How to Lose Market Share and Alienate Investors

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For Yahoo! (NAS: YHOO) investors, owning an aimless company has resulted in an embarrassing slide after the once-proud No. 2 search engine spurned Microsoft's (NAS: MSFT) hefty buyout offer in 2008. It's likely to sell soon for a fraction of that offer, though not from a lack of trying. It seems that Yahoo!'s been working at its sleight of hand, waving poor copies of its rivals' ideas in one hand while the other conceals a blank business strategy. Like most bad magic tricks, these halfhearted efforts seem destined to disappear in a puff of smoke.

What's that behind your ear?
Say you're a search engine that gets most of its revenue from display ads. You notice that users are starting to use tablets more often, and they're more engaged in their browsing experience than smartphone users. What do you do? If you're Google (NAS: GOOG) , you create a more interactive ad format that encourages users to spend more time playing with the advertisements. If you're Yahoo!, you announce the same thing months later, gushing about how engaging your new ad content will be when it finally exits beta testing.

Nothing up this sleeve...
Say you're a major online entertainment portal, with lots of video content. You notice that your visitors have been gravitating toward the newest and most exclusive videos, many offered by competitors. What do you do? If you're Netflix (NAS: NFLX) , you sign a major licensing deal to bring David Fincher and Kevin Spacey's hotly anticipated collaboration to your subscribers. If you're Yahoo!, you hire Morgan Spurlock (whose claim to fame is eating McDonald's for a month) to host a web-hosted reality TV series about people who are afraid to fail. Sounds like something Yahoo! execs can empathize with. Their major efforts have been too-little-too-late rehashes of their competitors' bold moves.

Good ideas, timidly rehashed and released much later, become bad ideas.

Is this your card?
Yahoo!'s out of the Hulu bidding. Despite a major partnership with Microsoft's Bing search engine, Yahoo!'s remained flat in the search wars -- much of Google's drop has been Bing's gain. Yahoo!'s even entered into partnership with Disney's (NYS: DIS) ABC News, but I'm not sure how promoting one brand of news is going to move the needle.

It's still a hugely popular web portal and is still quite profitable, but you can ask AOL (NYS: AOL) about relying on past glories. Renewed buyout rumors seem to be the only thing that can push Yahoo! higher these days, but that gamble is already baked into the stock's current rise. If fortune favors the bold, then Yahoo!'s been firmly trounced by Google's aggression. Yahoo!'s future will need more than smoke and mirrors to create long-term growth.

If you'd like to find out whether Yahoo! can bounce back, add it and its competitors (and potential suitors) to your Watchlist.

At the time this article was published Fool contributor Alex Planes holds no financial stake in any company mentioned here. The Motley Fool owns shares of Microsoft, Yahoo!, and Google. Motley Fool newsletter services have recommended buying shares of Google, Microsoft, Yahoo!, Walt Disney, and Netflix. Motley Fool newsletter services have also recommended creating a bull call spread position in Microsoft and a bear put spread position in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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