Yahoo! (YHOO) Brand Makeover: Lipstick On A Pig

nokYahoo! (YHOO) wants to change its image as the “also-ran” search engine with incompetent management. According to All Things Digital, Yahoo! “is working on a massive plan to overhaul its brand in order to repair a damaged public image and focus consumers on what defines Yahoo.”

The plan is a waste of time and money.

Yahoo! (YHOO) cannot change what it is. Simply defined, it is the largest web portal in the US and the No.2 search engine. Its revenues are relatively flat. It has tiny operating margins. It is trying to improve profits by firing people. It suffers from declines in display advertising and display CPMs.

Yahoo! cannot tell that world that is has a future when its future is tenuous. Microsoft’s (MSFT) Bing search engine has picked up a remarkable amount of market share, much to the surprise of most analysts who have watched the world’s largest software company fail time and again in its efforts to have any real presence in the search sector. Yahoo! has repeatedly turned down overtures from Redmond to combine the search operations of the two companies to combat market leader Google (GOOG). Yahoo! will regret its reluctance if Bing continues to do well and the portal company’s search share erodes.

The portal business is a tough one. It works mostly by aggregating content from other companies. This content is mixed in with social networks, photo sharing, gaming, job search sections, maps, and personal ads. Yahoo! face competition from AOL (TWX) and MSN. It is also up against other large sites that compete for display advertising, particularly the large social networks, MySpace and Facebook, which are desperately hungry for revenue to show that they are viable businesses.

Yahoo! is flanked by a larger search engine and an emerging, well-funded rival. It is flanked in the content business by other portals and dozens of news and information site.

Yahoo! cannot recreate an image by pretending its multitude of serious and intractable problems do not exist.

Douglas A. McIntyre

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