Those of you who’ve stuck with Searchblog through the thin years (er, that’d be now) and in the thicker ones (03-05), may recall my repeated suggestions to Yahoo and Microsoft that they gang up on Google by combining their search and search advertising assets. Others have suggested Yahoo simply cede the game to Google and go back to how things used to be: In other words, let Google serve search and contextual advertising results. Eric over at Barrons reports on the latest of these, an analyst at Bernstein. From Eric’s post:
Bernstein Research analyst Jeffrey Lindsay has some aggressive advice for Yahoo (YHOO) CEO Jerry Yang. He thinks the company’s current slow and incremental approach to fixing the business is actually a risky strategy; he says Yahoo’s large customer base “has been flat for some time and is starting to fray at the edges.” The danger is that moving slowly will allow Yahoo’s subscriber metrics to deteriorate, damaging the value of the business.
Lindsay’s advice: outsource search to Google, and cut staff by as much as 25%. He thinks the company could boost 2008 operating income by $565 million, and EPS by 24 cents, by outsourcing search; cutting a quarter of the staff could add another $658 million in operating income, and another 28 cents in EPS, he figures. He also contends Yahoo needs to restructure its display advertising business to boost growth to the industry average; if they can do that, he writes, the company can add another $376 million in revenue and 15 cents in EPS.
I’m not sure this is a good idea. AOL has not managed to build much on top of that strategy, at least in terms of growing profitability (it did for a while, but the trend is now not good). And Yahoo has a ton of sunk resource into its current strategy.
Instead of the typical Wall St. prescription above – cut costs, cede markets where you are a distant second – I’d say do the opposite: Declare war, rally the troops, and spend like hell to win. At least you’d go out fighting, and there’s a good chance you’d win.
I still think that kind of a war could be fought by combining the armies of Microsoft and Yahoo.