Yahoo! (YHOO) moved close to its five-year low yesterday, trading down at $17.75. It really has not been so long ago that Microsoft (MSFT) made its $33 bid for the portal company.

Yahoo!’s market cap is now down to $24 billion. By many estimates, its ownership in China online company Alibaba and Yahoo! Japan are worth $10 billion. That would put the value of Yahoo! itself at $10.

The analysis of Yahoo! without its overseas asset holdings has been done many times before.

The falling value of Yahoo! points to a more sinister trend. With the possible exception of Google (GOOG), most online firms are worth less than they were a year ago, two years ago, and perhaps five years ago. The market had always hoped that online advertising would grow at 25% or 30% a year. That forecast made sense. Americans spend as much time online as they do watching TV.

Ipso facto the internet should get as many advertising dollars as the networks do. But, they don’t and perhaps they never will because, from a revenue standpoint, the internet has become its own worst enemy.

Measuring consumer behavior based on TV commercials, radio commercials, and even newspaper ads is nearly impossible. Does the man who sees the Ford commercial on his tube go to a dealership or the auto company’s website? In most cases, no one knows.

The internet on the other hand may be the best direct response medium ever invented. Advertisements on websites are set up to solicit immediate action. The results from each online marketing campaign can be measured to an excruciating level.

As far as revenue goes, the internet has been constructed in a way that allows it to undermine its own best interests. What can be measured can be easily rejected.

No one likes a loser.

Douglas A. McIntyre

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