Recently Yahoo fired its CEO, Carol Bartz. Although the company’s stock price jumped 6% immediately following the announcement, the problems plaguing Yahoo go beyond the choice of chief executive. The biggest challenge facing Yahoo goes to the core of what the company is and what it wants to be: Yahoo has become irrelevant to their users.

Yahoo was once one of the biggest success stories on the Web. It was the earliest and most successful “web portals,” offering visitors a broad assortment of news and information on everything from personal finance to movie listings to stock quotes to job listings to sports. Millions of people used Yahoo e-mail addresses. Yahoo was once mentioned in the same breath as Google, Amazon and AOL as one of the top online companies.

The problem for Yahoo is that the days of “web portals” are over. People don’t need a single site to click through multiple menus and sub-menus to find the information they’re looking for: now we have search engines like Google that deliver more precise results. Let’s face it, Yahoo no longer gives web users a compelling reason to visit the site multiple times a day.

Although Yahoo is still a popular site in terms of the total number of people who visit it, Yahoo’s share of users is declining – and its revenues from display advertising are going downhill as well.

Today, Yahoo is a shadow of its former self. In 2008, Microsoft offered to buy Yahoo for $33 a share ($44 billion), but Yahoo’s then-CEO Jerry Yang rejected the offer. Yahoo’s stock price has gone mostly downhill ever since, currently trading at less than $15 per share.

The biggest problem for Yahoo, as Slate’s Farhad Manjoo explains in a recent article “What’s Yahoo to Do?”, is that Yahoo doesn’t know what it wants to be. It’s no longer a search engine like Google, it’s not a social network like Facebook – Yahoo has become a “rudderless collection of sites,” as Manjoo describes it.

Can Yahoo ever regain relevance, or is it doomed to go the way of Netscape and other forgotten relics of the Internet?

Takeaways from Yahoo’s current predicament:

  • Innovate or die. Yahoo needs to come up with something new. Of course, this is easier said than done, especially in the highly competitive, here-today, gone-tomorrow world of the web. Can Yahoo create the next Twitter? Could Yahoo serve as an incubator of promising young web startups? Unless Yahoo can create some new “next big thing” online, it’s likely to continue to lose ground to Google, Facebook and other sites.
  • A scattershot approach rarely succeeds. Unable to compete with Google or Facebook (Yahoo once offered to buy Facebook for $1 billion, but Mark Zuckerberg declined the offer), Yahoo has tried to diversify. The company purchased various small startups like Flickr, but there never seemed to be any core guiding strategic principle behind the acquisitions.
  • Know what you stand for (and know what your customers want). Yahoo doesn’t seem to know what kind of company it wants to be. As the board decides on a new CEO, Yahoo needs to ask itself some hard questions: Who still needs Yahoo? Who are Yahoo’s biggest fans? Perhaps this analogy doesn’t work as well for a web company, whose revenue is based on amassing millions of anonymous eyeballs, but Yahoo needs to take a hard look at why it exists, who it serves, and who “couldn’t live without” Yahoo.

Every business needs to know the answer to the question, “why do customers buy from you instead of your competitors?” Yahoo needs to find out, “why do people visit our sites and use our online products and services?” Then find a way to make Yahoo’s marketing more relevant to more of those people.

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