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Tuesday, January 04, 2005

Internet trends 2005: Mary Meeker gets Yahoo wrong

Morgan Stanley internet analyst Mary Meeker published an internet industry report (download the free PDF here) that's bullish on Yahoo!. Although issued in October, her comments are critical to the outlook for Yahoo! over the next year. Her key points:

  • RSS offers a new and user-friendly way to access third party content, particularly the rapidly growing number of blogs.
  • Web based RSS readers will take larger market share than RSS clients. "A universally available platform such as My Yahoo! provides for greater portability from computer to computer", as a result of which "for syndicated content to overcome a "techie" stigma and reach the mainstream, it will most likely do so via the Web".
  • My Yahoo! is the best Web based RSS aggregator. "Yahoo is setting the pace for new ways of serving information."
  • Yahoo! will be able to monetize the value of syndicated content. "We believe advertising and fees for syndicated content present a potential business opportunity for the Internet leaders and content providers."
  • Yahoo! will gain share in the media market through syndicating content: "We believe syndication technology is one of the tools that through a virtuous cycle should propel Internet leaders such as Yahoo! further into the forefront of all media, albeit slowly and steadily."

Why is Mary wrong?

  1. Not clear that Web-based RSS aggregators will take greater share than RSS clients. User-intensive applications work best with client side software. While most people have Web email accounts, for example, heavy email users choose client-side software to manage email. Note also that RSS capabilities will also be integrated into Web browsers: Firefox offers RSS capability and a newsreader extension called Sage. Expect the same from the next version of IE and Safari.
  2. Too early to declare Yahoo! the winner in Web-based RSS aggregators. Yahoo! is the first of the large Internet companies to launch RSS aggregators. But is it realistic to assume that Google and Microsoft won't bring out RSS aggregators of their own? Google's Web email solution was better than Yahoo!'s, but has far fewer users due to Yahoo!'s time to market advantage. Yet it's still early days for RSS aggregators.
  3. Small Web sites and client RSS readers could take market share from portals. Small "category killer" Web sites will likely attract readers away from the news aggegators and broad media publishers, since they do a better job of covering their niche topics. And RSS readers provide a more succinct and efficient way to view headlines than the advertising adorned home pages of the portals like Yahoo!.
  4. Not clear how Yahoo! will monetize syndicated content. Most providers of syndicated content do not allow syndication of entire articles. Instead, they use syndication as a tool to drive traffic to their advertising-supported or subscription-supported Web sites. So even if My Yahoo! proves to be immensely popular, it may have the effect of driving advertising revenue to third party content providers rather than Yahoo! itself. And if advertising is embedded into RSS feeds, the content provider will claim the revenue.

Stock conclusion: RSS and the proliferation of "category killer" Web sites could hurt rather than help the portals and online media companies. Mary Meeker's claim that RSS will benefit Yahoo! seems tenuous at best.

Quick editorial comment: Why then do I provide easy subscribe links to My Yahoo! on Seeking Alpha, The Internet Stock Blog and Sound Money Tips? Because I assume that users of other RSS aggregators have learned how to add feeds and/or will know to look for the "syndicated this site (XML)" link at the bottom of the left-hand column. Yahoo! users, in contrast, are probably less familiar with RSS, so need help adding sites to their pages.

Posted by David Jackson on January 4, 2005 at 12:01 AM in ticker: YHOO | Permalink


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