Yahoo! ( YHOO), the portal and search site that lately has been languishing in Google's ( GOOG) shadow, is stepping out with new initiatives that will put it square on the leading edge of the Internet sector. Yahoo! has been quietly aggressive about pushing into cutting-edge areas of technology -- vertical searches, blogs, social networks and a form of content distribution called RSS (really simple syndication) -- that are proving highly popular among early adopters of technology. Software developers and investors involved in emerging Internet technologies say they could represent the next wave of Web innovation to win over the masses. Whether these fledgling areas will soon translate into monetized business operations remains unclear. But if they do, Yahoo! will be among the first to capitalize on them. More immediately, they are already helping to restore Yahoo!'s image among its core audience as a leader in technology innovation, not another also-ran tagging behind Google in the search race. "For the past 18 months, Yahoo! has quietly changed from a portal into a site that is intelligently weaving new applications through search," says Chris Sherman, an editor at Search Engine Watch. "You hear more people saying Yahoo!'s getting its groove back, but the fact is, they never lost it in the first place." To some degree, the comparisons to Google are unfair. Google directs users away from its site as quickly as possible, a strategy that paradoxically brings visitors back as they grow addicted to its usefulness. Google also makes money whenever a user leaves by clicking on a sponsored ad. Google's focus on this strategy is so strong that it's not surprising its sponsored-ad revenue is stronger than Yahoo!'s. Yahoo! has largely taken a different route. The lesser part of its revenue comes from Google-like, sponsored-links ads. But the bulk comes from content on its site, and that means it's in Yahoo!'s interest to keep users on its site as long as possible.
You've Got a FriendsterAnd this is where the innovations come into play. Late last month, Yahoo! took the wraps off Yahoo360, a page like Friendster's that creates an online identity for users, complete with their photos, restaurant reviews and personal histories. Users can weave together their 360 page with a blog, an online record of personal narration that is spreading like wildfire on the Internet. "A new Internet ecosystem is emerging around blogs and other forms of next-gen content," writes Marianne Wolk, an analyst at Susquehanna Financial Group. "The potential strategic gain from the blogosphere is substantial, as it could change the way we use the Web. User interest is exploding, and Yahoo! will need to lead in this area if it is to sustain its leadership," says Wolk, whose company has no underwriting relationship with Yahoo!. Blogs and social network technology have proven tough to monetize -- Friendster signed up millions of users but couldn't keep them aboard. But the payoff is potentially enormous: Imagine getting tens of millions of people to create content for your portal without paying them a cent but while posting ads alongside their content. In RSS, a new twist on an old form of content distribution called "push," Yahoo! has another gimmick to keep people on its site. A decade ago, push aspired to aggregate individually tailored content to a PC, but it failed to catch on because of broadband constraints. RSS achieves that goal with much less fuss, letting people have links to the news sites and blogs of their choice on a single Web page. If Yahoo! has its way, that single Web page will be on its portal. To pull all of this off, Yahoo! needs to win "street cred" among the technophiles who are pioneering the blog and social network realms. And here, too, Yahoo! has made small but key moves -- it's bought Flickr, one of the hottest social-network sites around, and unveiled a search engine that focuses on work licensed under Creative Commons, a system that gives artists, developers and others more flexible control over copyrights.
The notion of a focused search engine is another innovation Yahoo! has been aggressively pursuing. Increasingly, more sites are preferring vertical search -- or search tailored to a specific area, such as retail, health or travel -- to general searches that can bring in irrelevant results. Yahoo! bought travel search site FareChase last summer, and last week it announced upgrades for finer-tuned searches. Unlike many online travel companies that are conflicted by revenue-sharing and investments by major airlines, a travel search engine such as FareChase is agnostic, able to reveal the best overall deal for users. "Even if consumers don't initially discover vast savings by employing these vertical search engines, travel search gives buyers a free, fast way to confirm they have made the best purchase and the convenience of one-stop comparative shopping," said Wolk. These incremental developments are leading to a slight recovery in Yahoo!'s stock. In December, Yahoo!'s stock hit a four-year high of $39.79, then fell to a near-term low of $30.86 on March 22 amid broad concerns about the outlook for e-commerce and search companies. Two days later, Yahoo! announced it would buy up to
$3 billion in common stock , or about 7% of its market cap, over the next five years -- a tacit admission that its stock was undervalued relative to what lay ahead. On Tuesday, Yahoo! closed at $35.15, up 14% from its March low. "The buyback program signals that current fundamentals, including for Q105, remain on or ahead of plan," Michael Gallant, an analyst at CIBC World Markets, says in a research report on March 24. His company does not have an underwriting relationship with Yahoo!.