It’s both. I think monetization is only half the problem (it might even be less than half). The bigger issue is the traffic problem, and this NYTimes does a great job focusing on the important issues over at Yahoo, and what it means for their future. It’s an older article so I’ll summarize my thoughts with bullet points.
– The article is correct to point out that Google is almost entirely a search company and Yahoo is only partially a search company. The quality of search traffic is different from display traffic so when compared Google stock’s performance will continue to outpace Yahoo stock as search keeps growing.
Despite the fact that Yahoo actually has more traffic than Google,” Mr. Befumo said, Google has more revenue. “So there definitely is a problem with Yahoo’s monetization.”
From this quote above, I feel that this point needs clarification– Yahoo has more display traffic, Google has more search traffic. The revenue potential of search traffic is more valuable than the revenue potential of display traffic, so it’s NOT correct to categorize this issue as a monetization issue.
In addition, Yahoo’s search traffic quality is much poorer than Google’s traffic quality. Google has more search traffic, better search partners, and better contextual advertising partners. Yahoo has less search traffic, and their search and contextual partners are not as good. That’s part of the reason why Yahoo can’t monetize as well:
According to Mr. Post, who also points to this issue, each domestic search generates about 4 cents for Yahoo, compared with 11 cents a search at Google.
– The article also incorrectly implies that an increase in the supply of display advertising inventory will affect Yahoo’s display advertising prices. Well, the demand for display advertising is still strong, so I don’t think this is that big of an issue. There is still a limited amount of quality display advertising (MSN/Yahoo vs. MySpace) on the net.
That said, it’s still very hard to bet against Yahoo right now because of Yahoo Japan, all that cash, and that projected free cash flow.