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Even Google is struggling to generate sparks in this economy. So no one was expecting fireworks as Yahoo reported its latest results on Tuesday. But its weaker-than-expected outlook for the next quarter helps confirm what most investors already know: after years of slugging it out in a technologically-disadvantaged battle with Google, Yahoo’s best hope is to ease back on trying to overcome its Silicon Valley rival’s dominance in search and to focus on its core strengths as a media company.
Intensifying talks about a deal with Microsoft, together with Tuesday’s accelerated launch of a re-designed Yahoo homepage, suggest that message has registered with Carol Bartz, chief executive. Ms Bartz is quick to point out that Yahoo remains the world’s most visited online property. It has the world’s leading e-mail service, with a two-thirds market share. Its popular news, sports and entertainment pages – and the data it collects on those who visit them – continue to attract the world’s biggest brands.
Expanding this audience is Yahoo’s best hope of holding on to the 20 per cent share of the search market it still has. And improved technologies for behavioural targeting should eventually boost margins on display ads.
Making a portal strategy work in an increasingly decentralised online world looks challenging enough. But Ms Bartz must also guard against Yahoo falling behind in yet another technology arms race. Yahoo’s popular e-mail service is one reason many web surfers make Yahoo their first stop of the day. If messages exchanged across fast-growing social networks such as Facebook come to be a susbstitute for e-mail in day-to-day communication, that crucial advantage risks being eroded. Yahoo’s decision to embed access to Facebook into its newly designed home page goes some way towards addressing the threat. To avoid being pipped again, Yahoo needs to do more, and faster.