yahoo strategy
831 days ago
 

Reinventing Yahoo, version 804: Start by buying TripAdvisor

NB: This is a guest article by Rafat Ali, an entrepreneur, journalist and founder of paidContent.

I have learned many things as a chronicler of the digital media industry over the last decade plus.

But one of the definitive items is this: you will always be proven wrong about any prognostication on Yahoo, not because what you said wasn’t the path Yahoo took, but that it didn’t take any.

Unless of course Yahoo’s procrastination was your prognostication.

With a brand new CEO now at the helm, Yahoo’s choice on running-while-standing-still has run out. That much is sure.

Besides the industry-mystifying choice of ex-PayPal president Scott Thomson, there’s a lot of movement on disposing off its Asian stakes, part of its “trying to unlock the value” of its assets.

And it looks like it is happening soon: now there’s a M&A wish-list as part of “a tax-efficient asset swap with Alibaba and Softbank,” according to a report in Bloomberg this week.

The list includes the likes of WebMD, Weather Channel and AutoTrader. Previously, other names like Hulu and Bankrate have also been thrown around.

All which seem very random, only being considered because their size may fit what all parties need in terms of size of transaction to close the swap-deal. And that they’re conveniently part-owned by private-equity firms, all of which happen to want to part-buy Yahoo as well.

But let’s step back a bit. What does Yahoo want to be when it, well, gets born again?

Nostalgia

Back in 2005, when Yahoo was trying to reinvent itself under Terry Semel, I suggested that it buy Martha Stewart Living Omnimedia — back when Martha mattered — as a way to double down on women’s media and lifestyle play, a huge market, and more importantly, a unifying plan.

We all know how that and subsequent attempts went.

With the Asian sell-offs, it will have around $10 billion or more in cash, and why not use it for transformative acquisitions to help build around a theme? What could that theme be, large enough for Yahoo to continue to be one of the largest Internet players in the world?

Here’re my humble suggestion for Yahoo: start by redefining yourself as the “people-powered listings business”.

And it won’t be a stretch: after all, Yahoo started as a listings layer on top of the web, with its directory service, which curated everything interesting to “surf” at that time.

Why not go back to that theme, and stretch it to the users?

What that means is instead of investing everything in expensive original content (which it needs to do in certain verticals like news, sports, finance, if only as a glue that holds everything else together) or tech (a losing battle in face of Google, Facebook, take-you-pick-startup), use your users to help build the next version of Yahoo.

Let them curate the real world, through reviews and ratings of these listings. This isn’t a small vertical business, this is a huge intelligence layer over the world that Yahoo, with its money and users, can piece together better than almost anyone can.

And there’s a perfect and newly independent giant waiting for Yahoo (or anyone else, for that matter) to start with: TripAdvisor, fresh from its spinoff from Expedia.

User generated opportunity

TripAdvisor is about a $630 million (2011 estimates) revenue business, about $3.5 billion market cap, top-line revenue growth of over 30% over the past several quarters and at least 50 percent operating margin, so those numbers themselves paint a big story.

It has a huge repository of user-gen content that actually works and leads to transactional and advertising
opportunities, and has a big worldwide footprint and potential.

It also plays into the two biggest growth “sectors” for anyone in digital: mobile and social, and TripAdvisor, in its own messy way, has done a lot in both.

Of course there’s the small matter of trying to convince Barry Diller, who continues to be TripAdvisor (and indeed Expedia’s) largest shareholder, but when has Diller ever shied away from a large M&A deal?

Another adjacent, people-powered listings business is Yelp, smaller than TripAdvisor, and private, and Elevation Partners, its major private equity shareholder, would be happy to do a deal, anything that will make its much-panned portfolio and exits look better.

Yelp’s numbers are less readily available, but it is viewing an IPO, according to a November report by WSJ.

Revenue estimates for Yelp are around $100 million in 2012, and the IPO is expected to value it anywhere between $1 billion to $2 billion. Yelp is TripAdvisor’s cousin, with potential to be joined at the hip when put together with TripAdvisor, exact same philosophy in the transaction+advertising mix.

An expansion on that theme would include listings (and resulting transactions) businesses which could use that reviews layer added to them: HomeAway in the TripAdvisor-adjacent vacation rentals business, and OpenTable with its Yelp-adjacency.

Further down the line, real-estate listings business could be added to the mix, which would make companies like Trulia and Zillow attractive targets for Yahoo.

A global web layer

All of this also helps Yahoo forge a path independent of the other better-positioned internet giants like Google and Facebook and even similarly-troubled ones like AOL.

Almost all of these and smaller startup players are better at tech, Yahoo will never win that game in Silicon Valley or outside.

And every large media and every tech-trying-to-be-media company will continue to build content assets, and chip away at the media ad dollars, with the resultant downward ad pricing pressures that all of us are aware of.

This plan leverages its user base, still the second largest in the world, to build its future.

It allows Yahoo to be the utility layer of the world, a daily use across all forms of digital delivery, online and mobile, and at the nexus of every large internet trend: be a platform, and leverage local, social and mobile (there, I finally used that buzz phrase!).

It can continue to focus on content assets that build on top of those listings and reviews assets, as a loyalty driver.

NB: This is a guest article by Rafat Ali, an entrepreneur, journalist and founder of paidContent. Ali is currently working on his new still-in-development-startup Skift, a travel intelligence company.

NB2: Disclosure – Ali is a shareholder in Yahoo.

NB3: Image via Shutterstock.

 
 
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About the Writer :: Special Nodes

Special Nodes is the byline under which Tnooz publishes articles by guest authors from around the industry.

 

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  4. Dennis Schaal

    Rafat: I doubt Barry Diller would part with his TripAdvisor baby at this stage. Think of how this might impact the TripAdvisor financial relationship with Diller’s other prize, Expedia.

    That said, “every man has his price.”

     
  5. Jim Kovarik

    The logic is sound here but seems like dubious timing. Probably would have been a good fit early on but Expedia jumped on TA quickly. AOL would’ve been a good fit for TA as well given the strong community element, in fact we even made a run at Virtual Tourist based on this strategy only to be beaten out by TA (Expedia).

    btw, my condolences on being a Yahoo shareholder, I share the same fate

     
    • Kevin May

      Kevin May

      @jim – thx for the comment…

      FYI, context re Yahoo stock:

      Yahoo shares over the past ten years.

      Jan 2002 – 6.09
      Jan 2003 – 10.00
      Jan 2004 – 24.06
      Jan 2005 – 36.70
      Jan 2006 – 39.90
      Jan 2007 – 29.45
      Jan 2008 – 23.36
      Jan 2009 – 13.13
      Jan 2010 – 15.88
      Jan 2011 – 16.81

      And now, Jan 2012 – 15.55.

      So, decade-on-decade, it’s ALMOST trebled in price :)

       
  6. Rafat Ali

    That whole part about “More Targets” wasn;t in there until late last night, looks like they added a revision in the article. Glad others are thinking along the same lines.

     
  7. Joe Buhler

    TripAdvisor was mentioned in the Bloomberg article:

    Other logical targets may include personal finance website Bankrate Inc., online travel site TripAdvisor Inc., and smaller companies such as XO Group Inc. and InfoSpace Inc., said Rohan, the Stifel Nicolaus analyst.

     
  8. Bruce Rosard

    Great post Rafat and some good ideas, you think Yahoo is listening? Yelp would be interesting, but OpenTable could be a better play, or buy both. I’m not sure HomeAway makes sense, but a significant investment in Airbnb is more in line with your ideas here. And if buying TripAdvisor is real, then that includes Flipkey, which is all about user reviews for vacation rentals, more so then HomeAway. You would think there are a lot of potential targets (travel and non-travel) that would fit this strategy…

     
  9. Dariusz Paczuski

    You mean like NewHoo, which was founded precisely because Yahoo’s employee-based model couldn’t scale to meet the growth of the web. Yahoo should buy http://www.dmoz.org/docs/en/about.html from Aol. They’re not doing anything with it.

     
  10. Rafat Ali

    The idea is large asset that make a material difference both in terms of revenues and product. TripIt, while a nice add on, can’t be big enough to rebuild such a large company around. Tripadvisor is probably the only one at that size, and while it is one of the many repositories, it is the largest, bigger than all others combined. TripIt is a nice functionality to add to that.

     
  11. Ian Kennedy

    What about TripIt? In terms of utility, more of my friends *use* TripIt while Trip Advisor is but one of many repositories out there for reviews. Reviews and other user-generated content communities are extremey liquid so, IMHO, it’s better to aggregate the content than own the community. Aggregation of content is best done by specially tuned search engines. . . if only Yahoo had a search engine. . .

     
    • Ron Hodson

      Certainly one comparison between TripIt and TripAdvisor would be that TripIt couldn’t make it on it’s own, whereas TripAdvisor is hugely profitable. And while TripAdvisor is one of many repositories of reviews out there, in their vertical – hotel reviews – they are dominate.

      As to what’s better, aggregating or owning the community, I think it’s a matter of controlling your own destiny. You also don’t have a competitive advantage if someone else can just aggregate the same data as you, so the business model is different.

       
 
 

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