The De-Portalization of the Internet (aka What I Would Do If I Were Running Yahoo!)

Back in the first Internet era, it was all about amassing as large an audience as you could on your website. That’s when Yahoo! was built and still to this day, Yahoo! is a "portal" where you can get almost anything you might want; email, chat, stock charts, news, instant messenger, shopping, jobs, etc, etc. Some of these services were bought instead of built, and after being bought they were integrated into Yahoo! adopting its look and feel and its URL structure. Today, according to comScore, Yahoo! has the largest Internet audience in the US, with 130 million people in the US visiting Yahoo! at least once a month.

But the first Internet era was at time when consumers weren’t that comfortable with vastness of the web and they wanted a safe clean place where they could experience the web easily and comfortably. If AOL was the web on training wheels (it wasn’t really the web at all), then Yahoo! was the web you graduated to when you were ready to shed your training wheels.

Google and others changed all of that. Today most consumers are comfortable with the web and all of its complexity. They simple type a search query into Google, Yahoo!, or some other search engine and off they go. In October, according to comScore, there were 6.8bn searches done in the US alone.

I don’t have the data to prove it, but my guess is if you looked at the percent of all pageviews that are generated each month, a much smaller portion exist on the top 10 properties today than in 2000, at the height of the first Internet era.

Today, we shop directly with the Internet merchants we like or we use a shopping search engine to find what we want. We can look for jobs on Indeed, meet people on MySpace or Facebook, find roomates on Craigslist, and use Meebo for instant messaging. It’s rarely true that the best of breed service exists on a "portal". The portals continue to buy best of breed services like Flickr,  but now they let the service continue to exist on the web with its own look and feel and URL structure.

The other thing that Google did to foster this de-portalization was introduce a monetization system that existed off its own network. Dave Winer says that "web 2.0" is really nothing more than "an aftermarket for Google". While I don’t agree with that assessment at all, it does point out how critical an effective monetization system Adsense has been and how important that money has been to building a de-portalized web. What Adsense does is provide a revenue stream early on in the life of a new web service, long before the founders can focus on building their own monetization system. And that has led to a proliferation of high quality web services that do not ever need to end up on a portal.

So if you buy that the web has been de-portalized, what do you do if you run the largest portal in the world? I think its pretty simple actually. Yahoo! needs to offer its users and customers (advertisers) the ability to get the same experience they get on Yahoo! all over the web. They need to stop thinking about keeping their audience on and start thinking about serving their audience wherever they are on the web. They need to stop thinking about selling ads on and start thinking about selling ads all over the web.

I know that they are doing all of this, but I do not believe they have made a strategic decision to "de-portalize" their business model. For one, it will cost them in the short run. There are partnerships, deals, and relationships that produce millions of dollars in revenues that would go up in smoke if they really de-portalized with a vengeance. AOL faced the same issue, but much worse, with their ISP revenue and finally realized they had to give up on an unsustainable revenue stream in order to be a player on the web long term. I believe that Yahoo! needs to make that same kind of strategic decision. And I think their stock will react positively if they articulate it correctly.

So what are some concrete things they need to do? Well first, they need to improve their search service. On a de-portalized web, it all starts with search. I never hear of companies that have 80 percent of their traffic coming from Yahoo! I hear of companies all the time that have 80 percent of their traffic coming from Google. Yahoo! may have 28% of all Internet searches, but for some reason that I am not sure I completely understand, Yahoo! does not generate 28% of Internet traffic.

When most people talk about the fact that Yahoo! needs to improve its search system, they focus on the monetization piece (ie Panama). That’s clearly critical as Google monetizes search something like 10x better than Yahoo! But I think Yahoo’s search itself is inferior to Google’s. I have tried to use Yahoo!’s search as much or more than Google’s over the past year as I want to support Yahoo! as much as possible. But I do not get the results I want from Yahoo!, particularly on advanced searches or complex search queries. Yahoo! needs to make it’s search product as good as Google’s (ideally better) and they are not at that level today.

Yahoo! also needs to start building properties that exist outside the orbit, like the new Mixd service they launched last week (but Mixd still has a URL).

And Yahoo! needs to get its YPN (Yahoo! Publisher Network) service in gear. They need to offer advertisers the ability to reach people when they are not on Yahoo! They’ve done some things recently, like the eBay partnership, that suggest they are headed in that direction. But I would urge them to move faster in this direction than they are moving now. It might mean buying some ad networks instead of just investing in them.

I believe AOL’s purchase of was the single best thing that AOL has done since launching AIM ten years ago. Yahoo! should look at that move closely. I think there’s a lot to learn about what has happened to inside of AOL.

These are some examples of the moves that Yahoo! needs to make in order to leverage their considerable assets onto a de-portalized web. They are not the only things they need to do, but this is not a McKinsey strategic plan. It’s a blog post. And it’s gotten too long already.

As always, I’d encourage you all to weigh in on this topic in the comments. I heard the other day from a reader who likes this blog because of the quality of the comments. That’s all of you he likes. And I like you too! So let us all know what you think about this topic.

#stocks#VC & Technology