For Sale: Online Giant, Used Condition

In the wake of Yahoo!'s sudden decision to unceremoniously fire its CEO Carol Bartz, the struggling online giant has apparently set itself up for a sale, or at least for a breakup into several smaller pieces. But with an inept executive suite and an inability to monetize its still popular online services, one big question remains: Which companies could possibly be interested in picking up Yahoo!?

According to The Wall Street Journal, which cites an unnamed source close to the company, Yahoo! is indeed for sale if the right bidder emerges. But according to The New York Times, which also cites a single unnamed source, a Yahoo! sale is a "nonstarter." Instead, this source expects Yahoo! to start jettisoning far-flung properties, like China-based Alibaba or Yahoo! Japan.

Microsoft, which infamously offered a staggering $45 billion to purchase Yahoo! in 2008, only to be rebuffed several times, is an unlikely suitor, especially given Yahoo!'s poor performance since then. A merger with AOL is an often-cited possibility.

Whatever the outcome, what emerges on the other side of this episode is a greatly diminished online giant, a company that once dominated the online space but fell to more quickly moving and easily monetized services like Facebook, Google, Groupon, and the like. Yahoo!, like AOL, could very well be remembered as a first-generation Internet power that declined quickly as the web matured.

There's a cautionary tale here for Microsoft's critics as well: Though many are fond of pointing out that Microsoft's Bing search service in particular and its online efforts in general have thus far been a financial drag on the company—what Microsoft would more charitably describe as "an investment"—Yahoo! made the cardinal sin of relinquishing control of  the search technologies that power its back end. Most recently, it is farming out that infrastructure to Microsoft, but a string of other companies preceded the software giant in that role (including Google, actually).

What this means is that Yahoo! has mostly relied on others to innovate and improve the core service that sits at the heart of its entire operation. And while these companies have certainly done that for their own competitive reasons, they also could never achieve the same level of integration between search and Yahoo!'s other products and services as, say, Google does with its own search service and Microsoft does with Bing. For these companies, search is a competitive advantage and a core aspect of their other platforms.

(When asked about this dichotomy with Yahoo! last year, Bartz said, "Half of our revenue is from search. The fact that you can crawl the web is a commodity. We’re about search, but we’re not a search company. We do a lot of things.")

There's been some debate lately about whether Yahoo! is an "Internet company" or a "media company," but it's pretty clear that Yahoo!'s lack of control over core aspects of its technology platform means that it will never compete effectively against faster-moving, pure Internet firms like Google. On that note, Yahoo!'s current bid for media streaming service Hulu perhaps takes on new urgency. Yahoo! may or may not succeed as a media company, but at least it has a shot in that market. Indeed, it even describes itself, semi-bizarrely, as "the premier digital media company."

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