Yahoo!'s Best Chance at Future Growth

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Mark Lennihan / AP

Yahoo!'s Jerry Yang

It is picking low-hanging fruit to say that Carol Bartz, the new CEO of Yahoo! (YHOO), can't fix the portal company — its shares went down about 3% on news of the selection. Bartz had a good reputation at Autodesk, the other firm she ran. But Yahoo! is an Internet company, and Bartz is not an Internet executive.

The fight over the future of Yahoo! — which has struggled with a takeover offer from Microsoft (MSFT), falling earnings and management changes — masks the great foundation the company still possesses. (See the worst business deals of 2008.)

Yahoo! remains the No. 2 search company in the U.S., with about 18% of the market. Google (GOOG), by most measures, is far ahead, at 65%. Microsoft falls far behind at 10%. It is unlikely that Yahoo! will regain market share on the PC, but the wireless market has not been carved up. It may take years before it is clear who leads in Web searches on handsets. It is also unclear which company will take the wireless lead in Europe, India, China and Japan. Yahoo! still has a shot at a prominent position for its core business beyond the personal computer.

Yahoo! is also one of the most important forces in online display advertising. There is a temptation to say that the display business is aging and not as efficient at reaching consumers as search ads. But display advertising, barely a decade old, is a relatively new tool for marketers. It still has a good chance of gaining on TV, radio and print.

Yahoo! has some assets it could sell to raise money. Alibaba, the Chinese e-commerce company, and Yahoo! Japan could be worth in excess of $5 billion. Yahoo! may decide that it can buy businesses that do more to help its position as a portal and search company. In a poor economy, even good assets will be cheap. Picking up strategic pieces will be easier with a vault full of cash.

Bartz knows all of this. She also knows that putting all of the pieces together is a long shot. But it is not impossible, and strong management has fixed tougher problems at other companies.

Douglas A. McIntyre

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