Yahoo! Inc.

Yahoo! chief Carol Bartz made an interesting point about Google in an interview with the BBC today:

“Google is going to have a problem because Google is only known for search,” said Ms Bartz. “It is only half our business; it’s 99.9% of their business. They’ve got to find other things to do.  Google has to grow a company the size of Yahoo every year to be interesting.”

People are going to focus on the bravado and positioning — after all Bartz needs to clearly define Yahoo’s value proposition in a market where the company is unfavorably compared with Google on an ongoing basis.

Search isn’t an infinitely expanding business opportunity. In fact, several dynamics at work suggest that the growth of search revenue will slow, limiting Google’s overall opportunity for growth. First, penetration of potential advertisers is higher today than it was two years ago for Google. And second, the shift of internet usage into social networks has incrementally changed the search behavior of web users.

Google’s media proposition is built on the back of search. That means that the audience that Google aggregates to the benefit of marketers — a basic definition of ad-supported media — relies to an outsized degree on search traffic.

Yahoo! has a more diverse media proposition. That’s the “half of our business” that Bart is referring to.

In this regard, Yahoo! is more like AOL than Google. Not surprisingly, AOL is facing its own challenges in terms of definition, value and opportunity.

The big issue here is that the largest diversified web media brands aren’t demonstrating the ability to grow revenues and hold on to consumers that suggest the franchises deserve premium growth valuations.

Yahoo! and AOL are predominantly content-driven media platforms that have created applications in order to enhance user engagement. That business model is an interactive evolution of the traditional media business model. In this regard, the companies are very different, and have very different challenges, from Google.

The primary challenge remains how to effectively keep content and applications fresh while managing a huge consumer audience, and how to make that base of content accessible and valuable to advertisers. The problem solving is discrete, because one approach doesn’t necessarily fit to every different content platform and user experience. (In this respect, the companies suffer in comparison to Google, which is incredibly simple to explain.)  An underlying question is whether focused media brands are more viable than diversified media brands.

When thinking about the strategic challenge of Yahoo! and AOL, I’d suggest that the most salient question is how these two platforms retain consumer interest and loyalty in an environment where Facebook is becoming a de facto operating internet operating system.

One of the Google searches that drives traffic to this site regularly is “Is Facebook the new AOL.”

The query could just as easily be, Is Facebook the new interactive media model? As an interactive media platform, Facebook is organizing and directing shared content, providing content publishing tools, generating scale audience with a high definition of individual interests and producing content within its own operating system seamlessly.

Facebook allows users to dictate what content is important and interesting.  That model is fundamentally different from the Yahoo!/AOL model.

Facebook can be an incredibly valuable tool for anyone trying to generate a business from content, and it could ultimately be a profound disintermediator for Yahoo! and AOL, which today look like legacy media brands on the web.

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