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Bad News from Yahoo
Several people have submitted stories about the bad news that Yahoo released today (it seems appropriate to link to the story on their site). They appear to be having the same difficulty with ad revenue that is hitting everyone else. It's not a good time to be dependent on revenue from dot-coms that are themselves struggling to stay afloat.
I'm willing to bet Slashdot has a smaller number of employees than Yahoo. Yahoo's expenses are probably much greater. This is why all portals are going to start having trouble. The Internet is all about specialization in technology. Yahoo has tried to do too much.
It's only when we've lost everything, that we are free to do anything...
Whether you like to admit it or not, advertising is a science (to a certain extent). There are things that work (psychology of color) and things that seem good but are wrong (grabbing attention with the blink tag). Banner ads are becoming much more aggressive, with the flashing and the fake error messages and the java applets and the monkey punching. If I see a banner ad that tries to get in my face and force me to look at it, I block that adserver (and their revenue). If I see a calm, nice-looking banner ad that actually informs me about the product, I leave it alone; hell I might even read or click it.
Yahoo and all the other struggling companies should try setting some standards for banners they will run. The banner industry is killing itself by failing to see that they are pushing the consumers away.
You can't waste money on the kind of scale it was wasted in the Internet Mania without terrible repercussions. Companies have taken on vast debt to finance expansion and have overbuilt massively on every front. Economists who seem to have a clue call this 'malinvestment'.
One spends money, as a business, in the expectation of generating more money in return. Wasted money means time lost while the business generates more revenue to re-invest in something else. Taking on debt for unproductive investments is much worse -- instead of just hoping for a payoff, now the business MUST generate the money that they expected their investment to create, and must also pay interest on the money to boot. Debt-driven expansion that does not pay off is VERY bad.
The huge amount of malinvestment during the Internet Mania will have repercussions for many years. Post-bubble fallout is always horrible, and this has been far and away the biggest bubble in human history by any measure. It makes the 1920s bull market and crash look minuscule by comparison. Businesses in every market, not just tech, have been cannibalizing their long-term prospects to drive up the stock price short term. This made the executives of these companies very wealthy via stock options, but it has done terrible hidden economic damage. Lucent, AT&T, Cendant, Xerox, and IBM are all good examples. (IBM just hasn't been found out yet by the mainstream.) There will be lots more of this going forward.
The 1920s stock market mania (they were overbought in manufacturing and automobiles) was catastrophic enough to lead into the Great Depression of the 1930s. The Crash of 1929 did not cause the Depression. In school I always had the image of a bunch of people who were eating caviar October 15 and homeless bums in the street on October 30. In actual fact, the decline took several years, steadily destroying wealth as it went.
The reason this wealth destruction was so catastropic was because people had taken on too much debt to buy stocks with. When the mania unwound they were left with huge debt and no possible way to pay it. The destruction of all that paper wealth and subsequent defaults caused a massive deflation. It took ten years for the economy to recover. And mark this: their whole economic expansion and stock market craze was driven by debt, just as ours has been.
The fallout was so bad it scared off an entire generation from credit. True full-blown manias are so awful, in fact, that historically they have only happened when almost all the people old enough to remember the last one are dead. It is no coincidence that few of the people who were adult in 1930 aren't around to warn us.
Worse still: we haven't even crashed all the way yet! The Nasdaq will drop by at least another 50%, and the Dow and S&P need to drop by 40% or so to bring themselves in line with historic valuations. The Nasdaq bubble popping alone might not be enough to trigger a full-scale crisis, but the Dow and S&P are teetering on the edge of the precipice even as I type. They might avoid this crisis. But eventually they will either decline, or the Fed will inflate the money supply so much that everything else will rise by the same amount. The overall outcome is inevitable, but whether we get there via inflation or deflation is up to a combination of investor sentiment and the Fed. So far, the Fed looks to be choosing inflation, as they are printing money at absolutely unprecedented rates. I don't have the numbers in front of me but I believe they grew the money supply at something like a 15% annualized rate last quarter. Money normally should grow about as fast as the economy does. 15% growth/year in the money supply is corrosion of wealth, a cancer -- most people don't know about the tumor yet but if left unchecked it will be lethal.
My favorite bad idea is www.swiftboard.com. They give out free keyboards with an extra row of buttons labelled "shopping" "games" "clothes" etc. The idea is that they get everyone to install their keyboards and a Windows driver, and whenever people want to buy something they will just hit the "shopping" key.
They keyboard has a regular PS2 connector, and it works great with Linux. It's slightly on the lightweight side, but as far as keyboards go, it doesn't have a bad typing feel.
Thanks, www.swiftboard.com! So sorry about the sucky business plan!
If tits were wings it'd be flying around.
Interesting article... too bad the guy left out costs like development costs, paying for the content creation for the site, support, etc... All he looks at are bandwidth costs versus ad revenues.
.coms are having problems becuse they can't afford bandwidth, they can, they just can't afford bandwidth and employees.
I don't think all these
DrLunch.com The site that tells you what's for lunch!
Yahoo's problem is they've diversified WAY beyond their core business. They want to be AOL, in a way. More diversification costs them more and more money, with the payback reaching beyond 2020. Assuming there isn't a disruptive technology that they can't deal with, they'll probably make it.
What it says is that some rare websites that provide almost nothing yet inexplicably get tons of hits can be profitable. You can't just decide you'll be run such a site, you need either genius or luck, and probably a bit of both now.
Incidentally, it says these things using made-up numbers and ignoring the most important issues such as attracting good quality hits and the cost of actually producing content.
Basically, the article says nothing more than that advertising sometimes pays more you spend than hosting and bandwidth, sometimes not. It's hardly a rousing defense of banner ad based business models.
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The basic fact is, Yahoo is badly run. I've posted previous rants about their software's shortcomings. I had assumed that they were profitable anyway, but I appear to be mistaken. The report that they're in trouble completes a familiar picture.
Yahoo was the first big Dot Com, and thus the first target of overenthusiastic Dot Com get-rich-quick hysteria. Now, if anything is bad for a company, it's having a lot of over-eager investors throw money at it. The company has to grow quickly, regardless of the negative effects, in order to justify all that investment. Plus, management has no incentive to control costs. So you get growth-by-acquisition, overlapping projects that don't complement each other, initiatives that are ramped up before they are fully debugged, etc., etc.
If I were a Yahoo investor, I'd be terribly concerned. But as a Yahoo user, I'm actually kind of encouraged. Yahoo is too well-established to follow Infoseek into Portal Oblivion, and this kind of reality check will make for a better operation.
__________________
I doubt slashdot would run this poll, but how about:
/. ads.
Slashdot Banner Advertising:
a) I have clicked on
b) I have research a product/company after viewing/clicking on an ad.
c) I have bought something from the advertising company because of (one way or another) the ad.
d) JunkBuster!
"The area of penetration will no doubt be sensitive." ~ Spock
Kuro5hin has an interesting piece on the economics of ad revenues. The bottom line is banner revenues can be sufficient for profit potential if you play your cards right. Popular sites like slashdot have a high enough CPM to stay more than just afloat. I'm surprised Yahoo hasn't been able to say the same.
Perhaps they should make their banners bigger..
Just a though.
Friends don't let friends use multiple inheritance.
Consider: 98% of all the .com businesses were either terminally bad ideas (delivering pet food) or way overfunded. Since there is only a finite amount of venture capital out there, the fact that donkeyhumper.com was getting 10 million in funding meant that some other business was not. Hopefully, this downturn and the death of most .com businesses will mean that VCs will start investing money in relistic (as opposed to trendy) businesses.
This goes hand-in-hand with the need for the VCs to be a little more careful with their money -- even deserving tech startups have spent the last few years flushing money down the toilet in a way that would make any other industry blush; do we really need on-site wine tastings?
Anyhow, this downturn will hopefully bring the tech boom a bit closer to earth and, in doing so, ensure that the economic good times stay with us a bit longer.
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Every year during my review, I just pray the words "slashdot.org" aren't mentioned.
I remember Yahoo fondly from the early days of the web. Back then, it had a well-structured directory of links that was maintained by hand. It was a quality site, and had links the vast majority of useful sites for a given area. It was a lot easier to go to Yahoo to find something than it was to click your way down whatever path you were used to, going through maybe six sites instead of one.
;) But that seems to be the way the world works, and all we can do is cultivate the young upstarts to bring us the technology of tomorrow, so we can enjoy today again.
However, times have changed. Now Yahoo is yet another Cheesy Portal Site, and you'll notice that the article is entirely about their stock price, their public perception, their CEO, blah, blah, blah... And nothing about their customers, their technology, and the useful service they provide.
That's because they don't provide a useful service anymore. Instead, they're partners with people who do provide a useful service. After the web started getting too large for Yahoo to handle, AltaVista became popular. It was a showcase for DEC's Alpha computers, showing how powerful they were by how they efficiently searched and indexed millions of web pages, and found your queries. The best part about altavista.digital.com, though, was the query structure, for instance being able to say "+host:slashdot" and search for posts...
So, for a while, when Yahoo needed a real search engine, they used AltaVista's, I believe. I'm not sure because by then I had switched over to AltaVista anyhow. But that too eventually turned into a cheesy portal site, although it looks better recently. However, now Yahoo uses Google for their searching, as well as having their own tree of links that people submit.
Google, however, actually *does* have innovative technology, and hasn't sold out quite yet. They also use the Open Directory project as the basis for their web directory, and have a high quality tree of links reminiscent of how Yahoo used to. But the really useful features are their "PageRank" technology, which takes links into account when indexing, and their Cache, which often is the only way to find things that have been taken off the web.
So, sadly, new useful web sites will often give into the money, and their quality will go downhill. (not mentioning any names here
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pb Reply or e-mail; don't vaguely moderate.
pb Reply or e-mail; don't vaguely moderate.