Did you Yahoo! that?

The one-time star of the dot-com era tries to figure out what to be as it grows up
Angelina Chapin
SAN FRANCISCO, CA - DECEMBER 21: Workers use a crane to move a section of a Yahoo! billboard onto a truck on December 21, 2011 in San Francisco, California. Yahoo’s iconic retro-style billboard was taken down after 12 years of greeting visitors to San Francisco. The brightly colored billboard, reminiscent of a 1960’s era motel sign, was installed in 1999 next to Interstate 80 near downtown San Francisco. (Photo by Justin Sullivan/Getty Images)
Did you Yahoo! that?
Justin Sullivan/Getty Images

For Ted Mirsky, Yahoo! is a party trick. When his friends or co-workers are stumped by a question, the 27-year-old self-described “early adopter” from Ottawa often says: “Hold up, I’ll Yahoo! it,” and pulls out his phone. “Some people get it—and some people go, ‘Huh?! Don’t you use Google by now?’ ” says Mirsky. “It’s a go-to bit of mine.”

While not everyone would consider Yahoo! the butt of a joke—especially not the 700 million who use it worldwide each month to check their email or browse news headlines—Mirsky’s sarcastic gag hits on the company’s biggest problem: people don’t know what it does well. Google does search, Facebook does social networking, eBay does e-commerce. What about Yahoo!? Even former CEO Carol Bartz struggled with the question when hired in 2009. After talking to users worldwide she concluded it was people’s “home on the Internet,” a nebulous description that only confirmed the brand’s identity problem.

Surprisingly, the 18-year-old company still has a stubborn fan base that no doubt feels a mix of brand loyalty and resistance to change. Yahoo! is the No. 1 U.S. site by comScore in 10 content categories, with sports and finance the most popular. Its second-quarter earnings were announced in June and, despite a slide of 4.4 per cent from the year before, revenue is still $1.2 billion. The problem is the future—if the answer to Yahoo!’s identity crisis is that it’s a content company, it’s one that has not shown an ability to innovate. And without that, its continued prospects on the Internet look grim.

When Yahoo! was founded by two Stanford University students in 1995, it had a niche: categorizing websites before search algorithms were put to use, and for the next three years it expanded the database to include international sites and more content categories. In 2003 Yahoo! purchased the search company Inktomi and the ad platform Overture, which should have given it the technology to dominate the emerging world of web-search advertising. Instead, it focused on content—TV executive Lloyd Braun was tapped to run Yahoo! Media Group, and hired dozens of journalists, including former CNN war reporter Kevin Sites, who hosted a web-based series called The Hot Zone. Meanwhile, Google, founded in 1998, came up with an ad model that allowed companies to bid against one another for placement beside listings. Since then, Yahoo! has fallen further behind: experts say the company gave up on search in 2009 when it became powered by Microsoft’s Bing, since Bing retains all the valuable user data—a goldmine for online companies.

Despite failing to create any new services—Yahoo! Mail and Yahoo! Messenger are now dinosaurs—the company has survived on the old-media model of monetizing content with banner ads. Its core revenue, however, is increasingly threatened by companies that offer advertisers more: last year Facebook overtook Yahoo! as the No. 1 display ad seller. That’s because Google, Amazon, Facebook and Apple offer services that give them insight into user habits.“Yahoo! does not really have a relationship with readers,” says Jeff Jarvis, a U.S. expert on new media and author of Public Parts: How Sharing in the Digital Age Improves the Way We Work and Live. “It tries to serve them content and thinks that’s where the value is.” In a world where Twitter is a news source and a traditional media company like HBO streams its shows on mobile devices, being just a content provider doesn’t cut it.

Marissa Mayer, Yahoo!’s newest CEO, who formerly worked as an executive at Google, told the New York Times in July that asking whether Yahoo! is a tech or media company is the wrong question, and she’s right. If Mayer understands anything, it’s how to mine data to deliver services that better serve an audience. She spent her career overseeing projects such as the development of Gmail, Google Maps, and Google’s search engine, which gives Eric Jackson hope that despite being Yahoo!’s fourth CEO in the last five years, Mayer can make the company exciting again. Jackson, the founder of Ironfire Capital LLC, sold his Yahoo! shares in 2008 out of frustration: “I always thought, ‘If only they could get their act together to do something—anything—to take advantage of their traffic, they could be so much more valuable.’ ” Jackson predicts Mayer will develop Yahoo!’s search platform, create new products, and capitalize on old ones—such as its photo site, Flickr—which he thinks could compete with Facebook’s Instagram.

Yahoo!’s brand may have stagnated, but a revival looks promising. After a recent trip to China, where Jackson witnessed the enthusiasm around Alibaba Group—a Chinese tech company that Yahoo! plans to sell half of its shares in for a profit of $20 billion—he decided to reinvest a year and a half ago. After all, Yahoo! has access to capital, a large audience, and a new CEO who is as poised as anyone to figure out the tech world’s latest challenge: monetizing mobile device content. But it has to give users something to get excited about. Then, and only then, will Mirsky be forced to find a new party trick.