What Should Yahoo! Do?

NEW YORK – Many people think that Yahoo! is as good as dead: investors have driven the stock down almost 20% since its recent deal with Microsoft. But I think the company is now in a stronger position to stake out new ground, rather than fight with Google over stale turf. Leave that to Microsoft.

Now that Yahoo! has freed itself from its fight with Google, it can return to its roots as a directory company that helped users to make sense of the world around them. Indeed, back in 1994, Yahoo! started with a team of editors who combed through the small amount of information that was then online and generated lists of the best content, complete with links. Google showed up with an automated tool to search for content – any content – and Yahoo! used that service before developing its own search capability.

But the world has changed. The problem now is not finding information; it’s filtering it and structuring it. TMI – too much information – has become a recognized acronym.

You can’t rely on human editors to structure information anymore; you need automated tools, augmented by human expertise and specific domain knowledge. But search alone doesn’t work, either: search is like a flashlight in a dark room; it pinpoints one or two things but leaves the surrounding space murky. What people really want is a lighted room, with things displayed neatly on labeled shelves.

That’s what Microsoft has done with Bing, in a few commercially oriented domains. But the opportunity goes beyond the world of shopping, to all the stuff out there that Google helps you find (and that is so enticing but ultimately limited as a business proposition).

Yahoo!’s biggest opportunity lies within its half-billion registered users’ own possessions and  habits, their photos and friendships and electronic data that is now becoming sufficiently extensive and complex to need management.

This is Yahoo!’s opportunity – to make sense of the world to individuals. Several existing companies are leading the way, but they are not as trusted as Yahoo!; nor do they have the large user base that will enable Yahoo! to extend saving and managing to sharing, so that users can see their own data in the context of others’.

People spend a fair amount of time searching for new stuff, but in many cases they would like to relate it to old stuff – specifically, to their own information. There’s a diffuse but gradually sharpening trend for people to manage their own information online – not just their finances at Mint or Wesabe, but also their book preferences at Amazon, cellphone records (Skydeck), physical activities (Nike, Garmin, and the like), friendships and friends’ activities (Facebook/Friendfeed and others), travel (Dopplr and TripIt), health (Polka.com), music (iTunes, IHeardItOn, etc.), and so forth.

Searching the Internet gets you to places where you can book travel, buy music, find walking paths, and trade stocks, but these sites are generally not where users can aggregate, manage and analyze their own content and data. Yahoo! can become that place.

What does this mean from a business point of view? Freed from the distraction of the search-engine wars, the company can focus on making the entire Yahoo! experience more consistent and integrated. Internally, it needs to combine its services more closely.  It has already provided a single log-on for all its services, including Yahoo! Mail and acquisitions such as Upcoming (events), Flickr (photos and video). Its new home page makes it easy for a user to assemble a variety of services in one place.

Yahoo! is open enough to offer such third-party sources as the New York Times and the Wall Street Journal, but even its own services generally provide only generic content around, say, health care and stocks, rather than the ability to manage one’s own health data or stock portfolio.

This raises another issue: call it transparency or call it privacy. Yahoo! and a number of other companies – including Google – are already working on a standard for displaying information about the advertisements a user sees: Yahoo!’s edge is that it can show this information without embarrassment. It shows ads from third parties to its users, but it does not sell their data to anyone else.

In a world where users worry about – and regulators legislate against – the tracking of users, Yahoo! doesn’t have to follow its users across the Web.  It knows enough about them, openly, from what they do on Yahoo!

Users can specify how much of their travel plans, for example, they want to share – all the details with family and colleagues, or all the places they have been to with everyone –after the fact. I’d be happy to share my travel plans with, say, British Airways if I thought they would give me a good deal.

Its users know what Yahoo! knows about them: not a record of all the sites they visited, but their behavior on Yahoo! and, potentially, their data. But it’s the user, not Yahoo!, who can make the decision about what to share with British Airways. For those who care, this is a big deal; for those who don’t, they will know only that Yahoo! has a good record for two-way disclosure.

To fulfill this broad promise, Yahoo! should now either buy or build a variety of services that help users manage their own data. The services described would be a good start, but there are many more, and Yahoo! has the tools and the audience to build some of its own. 

None of this will be easy. It could almost be as complex as designing a search engine.

But it would be worth it.  After all, for many people, the most fascinating thing in the world is a mirror.