Have AOL and Yahoo picked up the pieces?

November 14, 2012

“There are no second acts in American lives.” — F. Scott Fitzgerald

Good thing Fitzgerald didn’t live long enough to tell that to AOL and Yahoo, which are confounding wet blankets with sparks of renewed life and relevance. The bit of renaissance for these Internet pioneers comes when Google and Apple are in a bit of a rut and Facebook seems to have found its bottom. (The one constant: Groupon and Zynga are still floundering.)

None of these things are related, of course. There is no astrology of technology, aligning the stars in such a way as to favor some and deny others. Tech success isn’t a zero-sum game, especially when valuations aren’t everything. Just look at Apple’s rise and fall and rebirth.

Apple’s trajectory has so far neatly followed a classic theatrical arc. Act 1 was exciting and prodigious. Act 2 was dismal, with Steve Jobs in exile for 11 years and the company near death. But Act 3 brought us the iRevolution. There’s no greater inspiration for AOL and Yahoo than the knowledge that down is not necessarily out — that the same forces that brought you down to Earth can also slingshot you to infinity, and beyond.

The news for AOL and Yahoo has been positive of late. AOL’s revenue didn’t decline last earnings period (for the first time in seven years). Yahoo is trading at a 52-week high despite what some thought was a vague and platitudinous turnaround strategy articulated by Chief Executive Officer Marissa Mayer in September.

There is still so much inherent value and goodwill rattling around these Internet pioneers (despite, say, Yahoo’s broadcast.com acquisition, or AOL’s Netscape buy) that it is no wonder investors think these companies can thrive again. (It helps that some sentimental tech writers just want it to be.) It might also be no accident that these companies are run by two of the most prominent ex-Googlers there are: Tim Armstrong, who took on AOL more than four years ago, and Mayer, who joined Yahoo only a few months ago.

Over the past decade or so, Yahoo tried to morph into a media company, while AOL was slow to innovate, relying too heavily on a doomed-but-not-dead-yet dial-up service — all of which led to both companies’ uninspired second acts. Now, Armstrong and Mayer are trying to transition in time for a happy ending.

With Yahoo, it is a matter of getting back to basics. It had a miserable flirtation with Hollywood under Terry Semel. A botched romance with Microsoft left it for dead. And yet, in traffic, Yahoo properties rank among the very highest on the Web. Driving traffic was Yahoo’s original mission, and in succeeding at that it discovered it could generate its own hefty page views. Google hasn’t made the mistake of assuming that a search engine succeeds when it becomes a media company; it’s the model for succeeding while keeping content creation at an arm’s length.

For AOL to succeed, it’s more a matter of metamorphosis. The company has not been able to wean itself from a dial-up business that broadband should have killed by now. In its most recent earning report, AOL disclosed that subscription revenue for its dial-up services fell 10 percent, to $173.5 million.

The scratchy death knell has long been sounding. AOL is correctly trying to be a media company, chiefly through acquisition of the Huffington Post Media Group and TechCrunch, to name two marquee properties. Patch may not be as successful as it would like, but the battle for local media coverage isn’t over, and to that victor will go many spoils.

Restoring the luster of those simpler, pre-bubble-bust days is a tall order. But it can be done. Yahoo’s Mayer needs to pamper and reward software developers and focus on engineering — her strength at Google and presumably the primary reason she was recruited. AOL’s Armstrong needs to remain strong with a media strategy that looks like it will pay off before AOL has a chance to implode.

It takes realists, but it also takes believers and heroes. I suspect they are all over the place at both AOL and Yahoo.

Otherwise, each company will encounter another piece of Scott Fitzgerald’s advice: “Show me a hero and I’ll write you a tragedy.

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