bartz2 The Unlikely Case For Yahoo!Yahoo! today announced that it has won approval from the city of Santa Clara for a new 46-acre headquarters. Reaction to this news has been harsh in social media circles. People can’t believe that Yahoo! would have the audacity to build a 15 building state-of-the-art campus with all of the perceived problems that they have. So what gives? Well, believe it or not, I’m here to make the case that Yahoo! is going to be just fine.

Let’s start with the reasons that Yahoo! has faltered over the last couple of years.

Economy hit them hard

Maybe more than any other major web property, Yahoo! was hit hardest by the recession. Yahoo! was a main destination for home buyers and raked in tons of display ad revenue from crooks (sorry, banks) like Countrywide, home improvement businesses such as Lowe’s and credit card companies. Most of that is gone now. Drop in display ad revenue really hurt Yahoo! more than any other web company, so it makes sense that they were hurting for a long time.

Yahoo! failed to become or buy a social network

Hard to point all the blame onto Yahoo! on this one – the Big Three (Google, Microsoft & Yahoo!) all missed this boat, and let Facebook become what it is today (including just passing Yahoo! in display impressions). No way to turn the clock back on this one either unless they merge with Facebook, or someone (i.e. Microsoft) buys both Yahoo! and Facebook and merges them, both of which are extremely unlikely.

They failed to attract enough developers to their platform

Although they’ve certainly tried, Yahoo! just never was able to grab enough attention of developers to really get things off the ground with a  platform. Sure, some initiatives such as Yahoo Widgets / startpage  and Yahoo! Pipes have been moderate successes, but are nowhere on the scale of Facebook’s, Apple’s or Google’s platforms. It’s really too bad too, because of all of these companies, Yahoo!’s platform has consistently been the most open, or at least as open as Google’s.

I could throw up a lot of other reasons they’ve faltered, but I think that these are the main ones, and other reasons can be grouped into especially the last two buckets. Now onto what Yahoo! has right now that is working.

Flickr

Make no mistake, Flickr is Yahoo!’s most valuable social media asset. It’s their one property that is at the head of the class (social bookmarks are dead, so Delicious doesn’t count). Other than Facebook’s photo features, there really isn’t a contender to Flickr on the horizon, so this should be a strength for Yahoo! for some time to come.

Yahoo! Mail

It’s certainly not the best web-email out there (that would be Gmail if you weren’t aware) but the sheer number and usage of Yahoo! Mail makes it the second most important webmail on Earth. More on Yahoo! Mail below.

Content

Yahoo! has a legion of dedicated writers, has countless partnerships with other content providers (including Hulu, the AP, etc), and has a well defined (and familiar to users) content structure. Yahoo! articles get lots of comments and discussion, and their Sports pages especially are still very closely followed.

Gaming

Although somewhat on the decline (especially as Facebook and iPhone games have risen), Yahoo! Games still attracts plenty of casual gamers and is another strength for them to build on going forward.

Large sales force

This is good to have, but of course isn’t unique to Yahoo! However, this could give them an advantage over smaller organizations (such as Facebook) that are still ramping up their advertising sales forces.

Ok, those are the main strengths that I believe Yahoo! possesses right now. Now here is what they should do moving forward.

Go mobile

Yes, Yahoo! already has some mobile apps and they have mobile versions of their site, etc. But they are all sub-par. With Flickr, Yahoo! Mail, games and their vast amount of content, they could have some very strong and entertaining mobile apps. They need to scrap everything they’ve built before and go all out with iPhone/iPad, Android, Blackberry and Windows 7 Phone apps as soon as possible.

Update Yahoo! Mail to take on Gmail

Yes this is a hard task that makes it harder because Yahoo! does not have the kind of productivity apps that Google has (esp Calendar and Docs) that can be integrated into Mail. However, as I mentioned above, Yahoo! is still a giant in email, and their offering is not a dinosaur like Hotmail – it’s just not Gmail. If they can get this right they’ll certainly regain some momentum (oh, and they need to make everything free and forget about charging for POP3 etc).

Take advantage of Facebook’s PR problems NOW

Facebook is offering Yahoo! a tremendous window right now. Say what you will about Yahoo! but they have a pretty decent track record (China excluded) of keeping people’s data relatively safe. Add to that the fact that many of the same people that use Facebook have Yahoo! accounts, and Yahoo! should be thinking of ways to lure disenchanted Facebook users away (they’ve got to be able to do it better than Diaspora at least). People still like Yahoo! and they need to take that by the horns and make it into something people love.

Let the portal die

Someone, whether it’s CEO Carol Bartz (she certainly makes enough) or someone else, needs to make the ultimate decision that will get Yahoo! going in the right direction: they need to let the portal die and make the site a stream of entertainment and news that fits each user. We simply don’t need portals anymore (as familiar as they are to many) and Yahoo! has to accept this and move to something new.

Go all out on location & local

As I’ve said before, location is the next web, and if Yahoo! can use location as at least one of its cores going forward, they will be well positioned to leverage their local business directories (another strength I didn’t mention above), maps and mobile applications. Baking location into the core of a new generation of mobile apps (and maybe buying a hot location startup) would certainly help them down this path.

Win internationally

This is a very strong advantage of the Big Three – all of them have strong presence and brand equity worldwide, and Yahoo! is not exception. They need to continue to expand and fortify their advantage in all markets, whether through completely branded Yahoo! experience or on the very successful model of buying 39% of Chinese powerhouse Alibaba (super-investor George Soros was also today announced as a major private investor in Alibaba, which, case in point, let to stock gains for Yahoo!).

Work with Microsoft/Bing in the right way

Yahoo! made the right decision to more-or-less get out of search. They had lost and needed to tack on with either Google or Bing, and now that it’s Bing, they need to do it right. This can’t be overstated – they need to make this work and get strong revenue from this deal to hold them over while the above changes are made.

Finally…

Yahoo! could still very well go the way of AOL and disappear from being important or worth caring about. That said, they seem to have weathered the storm to a point where things are starting to go in the right direction (though still too slowly). I’ve been a Yahoo! user since 1995 and I’ll stick with them for a few more years regardless, but they better not wait to move into their new digs before they start reinventing themselves.

Oh, and by the way, Yahoo! is more popular than Facebook or Google or Twitter or any other service for that matter for logging into sites on popular commenting system Echo.