Yahoo! (and MySpace): Where Do We Go From Here?

The New York Times reports today on the many directions possible for Yahoo! in the wake of Terry Semel’s resignation as chief executive.

Among this range of options is everything from giving up on paid search (outsourcing Google to place search ads) to staying the course with Panama as well as the developing “amigos” newspaper consortium and the Right Media online ad exchange it recently purchased.

These would represent a multi-pronged strategy to battle Google in its growing ad placement ambitions across a variety of formats and media a battle Google appears to be winning.

Getting More Social

But the most interesting part is a new rumor originally reported in the U.K.’s The Times yesterday that the company could be in talks with News Corp. to trade MySpace for a 25 percent stake in Yahoo!. This is interesting, even as a rumor, and would value MySpace at about $10 billion.

Rumors have been circulating for some time about a potential Yahoo! merger with Microsoft to combine strengths for a veritable Google-killer, but those have been mostly unsubstantiated. Meanwhile, Yahoo! has shown an interest in Facebook, although the price was rumored to be too low for the wide-eyed intentions of Mark Zuckerberg & co.

But MySpace could be an interesting addition to the Yahoo! network. Yahoo! has long beat the drum of social media with flickr, del.icio.us, MyWeb and a host of socially oriented products and personalization tools such as My Yahoo!.

These, however, have been missing a core one social networking platform to rule them all, and create a stickiness in a user base that also participates in search and revenue generating activity across Yahoo!’s huge network (Yahoo!’s own 360 social network largely failed to do this).

The Missing Link?

If these rumors are true, MySpace could be that missing piece. It’s unclear how the social network would operate if owned by Yahoo!, but there are possibilities to integrate it in interesting ways that could be an important “glue” for some of Yahoo!’s social media products and initiatives, which have floundered for direction, most recently seen in the company’s December reorganization. The challenge here would be to not dilute MySpace’s existing value and user appeal.

If Yahoo! indeed stays the course of its ad placement product developments (newspaper consortium, Right Media, Panama), MySpace could also eventually represent a new venue for these ad networks, by extension of the Yahoo! network. MySpace partnered with Google last August to have exclusive text ad placement throughout the social network, but the deal expires in August 2009.

The strength and staying power of MySpace should also be called into question here, given the notion that it could be losing popularity, its average user age is rising, questions of a social networking bubble and the sizable competitive threat from the red-hot Facebook. The coming weeks will in fact be important ones for Yahoo! as Jerry Yang takes the helm, transition growing pains set in, and the company decides upon several possible directions.

Yahoo! was first to search marketing in its acquisition and development of Overture, and it was first to Local with Yahoo! Local. But Google has usurped its leading position in both areas. So Yahoo! needs to decide what it is and execute on that identity. Local in particular will be an important battleground that it will not give up on soon.

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Related: MySpace has also announced the launch of its long-anticipated instant messaging service, MySpaceIM.

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