Ying, Yang and Yahoo!

This week, Jerry Yang the CEO of Yahoo! must be ruing his decision to turn down the £29bn offer made for his company by Microsoft in May of this year. As recessionary warnings abound, Yahoo! has suffered more than most and earlier. Since May its share price has more than halved while the current $12.65 per share value is a mere 10th of the peak achieved in 2000.

Worse still, Yahoo! this week announced 1,500 jobs are to be cut as it struggles to battle a global downturn; it simultaneously announced a 64% drop in quarterly profits. It seems the Internet companies will suffer just as badly as the rest of us in a recession.

Business Models Based on Advertising

Some companies will fare worse than others. This is the contention of Wikipedia Founder, Jimmy Wales. He highlights Yahoo! as a particular concern as global advertising revenues will inevitably drop in a recession and those whose model is based on the marginal returns on advertising are particularly vulnerable. It leaves Yahoo! right in the firing line.

It is estimated that the global advertising market may drop by 10% or more and while it is expected that digital online advertising will not dip as far, those companies who rely on Internet advertising as their core revenue model are very exposed.

LinkedIn & Monetisation

This week I saw a debate on LinkedIn about some new applications that are being beta tested for members. There was some disquiet about the ability to add slide shows to your profile or blog links but some applications like your 'Amazon Book List' was pretty blatant links for book sales which it was assumed LinkedIn would get a cut of. I remember also a discussion about Facebook's attempt to 'follow' it's members to attempt to gain money from their buying habits using Facebook as the launch platform - as Google has also looked at in its grand plans.

LinkedIn, with over 28 million members, is a classic example of a company that has 'land grabbed' members and consumed a great deal of money to do so and gained a valuation based on the potential to monetise the membership - and that valuation was pretty impressive. But as it attempts to do so, there are more than a few getting a little uncomfortable.

LinkedIn is a an advertiser and recruiters dream - lots of juicy names and titles in all sorts of companies in lots of countries. Unlocking their potential is now a priority. Recently, as a member of the IOD (Institute of Directors), I have been questioning the value of my membership and I wanted to get more than nice meeting places and not just be the butt of glossy adverts for 'Member Privileged Products'. I wanted to leverage contacts, gain referrals and even do business with fellow members. Lo and behold LinkedIn suggested to the IOD that a LinkedIn Club was the answer and one was created with a discussion forum where the IOD have asked no one to blatantly advertise their wares - nice idea.

Sadly, the first blatant advert came from the IOD itself offering inducements if Linked In IOD Group Members would introduce their other LinkedIn network connections to the IOD. I complained and duly it was removed.

Conclusion

Business models which rely on advertising to its membership is a game model in the good times. In the bad, value is critical and my point here is that LinkedIn, the IOD, Facebook, Yahoo! et al need to find a patch of value to show members beyond bombarding people with adverts. True, these sites are what you make of them and I have written on tips and methods to make such networks work to build business but in reality the vast majority of members are just passive receptors of spam and adverts. As advertisers rein in the spend, these business models become exposed and I would suggest Yahoo! is not the only company in the next year or so who will suffer.

Maybe it calls for these sorts of companies, beyond the faddy, clever facilities they gave for free, to think long and hard about what value they are going to bring to the table to charge for in the future. The days of freebie business models are perhaps over - can these companies actually make any real money?