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Monday, November 03, 2003

Yahoo Winding Down Enterprise Software Division (Finally)

Yahoo! is giving up on the idea of selling portal technologies to the enterprise, writes Jim Hu of CNET News.com. It's now backing away from this money-losing concept to focus on its core consumer-oriented strengths.

Traffick parsed Yahoo's potential scenarios more than two years ago, and then, we didn't think much of Yahoo's potential to become a serious, sober provider of technology to the corporate sector:

Yahoo can't credibly exit the dot com world by hunkering down as an IT provider. As one industry CEO commented to me, a foray into the enterprise space will be difficult because Yahoo doesn't understand, as companies like Microsoft do, how to build Cost of Switching into their products. As my correspondent wrote, "this gives Yahoo the staying power of the latest summer blockbuster."

So where is the "out" for Yahoo? Instead of torturing itself with a low-risk, low-reward process of buckling down, Yahoo will probably try to escape "upwards" (as AOL did) through a portal to potential greatness in the high-stakes game of Big Media.


What really took the world by surprise, though, was that Google came to the same conclusions about its own business -- only it did so much more quickly after seeing the divergence in revenues from the two branches of its business. Even six months into its massively successful foray into advertising, many rank-and-file techies believed that Google's main revenue source would be something to do with corporate licensing. I'll admit that the concept of a big box with smart Google stuff inside is pretty cool. But if they had relied on the long sales cycles and rational decision-making processes of corporate IT, Google would still be bleeding cash instead of printing the stuff.

And don't forget the publicity that Ask Jeeves used to put out about its own enterprise products and services. They seemed like good products, but at the end of the day, they found it difficult to penetrate the IT market, and the whole division was sold off for next to nothing. Meanwhile, with only 3% or less of the search market today, Jeeves finds itself sitting on positive cash flow and a bloated market valuation (based, perhaps, on a 10% probability that Microsoft will acquire Ask Jeeves to accelerate its search product development).

It's funny how the real world always confounds the expectations of "analysts." It's cool how responding to the needs of markets eventually trumps the image-conscious impulse to conduct "serious business with serious companies." Too many analysts were too eager to throw out the baby with the bubbly dot-com bathwater. Some still haven't stopped using "B2C" like it's a bad word.

Related Traffick article: Into the Enterprise We Go: Web Search Technology Companies Seek Stable Revenues in the Corporate Sector (May 28, 2001)

Posted by Andrew Goodman




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