the move toward social networking. Yahoo! recently purchased both Flickr and De.licio.us -- businesses that use social networking to improve our ability to find things -- photos with Flickr and useful Web sites with De.licio.us. Yahoo! has concluded that it can get an edge on Google, MSN, AOL and other rivals by leveraging the fantastic power of friends helping friends.
I think Yahoo! is onto something. People are always going to have better judgment than computers about what is relevant and interesting. The holy grail will be to effectively use social networking in search itself, something Yahoo! strategists are thinking hard about.
And let's not forget MyYahoo!. The customizable site is my own personal Web home page, and has been for eight or nine years. Most of the demographically-desirable tech industry execs and investors I know also use it as their home page.
Yahoo! has backed off somewhat from its efforts to develop lots of original content. But it may not need to. What Yahoo! has proven consistently adept at is identifying and gathering under its umbrella high-quality content from others.
The company's biggest problem is that while it has a number of good Web businesses, it is not number one in many of them. It is number two in Web e-mail, behind Microsoft, and number two in search, behind Google.
Its total Web traffic remains tops online, but it needs to clearly differentiate itself with an industry-leading business -- and soon. Building a community with social networking that enables it to improve search may be the secret.
Yahoo! CEO Terry Semel is almost universally regarded as one of the Internet's best leaders. He confounded many skeptics like me after he arrived from Hollywood. His moves to make Yahoo! a more advertiser-friendly environment have paid off in spades.
"I think Yahoo! is one of the best-managed companies in America," says Mike Volpi, who runs Cisco's routing and service provider technology group and who frequently deals with Yahoo!, a big customer.
Co-founder Jerry Yang is less visible than a few years ago, but he's now playing a big role behind the scenes helping sharpen Yahoo!'s underlying software. Yahoo! has a formidable tech arsenal, which I predict will be more apparent in the coming year.
Aside from simply becoming an even more appealing place for Web users to hang out and get their information and entertainment, Yahoo! wants to become more of a platform for other businesses to build on. That's what has made eBay (Research) so successful -- becoming a home and platform for retailers. If Yahoo! can build its ecosystem, it will develop more places to stick advertising, more revenues and a higher stock price.
I expect the day isn't far off when Yahoo! is seen as Google's true peer.
Correction: An earlier version of this column made an argument based on misleading figures for the price-to-earnings ratio for Yahoo! A more useful price-to-earnings ratio for Yahoo! is 53. The more commonly reported trailing P/E of 24 for Yahoo was distorted this past year by several special items, including the sale of a large chunk of Google stock. The 53 figure is adjusted for these items.