No Henry, you need to get real about Yahoo. Here are the facts

For past year or so, there has been a bit of a lovefest around Yahoo (s YHOO), the rapidly aging former web star that has lost the attention and preeminence it enjoyed in the 1990s and early 2000s. The showers of praise, prompted in part by the appointment of Marissa Mayer as its chief executive officer and her ability to understand the modern web, have resulted in oodles of press for the company.
A year later, that buzz has helped the stock run up almost over 90 percent — something that has warmed the cockles of the cold, mean and brutal Wall Street crowd. It led the “activist” investor Dan Loeb to actively bail out of Yahoo stock and lock in hefty profits.
Marissa Mayer Ken Goldman Yahoo earnings call video
It has been a year that has kept the Yahoo press office very busy. And it has been a year full of non-critical looks at a company that has made news for giving iPhones to its employees, rapping remote workers on their knuckles and minor upgrades to once iconic products. Or as a cynic (like me) would say — it is like spraying Chanel No. 5 in a pigsty.
My recent appearance on Bloomberg TV in which I focused on the reality of Yahoo has led some — including Business Insider’s Henry Blodget, who benefits directly from the largess of Yahoo as a longtime shareholder and part time employee  — to ask me to lighten up.
The problem is that this is precisely the time when one needs to ask the tough questions of the company. Yahoo’s new CEO is a wonderful, intelligent and hard-working executive whose attention to detail and product feedback is a much welcome break for the beleaguered company’s workforce. Her Google-like management moves such as free food and quarterly reviews to weed out low performers are good steps. But these moves, inspiring as they might be, have not resulted in any real products and results.
And this is not about Marissa, who remains someone I admire deeply. It is about the company, its culture and its place on the modern web. It is about Yahoo loyalists and their inability to look beyond the esoteric and frankly worthless metric; the 700 million people who use Yahoo each month. That is a blivet full of 15 year old excrement.

11,700 employees, 1 year, 4 Relaunches

Yahoo apologists point to the face lifts given to Flickr, Yahoo Mail, Yahoo News and Yahoo Weather as achievements for a company that employs about 11,700 people. Of course, none of those people point to that fact that the number of people (in the U.S.) who use Yahoo Messenger has tumbled from over 12.5 million to just over 6 million (based on comScore data). Or that (U.S.) visitors to Yahoo Finance are stagnant at shade over 34 million — the same number they were in July 2012. Flickr had 25 million (U.S.) users in July 2012 according to comScore, a number that had declined to 21.5 million in July 2013.
Dismiss all that as nitpicking, but you can’t ignore the fact that according to research firm EMarketer “Yahoo’s share of global digital ad spending is set to decline from 3.37 percent to 3.1 percent this year.”
When I put that forecast against the somewhat ambiguous number of Yahoo topping the comScore rankings of most widely used websites I see that nothing really has changed. Yahoo’s Weather app uses data from a third party and it doesn’t matter how well it does — it can’t create enough views and thus create a meaningful revenue stream.
I am not the only non-believer. “We continue to believe that a turnaround of Yahoo’s consolidated operations is a long shot, even if Marissa Mayer has improved morale and sharpened Yahoo’s focus on product aesthetic, functionality and mobile apps,” wrote Jordan Rohan, who follows the company for brokerage, Stifel & Co., in a recent research note to his clients. Jordan is being generous.
Like I told Bloomberg’s Emily Chang, Yahoo’s product lineup sort of blows. There isn’t a single product they make that I want to use.
Yahoo, like most large web companies from the 1990s, gained mass scale because it arrived to the party first and moved fast enough to keep signing up more and more people. Of course, it helped that there wasn’t much competition, especially after the big bubble burst in 2001. Yahoo met the needs of a lot of newcomers to the internet by offering simple and easy-to-use products. Fast forward to today and we have a whole new generation of internet users who have grown up using a plethora of services. They understand what is good, what is average and what is simply terrible. Yahoo’s offerings for this new class of users aren’t that compelling enough to shift their attention to the company.
It is often easy to look at the web services from the perspective of the current/past generation of users and get blinded by the big numbers, but technology companies have to look forward and make sure they capture new classes of users. It is the challenge faced by every single consumer products company — brands and products age with their early adopters and eventually become worthless. As a knowledgeable man recently told me, “Yahoo is like the Fat Elvis” when all of us “want a new king of rock-n-roll.” Buying Tumblr is a good move, but again, it’s too soon to declare victory.

Mobile first? Actually no, mobile last

Looking forward, it is pretty clear the world isn’t about the web as we know it and instead it is all about the mobile. The good news is that Yahoo’s CEO knows that.
“I hope that at some point we are looking at a world where mobile is a majority of our revenue,” Mayer told BusinessWeek writer Brad Stone. The bad news is that Yahoo has done nothing to capitalize on that opportunity. It has launched some new apps but boy, are they struggling in the rankings.
Take for example the top free 50 iOS apps in the US iTunes App store — there is one Yahoo property in there, Tumblr, which cost the company a whopping $1 billion. Flickr, whose much ballyhooed rebirth inspired headlines across the globe, ranks a mere 39th in the “photos and videos” apps. BusinessWeek celebrated Yahoo’s focus on new products and design, but someone should look at Yahoo Mail — the font it uses is from the 1990s. (Yahoo Mail is ranked at 114 spot on the US iOS App Store.) On the US Google Play store, Yahoo Mail is ranked at #19, Tumblr at #81 and Yahoo Fantasy Sports League at #109.
Here is a tiny bit from Bloomberg’s piece about Yahoo.

Cahan’s division, called Mobile and Emerging Products, now exceeds 330 people and has its primary offices in New York, San Francisco, and Sunnyvale, Calif. Underscoring mobile’s importance, Mayer ordered the team’s work space in Sunnyvale renovated. Unlike the soporific purple and beige cubiclevilles that fill the rest of Yahoo’s dot-com-era headquarters, the mobile group has adjustable workstations that let employees sit or stand. There’s an exposed ceiling, whiteboards on every other wall, and big colorful posters that display giant iPhone screens.

330 people — you gotta be kidding me! There is one question that needs to be asked: what the hell are these people on Yahoo’s mobile team doing? What is the daily active user base for Yahoo, and its individual products. “We also launched our redesigned Yahoo! app for iOS and Android, complete with Summly integration. As a result of this launch, we saw 55% increase in daily active users and a 60% increase in time spent using the application.” Mayer said during the conference call, but how about some actual numbers?
And while Yahoo management talks about mobile from one side of its mouth, they are unable to resist the lurid lucre of web-based advertising. Perhaps that is why they are out celebrating the comScore top spot and looking at signing up Katie Couric to their web platform, just as she signed up Saturday Night Live (SNL) to the Yahoo platform.  As I see it, for about the 13th year, Yahoo continues to be schizophrenic, torn between its desire to be either a media entity or a technology company.

Rotten to the core

I can sit and talk about in this abstract terms, but the fact is that Yahoo’s core is getting completely hollowed out. According to one Wall Street analyst, search-based advertising accounts for about 75 percent of company’s operating profits, and yet no one seems to notice that Yahoo’s share of US search queries has declined from 20.3 percent in 2009 to 11.3 percent at the end of July 2013. In fact, every month is a new low.
Bing and BallmerBy selling its search crown jewels — search — to Microsoft, the company is more reliant on Microsoft for profits than most realize. And all that search-market share loss didn’t go to Google, but it has been sucked up by Microsoft’s Bing which now accounts for about 18 percent of the total US search queries, according to comScore.
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Things are worse on mobile — the company doesn’t even have a double digit share of the mobile search market. Mobile (unlike Yahoo on the web) search is driven almost entirely by ability to search inside the URL/search bar and most people end up using Google as a default option. Google owns Android and has done a good job of becoming an important part of iOS users’ habits as well. Google’s search is slowly and surely moving towards offering intelligent serendipity that can drive a new revenue stream from action-oriented advertising, the kind which makes sense on mobile platforms.
Yahoo Weather for iOSIn comparison, Yahoo is still dependent on the old school page-view driven advertising business model. And even here, Yahoo is facing a nightmare situation — thanks to technology in the form of programmatic buying. This type of buying is limiting the demand of premium advertising that Yahoo has been hawking.
Yahoo no longer enjoys the monopoly on the massive scale web advertising. That mantle has been taken over by Facebook, which, quite frankly, has figured out a way to create inventory of billions of page views at costs much lower than Yahoo. As a result it offers advertisers cheap display advertising but with ability to more effectively pick and choose attractive demographics. In other words, with better targeting and cheaper prices, why would a display advertiser look at Yahoo over Facebook?
Let’s just face it — there isn’t anything premium about Yahoo anymore. By the way, this isn’t just my theory — Yahoo blamed programmatic buying for the revenue shortfall in its most recent quarter (Q2 2013.) And this is a problem that isn’t going away, especially since Facebook, which throws up tens of billions of page views daily, has made making money its sole mission.

So why is Yahoo stock up?

“All of the stock bump is because of increase in the valuation of Alibaba,” Ben Schachter, analyst with Macquarie Securities pointed out. The positive press and improved image of the company because of Marissa has helped the stock. But as far as products are concerned, “we haven’t seen much.” He isn’t the only one who is in wait-and-see mode. Other analysts too say that there remain substantial challenges.
While it is easy to say that these things take time, one thing is clear: Yahoo doesn’t have time. It doesn’t have time to move at the speed of General Motors in the age of Tesla. It has to learn that when it comes to the only thing that matters in the world of consumer technology — attention — they are losing it to sexier, shinier and prettier things.
And forget the products — so far Yahoo has been unable to attract top quality talent to the company. Not one 20-something I have talked to in the past six months has wistfully talked about working for Yahoo. And even those who have joined Yahoo from Google are joining the company thanks to mega-million dollar contracts, not because they want to work there. When Yahoo becomes the desired job-spot for a fresh, new tech tinkerer — that will be the time I will lighten up on Yahoo.
And in the interim, I am going to focus all my writing on companies actually inventing the future. And if anyone from Yahoo management wants to come talk to me, I am all ears and they know where to find me — as long as they come with data that shows not only is its audience and daily engagement growing, but also its revenues, profits and appeal to a new generation of users.