Henry Blodgett on Yahoo!’s Earnings Conference Call

Internet Outsider: Yahoo! in Robust Health–But Watch Those Margins “As Yahoo! becomes more content-centric (and ramps up hiring or licensing accordingly), and as it pumps out more broadband video, audio, etc., it is possible that the company’s cost structure may change, eventually resulting in lower margins. This has happened once already in the company’s history–in early 2000, the operating margin stopped increasing for the first time ever–and, in hindsight, this was the first clue of impending disaster.”

My own opinion is that it will be difficult for Yahoo! to effectively compete in pure internet search going forward with Google and so they MUST offer more compelling sticky content to attract users. Yahoo! is somewhat irrelevant in search at the moment. Anecdotally, if I look at where my search traffic comes from at Thomas Hawk’s Digital Connection it is overwhelming coming from Google. Next to none comes from Yahoo! — because people don’t use Yahoo! anymore for search.

Certainly purchasing strong properties like Flickr and upcoming.org helps, as will the development of original broadband content.

Yahoo! also has the potential to actually regain market share in image search by integrating Flickr and their interestingness algorithm into their image search technology. They have been slow to do this though and this is not good in the fast moving world of search.

Blodgett is right though. Bandwidth costs, buying and developing more of this content, etc. will cut into the company’s profit margins. This is necessary though for Yahoo! to emerge as a world class internet property and it is most likely the only way that they will be able to survive.

Stay smart. Keep acquiring strong companies. Develop compelling content even if in the short-term margins are affected to the negative.

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