Every time there is news about the internet portal Yahoo! (YHOO), it makes the front pages. The only story about Yahoo, however, that deserved attention was the monstrous violation of fiduciary duty that its board made when it turned down Microsoft’s (MSFT) offer to buy the company. Beyond that, Yahoo is now a relatively small company with faltering profits that is no longer even important to its own industries, either media or the internet.

The media has become fascinated with Yahoo again over the last few weeks as it finally found a new CEO to run the company in the place of founder Jerry Yang who was part of the Microsoft foul-up. Carol Bartz was the head of Autodesk (ADSK) from 1992 to 2006. She deserves whatever credit she got for improving Autodesk’s fortunes. The stock soared over the period that she ran the company.

There is very little left of Yahoo compared to what the company was even three years ago when the stock traded at $43, just after posting the highest operating income in its history. The stock now trades around $12.
Yahoo’s market value has dropped to $17 billion. Its value now is about the same as trash hauling firm Waste Management (WMI). In the last quarter, the portal company had an operating loss of $278 million. With goodwill and restructuring charges taken out, Yahoo would have made a modest profit. The sales are not likely to get better in 2009.

The numbers are not the reason that Yahoo does not matter. What matters is that it is no longer a company with even a modest voice in the media industry. The time when Microsoft CEO Steve Ballmer might have bought it or its search division is probably over. Ballmer is, as most good businessmen should be, ruthless beyond the imagination of the general public. He gave Yahoo’s board a chance to do the right thing for its shareholders. Once Yahoo turned Ballmer down, he kept leaking comments about ongoing interest to the press. Just as Yahoo was beginning take on water because of the economy, Ballmer was messing with the minds of its board and shareholders. He did not get the chance to buy Yahoo, so he poisoned its well instead by keeping the market, the company’s employees, and its board in a constant state of hyper-vigilance about a new offer which Microsoft never had any intention of making.

What Microsoft knows now is what Yahoo’s share price is showing. Being the No.2 company in the search business behind Google (GOOG) is like finishing second in the Indianapolis 500. There is some money in it, but the pretty girls and endorsements go to the winner.

Yahoo has lost its place as a meaningful player in the media and in the world of the internet because it has the same e-mail, content, TV guide, shopping, mapping, and personal ad sections as the other portals do. None of these is distinguished. These features are, as a matter of fact, nearly interchangeable with the similar features that its competitors offer.

Yahoo is not the leader in anything anymore. The fascination that the media has with the company is poorly placed. The company may reorganize itself from ten divisions to five. It may fire another 20% of its staff. Those are simply the ordinary actions of an ordinary company struggling with the recession.

Douglas A. McIntyre

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