If 2010 wasn't a bad enough year for Yahoo (YHOO), it's ending on an especially sour note. After watching rivals capitalize on the social and mobile aspects of the new Web, Yahoo moved to "sunset" various properties it set up or bought in recent years. But its handling of the announcement turned into a public relations nightmare, leaving many in the tech world with the impression the company is not only running out of options but blowing the few it has left.

Investors don't seem to have much conviction one way or the other about Yahoo's strategic moves: The stock has traded in a narrow range for the year and trades under $17 per share -- close to its year-ago levels.

But Yahoo's users can't be too happy. The company is ending 2010 on an especially sour note, with a new round of layoffs and its move to sell or shut down popular services like Delicious, drawing a chorus of criticism in the tech press.

Alienating Users?

As Yahoo flips the calendar to a new year, that dichotomy sums up its dilemma. Ever since Yahoo angered many shareholders for rebuffing an attractive takeover offer from Microsoft (MSFT), it has aligned its strategy to make shareholders happier. But in the process, it seems to be alienating users, which can't be good for the bottom line.

The decline in the company's brand among its users is slow, but increasingly perceptible. Its overall audience, measured by unique monthly users, is growing slower than the Web's overall audience. As a result, Yahoo is sliding down the list of the Web's biggest names.

Late last week, ComScore, which tracks Website usage among other things, reported that Facebook surpassed Yahoo as the third-largest Website in the world. Yahoo is now No. 4 (behind Google and Microsoft also). Only five years ago, it gave up its No. 2 slot to Google.

Facebook's success has bedeviled Yahoo this year, partly because -- as Yahoo CEO Carol Bartz made clear in an interview at the Web 2.0 conference last month -- the company sees many of its services as social. "We've been social for a long, long time," Bartz declared.

That's true, but it's like saying horse-drawn carriages were around a long, long time before cars came along. Both Yahoo and Facebook are social, but in dramatically different ways. Facebook is obsessed with all the ways people interact with each other on the Web, and it tweaks its site accordingly. Yahoo seems content to get people socializing in a Web 1.0 kind of way: email, bulletin boards and new twists like Answers.com.

Stuck in the Past


And that points to one of the biggest factors hamstringing Yahoo: The company's DNA is still that of a 1990s "portal" -- a centralized site attempting to structure the Web, whereas the Web is very much decentralized.

Take a look at Yahoo's home page in December 2010. The streams of updates from friends that are the center of Facebook and Twitter content are absent (except maybe the Facebook and Twitter links near the bottom of the page). Now look at Yahoo's home page as it was five years ago. The content is very much the same -- what you'd want from an all-in-one portal. Except that many users don't have a use for all-in-one portals anymore.

Yahoo tried to move into social media by buying popular sites like del.icio.us and Flickr. The results included no successes. Instead, they ranged from mixed to disastrous. Del.icio.us (renamed Delicious) was so deeply integrated into Yahoo's core technology that one former insider believes it can't be sold off. Flickr was granted more autonomy in Yahoo, but it still moved toward the margins of the social web.

Not the Right Strategy for the Web


Bartz's moves to reduce staff and eliminate some of Yahoo's less popular features is likely to please investors, at least in the short run. Corporate turnarounds routinely involve such moves, and Bartz's strategy appears to combine some old-fashioned cost-cutting with a push to innovate into new technologies.

And that points to the second problem facing Yahoo as 2011 approaches: That hybrid model won't work in the Web sector. Slashing costs and shuttering operations can be effective tools in turning around manufacturers and software companies. But even though the Web is designed with software code, these same strategies seem to have a contrary effect. They drive away top talent and telegraph to users that the brand is fading. And after a while, revenue from advertisers starts to dry up.

Yahoo's recent moves may make investors optimistic. But unless the company starts taking a radically different approach to its site's content, 2011 will be a year of a shrinking audience and a diminished brand. If so, no amount of cost-cutting can keep Yahoo's stock rising much longer.

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allyndp

The evolution of all these entities is the same. Provide more pocket money for shareholders. The shreholders don't give a damn about what service is or isn't provided as long as they get a return and I mean a huge return on their investments which everyone along the way takes a piece of. They should have taken a lesson from AOL who at one time had the best social networking operation, better than facebook, but gave it up. AOL had chat, instant message, profiles, member directory, meeting options for singles and more. AOL got more interested in making money for investers through avertizing instead of providing service to its members. So what goes around comes around and soon facebooks turn will come too.

December 31 2010 at 6:40 AM Report abuse +1 rate up rate down Reply
ronsjigslures123

Yahoo started getting AWAY from there online auction site after a few years and started, web page building,selling IPS,s,web design,bussiness plans,and there huge search engine, untile they took Yahoo Auctions off there site, when they expaned out into different things, and didn,t stick with what made the the Biggest and top investment in the world at one time, i belive is what there down fall was, yes they made money and theres stock was alway good to have but the compation was so great they became overwhelmed and costly to operate. For many years Yahoo was on the top of the hill, with every tom, dick and harry set site company trying to knock them down, and take over, i guess it finially happened, but those who stuck it out still walked away with a ton of money with that company, a ton.

December 31 2010 at 1:25 AM Report abuse rate up rate down Reply
ronsjigslures123

Belive it or not another HUGE sit today started with online Auctions also, yes you guess,ed it Huge Amazon they had a auction site also and i even sold stuff on there site also. The internet at that time was the wild wild west and no one ever thought it would take off like it did, but it did and people like me and others that saw it as a potential source of money and information exploded it and made tons of extra and even huge bussiness out of it. When i first sold on Yahoo auctions i belive they had about 4000 registored users, thats right 4 thousand, and ebay only had about the same and Amazon had even less, in a short years time those sites had thousands of users and even a million or so and the stock climed like crazy to making everyone holding it rich. The good old days of the teck boom.

December 31 2010 at 1:12 AM Report abuse +1 rate up rate down Reply
ronsjigslures123

When Yahoo YEARS AGO started to build of the internet, it started with Auctions, where people sold stuff on line they became huge and there stock made people rich over night, then Ebay started to get huge also. Yahoo started by people like me selling stuff and became the biggest site in the world at one time. I used to sell stuff on Yahoo, and Ebay from the beginning when they first started. It was NEW and took off like a jet, i couldn,t afford a computer at that time so i bought a system called WEB TV unit that worked pluged into your TV screen to go on the internet..a web tv unite how old is that most never heard of it these days, well after it cought on and i as more and more users came and siged up, for Yahoo and ebay i started to make a lot of money, so much i made a profitable 15 year EXTRA income bussiness out of it, made a lot of money in the early years .. and guess what the fees to sell were either FREE or 2 cents a listing, at that time. The good old days when teck stocks were the king of wallstreet.

December 31 2010 at 1:01 AM Report abuse +1 rate up rate down Reply
AL CONFER

YAHOO, like ATT needs to start putting money into their companies and Yahoo needs to quit paying homage to just the investors. ATT has survived by IPHONE, but needs to get a grip and start investing in cell sites as they suffer far to many dropped calls. It's not as if Yahoo and ATT do not have money, it is just greed by keeping the money instead of making a far better service.

December 31 2010 at 12:40 AM Report abuse +1 rate up rate down Reply
Fred

Yahoo's best hope is to finally be taken over by someone who can leverage its large number of users - email, groups, flickr, etc. into some other formats while saving the best aspects. A lot of people still use it regularly and before they are lured away, they could be melded into some other company's features. A stand-alone Yahoo is just not in the cards. By the way, as far as I know, Flickr is a Yahoo creation and was not bought. Although it's not fashionable to talk about it, many cyber users remain remarkably loyal to companies. There are still vestiges of Prodigy and CompuServe lingered for years after it became all but irrelevant and its users were moved to AOL.

December 30 2010 at 9:39 PM Report abuse +2 rate up rate down Reply
reddwarf44

YAHOO IS DIGGING IT'S OWN GRAVE. the users are what makes it profitable for the shareholders. sounds like a major flaw in the corporate eleite running (ruining) yahoo.
GO BACK TO YOUR ROOTS TO GET THE PROFIT BACK.

December 30 2010 at 6:53 PM Report abuse +1 rate up rate down Reply
cartra

MY EX BROKER TOLD ADVISED ME TO BUY THIS STOCK SEVERAL YEARS AGO! HE IS HIGHLY EDUCATED , AND UNDERSTANDS THE MARKETS AND TECHNOLOGY! I THINK A PERSON CAN BECOME TOO EDUCATED AND GOING OVER CHARTS CAN DRIVE A PERSON INSANE OVER TIME! NO I DIDNT BUY IT AND BOUGHT COMMODITIES INSTEAD,THANK GOODNESS!!

December 30 2010 at 6:19 PM Report abuse rate up rate down Reply
standfordgrays

Free Masons are getting their butts kicked both foreign and domestic... ha ha

December 30 2010 at 5:36 PM Report abuse -1 rate up rate down Reply
Les & Judy

THEY SHOULD TAKE THAT IDIOT YANG AND HANG HIM FROM THE PILE OF MONEY HE LOST EVERYONE. HE SHOULD GIVE ALL HIS STOCK TO SHAREHOLDERS AT THE TIME HE DAID NO TO MICROSFT. NOT EVERYONE SHOULD RUN A COMPANY.

December 30 2010 at 4:47 PM Report abuse rate up rate down Reply