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In all the discussion about Microsoft's potential acquisition of Yahoo, one of the most interesting questions is one that I think is being overlooked: Just what is Yahoo?

Is it a technology company or is it a media company?

There has been an assumption that Microsoft sees Yahoo as a way to gain a stronger foothold in the online advertising business, which is currently dominated by Big G.

Yahoo, although it has lost considerable market share to Google over the years, is still seen by some as one of its most viable contenders if it can get its act together.

Bill Gates is publicly justifying Microsoft's interest in acquiring Yahoo based upon the engineering talent it has.

While he calls Yahoo's audience and advertising business "good," he says:

"We'd put the people and the engineering as the key thing".

He even goes so far as to state:

"If Yahoo had gone the direction of just being a media company and not said that software innovation was important to them then no, there wouldn't be that intersection because we're about breakthrough software."

I find this interesting in light of the comments made by Wenda Millard who previously ran sales at Yahoo before being hired by her current employer, Martha Stewart Living.

Millard stated at the recent DeSilva+Phillips media conference:

"Yahoo lost sight of who they are and who their customers are. Yahoo's perception is that their only competitor is Google. But 95% of their revenue comes from advertising -- so their competitors are really the broadcast TV networks. They think they're in the search game, when they should really be in the brand advertising game."

She voiced opposition to Microsoft's potential acquisition:

"It reduces choice for advertisers. There would be two Goliaths, down from three. Advertising is a business that is both art and science. The merger focuses unduly on science. With Google-Doubleclick, and Yahoo-Microsoft, it is as if the scientific community is taking over advertising. And advertising is not about science."

Clearly, there is a real debate to be had here because a company's perception of who it is, what market it belongs to and who it competes against should dictate how it is run.

In the case of Yahoo, it could be argued that the company hasn't really been asking itself these questions over the past several years.

Founded by Stanford engineering students Jerry Yang and David Filo, its original culture was distinctly that of a Silicon Valley technology company.

Even though its evolution into a portal occurred in the run up to Bubble 1.0, it to this day maintains a workforce that is more Silicon Valley than it is Los Angeles or New York.

It could be argued that when Warner Brothers veteran Terry Semel was brought in to run Yahoo in 2001, there was a mismatch between the company's technology-oriented culture and the CEO's media-oriented perspective despite the fact that, upon being hired, Semel stated:

"Yahoo is also a media company. The cultures of the internet and media are not that different.

Clearly, Yahoo and its shareholders have learned the hard way that stating you are a media company does not mean that you are effectively positioned and operating like a media company.

When I ask myself "should Yahoo try to be a technology company or should it try to be a media company?", I find it difficult to settle upon an answer.

I actually believe that there is no right or wrong answer to this question. In other words, both are viable.

The engineering talent Bill Gates covets could still potentially be leveraged to restore Yahoo's prowess as a technology company assuming that top engineers can be convinced to stick around.

It won't be easy and there are no guarantees, but with the right direction, proper management and a little bit of luck, I would not count Yahoo out.

On the other hand, there's no doubt that Yahoo has the basis to be a solid media company and could very well contend with the television networks for a bigger piece of the advertising pie, as suggested by Wenda Millard.

Yahoo's properties in the news, entertainment, finance and sports markets, for example, are very strong and because of the internal conflicts and dichotomies that I think plague the company, I don't doubt that these could be leveraged much more effectively if Yahoo decided to operate fully as a media business.

Getting to that point, however, might be extremely painful and would probably require significant organisational changes.

At the end of the day, Yahoo is the perfect example of a company struggling with an identity crisis.

Its success in the future probably depends far less on who it decides to become than on simply making that decision.

I'd be interested in hearing your answer to the question:

"If you were Yahoo, what would you want to be when you grow up?"

Drama 2.0

Published 21 February, 2008 by Drama 2.0

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