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Yahoo discovers itself eating Google's dust

By ASSOCIATED PRESS
Published October 11, 2006

SAN FRANCISCO - Google's lightning-quick acquisition of online video pioneer YouTube once again demonstrated the Internet search leader's penchant for pouncing on golden opportunities that leave its rivals scrambling to catch up.

Perhaps no Google competitor has fallen behind in recent months as much as Yahoo Inc., an Internet icon battling perceptions that it has lost its competitive edge, even as it continues to attract the largest audience on the Web.

Google's $1.65-billion deal to buy YouTube, announced Monday, is just the latest show of the company's muscle.

During the summer, Google of Mountain View, Calif., formed an advertising alliance with News Corp.'s MySpace.com, a social-networking site that is challenging Yahoo as the Internet's most viewed site. Just as important, Google has continued to widen its lead in the lucrative search market - the main reason investors think the company is worth $130-billion after just eight years in business.

Meanwhile, Yahoo delayed a highly anticipated improvement to its advertising network and missed analysts' third-quarter revenue targets. Those disappointments have contributed to a 38 percent decline in Yahoo's stock price so far this year, wiping out $22-billion in shareholder wealth.

Yahoo shares fell 56 cents Tuesday to close at $24.47 on the Nasdaq Stock Market, where Google Inc. shares declined $2.35 to finish at $426.65. In contrast to Yahoo, though, Google's stock price has edged up by 3 percent so far this year.

"It has been an amazing contrast," said Standard & Poor's analyst Scott Kessler. "Google seems to be out-executing and out-innovating Yahoo."

Contacted Tuesday, Yahoo declined to comment about Google's YouTube acquisition or its strategic response.

Yahoo chairman Terry Semel has repeatedly described the company as being well positioned to capitalize on the entertainment and advertising industries' continuing migration to the Internet. To be sure, Yahoo is making plenty of money - a $324-million profit on revenue of $3.1-billion through the first half of this year.

But Internet observers are convinced that Yahoo will have to do something dramatic to get Wall Street and Web surfers excited about the company again.

The conventional thinking is that Yahoo will step up its efforts to buy Facebook.com, the second-most-popular social-networking site behind MySpace.

Yahoo reportedly has been talking to Facebook of Palo Alto, Calif., for at least three months and has offered as much as $1-billion for the site. Those protracted negotiations have made Yahoo look somewhat indecisive, particularly since Google was able to close its deal with YouTube in one week.

"Yahoo really needs to get this deal done now," said Chris Winfield, who runs the search marketing firm 10e20. "They have to jump in there and make a splash."

If Yahoo is able to snap up Facebook, it will need to do a better job taking advantage of that service than it has with some of its other recent acquisitions, said Dmitry Shapiro, chief executive of Veoh Networks, another online video service.

Shapiro thinks Yahoo could have used Flickr, a photo-sharing pioneer bought last year, to build a thriving online video community before YouTube's popularity rocketed earlier this year. "That was a no-brainer and a giant missed opportunity on Yahoo's part," Shapiro said.

[Last modified October 10, 2006, 23:31:04]