This is the beginning of Year Two for Yahoo (NASDAQ: YHOO ) CEO Carol Bartz,
and for investors, its hopefully the year the onetime most valuable Web
businesses in the world stops recovering and begins growing again. Following a
quarterly earnings report that offered up a disappointing first-quarter revenue
forecast, the conference call focus was on the positive from both Bartz and
finance chief Tim Morse, who said revenue should return to year-on-year growth
come the back half of 2011. It certainly seems like that may happen. Yahoos
display advertising sales were up 16% offsetting a 18% plunge in search revenue
meaning that part of the business is, if not healthy, surviving. Yahoo clearly
is clearly still ill, which wasnt lost on investors, who pushed the stock 3%
lower on Wednesday to levels not seen for three months. On Tuesday, the company
said it had laid off 1% of its 14,000-strong staff, which came after
mid-December layoffs of nearly 700 employees. Yahoo needs a whole lot more than
a 16% increase in display ad sales to recover its ailing advertising business as
a whole. It still only controls a 16% market share of an advertising business
owned by Google (NASDAQ: GOOG ), and beating out AOL (NYSE: AOL ) doesnt count
as a win. How can Yahoo! turn it all around? How can Yahoo return to profit
growth that doesnt rely on firing people? How does it rehabilitate whats seen as
an archaic brand? Bartz sang the same tune during the earnings call she has
since she took over the company Yahoo! needs a unified purpose. Rather than
buzzwords, here are three specific ways Yahoo could recover that purpose in
2011. Buy or Partner With Groupon While Yahoo spent most of 2010 flailing about,
starting a number of different social networking initiatives from integrating
Facebook and Twitter tools into Yahoo.com to starting up a new Web portal with
Starbucks (NASDAQ: SBUX ), its most promising plan fell through. The company was
reportedly in a long bidding war with Google to acquire the online daily deals
business Groupon. Yahoos bidding reportedly peaked at $3 billion, while Google
went up to $6 billion by December. Groupon turned down both and went on to raise
$1 billion in private investment in December alone. Even though Yahoo was
rebuffed, it should either try to find the capital to make Groupon an offer it
cant refuse, or propose a partnership. Groupons Web coupon business is on the
verge of a boom, and with Google moving to build its own service, teaming with
an established success like Groupon would be a boon to Yahoo, strengthening its
identity as an online service business and its display ad sales. Buy AOL One way
Yahoo could improve its chances for growth would be to eliminate the competitor
with which its been fighting for scraps during the past five years. AOL and
Yahoo have been plagued by the same problems since Googles astronomical rise in
the middle of last decade. They are both businesses mired by identities and
service strategies stuck in the late 1990s, with suites of Web services like
email and content pages like sports and games that are simply outdone by
competitors. A merger or buyout would improve both companies chances of staving
off Google and Facebook in the display advertising business, while hopefully
allowing them to consolidate and refocus their mutual services. Sell the Search
Tools Its time to give up the search-engine ghost. Its technology is outdated,
and is seen by the public as a nostalgia piece more than a functional tool.
Yahoo could get itself a nice influx of capital if it finally sold off its
search tools entirely to Microsoft (NASDAQ: MSFT ) the logical evolution of the
deal the two kicked off in 2009 to license Yahoos search tools for the Bing
service. Under that deal, Yahoo took over sales duties for Microsofts
advertising business. If Microsoft took over Yahoos search tools from them, it
could sweeten the deal by handing over its weak advertising business and give
Yahoo a bump in display advertising market share. At the time of publication,
Anthony John Agnello did not own a position in any of the stocks named here.
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