Can Yahoo! Inc. (YHOO) Buy Enough Companies to Compete With Google Inc (GOOG)?

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According to a report from AllThingsDYahoo! Inc. (NASDAQ:YHOO) submitted a bid to acquire Internet streaming service Hulu on Friday. Assuming Yahoo! was to acquire Hulu, it would be the second major acquisition for the Internet giant in recent weeks.

More and more, it appears that CEO Marissa Mayer is attempting to reinvigorate Yahoo! Inc. (NASDAQ:YHOO)’s status as a major Internet portal. As I’ve written previously, I expect Yahoo’s acquisition streak to continue, as the company remains outclassed in a number of major areas.


Realistically, Yahoo! Inc. (NASDAQ:YHOO)’s targets might include mostly private companies — Dropbox and Spotify, for example — but Yahoo! could go after publicly traded companies as well, such as Pandora Media Inc (NYSE:P) and Yelp Inc (NYSE:YELP).

Overall, a reinvigorated Yahoo! Inc. (NASDAQ:YHOO) might prove to be a major competitor to Google Inc (NASDAQ:GOOG).

Yahoo’s shopping spree

Yahoo! Inc. (NASDAQ:YHOO)’s recent moves shouldn’t surprise anyone. There have been reports since last August that Mayer was more interested in buying companies than returning the company’s cash to shareholders.

Ultimately, that didn’t happen — Yahoo! approved a large buyback program — but with Third Point’s focus shifting to Sony, I would expect Yahoo! to continue to acquire Internet properties, as monetizing Alibaba and Yahoo! Japan should give it the capital to do so.

Mayer has laid out Yahoo’s strategy quite clearly: become a dominant player in mobile Internet, and compete in the growing technology of preemptive search (where the search engine provides users with information before they request it).

Yahoo! already has some assets that it could utilize in this strategy: Yahoo! mail, finance and sports are dominant in their respective product categories. But Yahoo! continues to lag in such key categories as video, local, social, cloud storage and music.

Adding Tumblr should help with social media, and Hulu could conceivably be the answer on the streaming video front. But more acquisitions are needed.

Yahoo! takeover targets

I identified Yelp Inc (NYSE:YELP) and Pandora Media Inc (NYSE:P) as potential Yahoo targets back in February. I still think they make sense today.

Yelp is a key player in local. It has a large user base that rates and recommends local businesses, and a sales team that works directly with many of them. Google Inc (NASDAQ:GOOG) acquired Yelp’s competitor Zagat in 2011, and has begun to integrate Zagat’s ratings into its services, particularly its map application.

Buying Yelp would instantly give Yahoo! a local play, and further, a big mobile user base.

However, unlocking Yelp’s true value might not make sense without a larger map strategy. Mayer is on record as saying she doesn’t want Yahoo! to get into maps, as the endeavor is simply too difficult and too costly to do right.

Meanwhile, buying Pandora would give Yahoo! a play into streaming music and a large base of mobile users. Microsoft Corporation (NASDAQ:MSFT) is already there (with Xbox Music), Google Inc (NASDAQ:GOOG) just entered the space (with All Access), and Apple Inc. (NASDAQ:AAPL) is expected to unveil its own product sometime soon.

Yahoo! already has a partnership with Pandora’s competitor Spotify, and I think acquiring Spotify would be a better buy, but it wouldn’t surprise me to see Yahoo! make a play for Pandora.

The sum is worth more than the parts

Many of Google Inc (NASDAQ:GOOG)’s critics see its multi-pronged strategy as a weakness. For example, Aaron Levie, the CEO of Box, characterizes Google as a distracted company, one spread too thin.

While that criticism may be valid, the company’s conglomerate status gives it a number of advantages.

The idea of preemptive search, the trend Mayer sees as an area for Yahoo! to play in going forward, requires extensive knowledge of a person’s habits. Google Now, the search giant’s virtual assistant, is the embodiment of this idea.

Examples of things Google Now can do include: show when packages have been delivered, display the scores from games involving the user’s favorite teams, and warn of traffic delays on the route to work.

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