Yahoo! announced yesterday that its third-quarter profit had fallen sharply and that its growth had slowed, admitting that it had taken a hit in advertising revenues — particularly search advertising, which is on track for only 5% growth as opposed to 30% growth for search advertising in general. CEO Terry Semel admitted that Yahoo had felt the pinch from new methods of showing ads, particularly social networking sites like MySpace (for which Google has search advertising rights).
Semel pointed out that Yahoo was still doing just fine in social networking, owing to the success of photo-sharing site Flickr (20 million monthly users) and its user-to-user "Yahoo Answers" service (60 million monthly users) — yet the big social networking deal being sought by Yahoo this past summer was for Facebook. Though it is apparently still in the game, it apparently balked at the $1 billion pricetag. But as it pledges to make inroads in the emerging areas where its competitors are already staking their claims, this deal may be the one to move them forward or keep them back with the old-media dinosaurs. As Richard Siklos pointed out in this weekend's NYT, new media deals have thrived between web-based companies, like eBay's recent $2.6 billion acquisition of the Internet phone service Skype and the Google/YouTube deal (Siklos attributes this to traditional-media challenges of selling boards and shareholders on, say, a $1.65 billion investment in an 18 month old company with little revenue and even less profit. Funny, that).
It's no surprise really that Google would scoop up YouTube; beyond other already investing in broadband video, it's a forward-looking company that is more likely to "believe it's the future of television" (per Microsoft's Steve Ballmer) and see opportunity where traditional media companies see risk. On the other hand, Philippe Dauman, new Viacom CEO, seemed to balk at billion dollar price tags, saying "we need to create a process to identify these opportunities early" before prices start going into the billions (a la Rupert Murdoch did with MySpace, to Sumner Redstone's chagrin and Tom Freston's eventual peril). But Dauman — and possibly Yahoo — is forgetting that these companies may actually be worth the price. MySpace valuations are currently off the charts, which bodes well for Facebook. Of course, YouTube may not live up to the promise of MySpace (Semel calls the potential copyright issues "gnarly") — but then again, it's also the biggest video application on the web, growing exponentially with effortless daily reach in the millions. Getting to that is the hard part — figuring out the rest will be what sets the new online leaders apart. Time will tell if Yahoo's out front with them.
— with Sven Hodges
