Facebook is becoming an increasing threat to Yahoo! Inc. (NASDAQ:YHOO) because it offers a lot of the same services that Yahoo! provides. For example, a Facebook Inc (NASDAQ:FB) user can share pictures, videos, share blog posts, send e-mails, and chat all from one location. To do the same on Yahoo! a user would need a Flickr, Tumblr, Yahoo! mail, and Yahoo! chat account. To counter the negatives of having to be so far spread between all of these services is to improve the functionality of each — so that it can appeal to a specific niche — and to provide integration, by offering users the ability to log-in through Facebook, on to all of these applications.
In other words, Yahoo! Inc. (NASDAQ:YHOO) products are becoming an extension to what a user deeply desires, an improved version of what some may want to do. The only weakness in Yahoo’s! current strategy is in user-generated videos. The space is becoming increasingly competitive as YouTube dominates longer videos. Shorter video sharing is currently owned by both Vine (owned by Twitter) and Instagram video (owned by Facebook).
Instagram video has been a success in terms of stealing market share from Vine, but it is still far from monetization. Facebook Inc (NASDAQ:FB)’s growth will be primarily driven by its display advertising business going forward. For now analysts forecast that Facebook will grow sales by 32.2% in 2013, and 26.5% in 2014.
Investors should walk in with the expectation that Yahoo! Inc. (NASDAQ:YHOO) isn’t going to emphasize video as much, because YouTube has reached economies of scale that are extremely difficult to compete with, and short-video-sharing is dominated by the social networking giants. Instead, I believe that Yahoo! will focus on premium movie streaming through its potential acquisition of Hulu. Hulu is the only competitor in the space that has built up a content library and enough memberships to stay competitive with Netflix, Inc. (NASDAQ:NFLX)’s rapid growth.
Don’t expect Yahoo! Inc. (NASDAQ:YHOO) to rule the world with modest product improvements. Instead, expect the company to become an extension of what a user wants to do that cannot be done elsewhere. This will involve both a change in the perception of the brand and improvements in the quality of its services.
Going forward, Google Inc (NASDAQ:GOOG)’s market share may experience gradual declines, but for the most part it shouldn’t affect the company’s growth enough to taper optimism surrounding the stock. Likewise, Facebook Inc (NASDAQ:FB), will become the centralized web terminal for basic things like chat, blogging, and sharing.
The article Yahoo! Becoming an Extension of the Internet originally appeared on Fool.com and is written by Alexander Cho.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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