RealTime IT News

Yahoo Holiday Shutdown a Cost-Saving Move

Yahoo said its announced holiday shutdown is a cost-saving move during a traditionally slow time of year. Most of the Internet giant's employees worldwide will have mandatory time off from Dec. 25 through Jan. 1, 2010.

Employees responsible for "essential functions," such as customer service, will continue to work during this period.

It's been a tumultuous 2009 for Yahoo (NASDAQ: YHOO), which is nearing the first full year under its new CEO, Carol Bartz. Just earlier this month, Yahoo also completed its much-ballyhooed search and advertising revenue-share deal with Microsoft (NASDAQ: MSFT).

IDC analyst Karsten Weide said the week's shutdown makes good economic sense -- and that it has Bartz's fingerprints all over it.

"Carol Bartz's primary focus is profitability and this is something she can directly control," Weide told InternetNews.com. "They desperately need to get the stock up and when you think of all the employees Yahoo has, sending most of them home for the holidays is going to save the company a lot of money."

In a statement sent to InternetNews.com, Yahoo said the shutdown comes "during a traditionally slow week" that "allows employees to recharge and the company to reduce operating costs for the week."

"It is also in line with many other companies in the technology sector as well as other industries," the company said. Yahoo also noted the decision to shut down was made in April and in past years it has reduced operations and encouraged employees to take time off during the holiday season.

In the U.S., Yahoo employees have the option to use vacation time for the days not covered in the holiday schedule or they can take unpaid leave.

Grading the Microsoft deal

A far more significant bet on saving money is Yahoo's deal to outsource its search engine to Microsoft, while still collecting a share of the revenue.

Weide had been critical of the ad revenue deal when it was first proposed, but now says he's come around to endorsing the strategy. One of the reasons is that it wasn't initially clear how much Yahoo would continue to invest in search, and at first blush, some observers thought Yahoo was essentially ceding its search business entirely to Microsoft.

But Yahoo continues to innovate on the front end of how users get results, most recently announcing the addition of real-time results from Twitter to its search page.

"Yahoo's argument that the search engine results are a commodity makes sense. Industry-standard tests show the big three of Microsoft, Yahoo and Google are essentially on par in the search results they provide," Weide said. "The next battlefield is the user interface and experience."

"Search is essentially a database query and it's been a process driven by engineers -- we need to get beyond that to an experience that is more user-friendly. That's where Yahoo sees the biggest potential in a more natural-language user interface."

But Weide added two caveats to his generally positive assessment.

"As I've told Yahoo, a good strategy doesn't mean it's easy to implement," he said. "Microsoft and Google are working on the same things, to make the user experience better, so it's going to take a while for any of them to develop something that is truly better."

He also noted a much longer-term issue: What happens after the ten year deal with Microsoft expires.

"You have to wonder how much choice Yahoo will have ten years from now as to who is going to run its search infrastructure, and that's going to give Microsoft a lot of leverage," Weide said.