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Will Yahoo Get Back to the Future by Returning to Its Tech Roots?

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CEO Marissa Mayer's strategy includes a return to the company's original mission -- with a modern difference.

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Marissa Mayer, the new CEO of Yahoo (NASDAQ:YHOO), said something interesting last week at the World Economic Forum at Davos, Switzerland. While at Google (NASDAQ:GOOG), she helped create a site that was designed to respond to people's queries. At Yahoo, she said, she's thinking about how to respond if "you are the query."

That is, what if there was a site that knows who you are and what many of your interests are, based on your browsing history and your own input. It knows where you are, adding another list of potentially relevant answers. And because you're a human being, there's a fairly universal list of queries that you have once a day or more-what's the local weather, are your stocks up or down, what are the headlines of the hour, what are the latest sports scores.

As Mayer pointed out in the interview with Bloomberg TV, Yahoo happens to have the answers to all of the above, or it can get them for you without you taking the trouble to ask them.

In fact, that's how Yahoo functioned back in its glory days when it and AOL (NYSE:AOL) were vying to be the home page of the Web, the point that users returned to repeatedly to make another selection while they were "surfing," to use the phrase then in vogue.

Yahoo still functions that way, sort of, but its home page is old, tired looking, and depressingly low-brow, and its keepers failed to build on newer -Web preoccupations and technologies, notably those related to social media and personalization.

Luckily for Yahoo and for Mayer, everybody else failed there too, so there has been a big hole at the center of the Web ever since the days when Yahoo and AOL ruled.

Now there's an opportunity for Yahoo to create that radically different home page for the Web circa 2013, rather than circa 1998. There's even a new term for the purpose of this page: "content discovery." Or, in Mayer's words, "the Internet ordered for you."

In a conference call after Yahoo's quarterly earnings report on Monday, Mayer said her plan was effectively to return Yahoo to its roots, with its original mission "to make the world's habits inspiring and entertaining."

This is not going to roll out tomorrow, especially since Yahoo has to create a version that works well on mobile phones as well as larger screens. It's a big design challenge, especially for the executive who is generally credited with instituting and guarding Google's blank-slate minimalist look.

At any rate, it looks like Wall Street is content to give Mayer, who joined Yahoo only last July, the time to work it out.

On Monday, Yahoo released its quarterly results, beating Wall Street expectations and increasing revenue for the first time in four years, although profit declined slightly.

The company earned a fourth-quarter profit of $272.3 million, or $0.23 a share, compared with a profit of $295.6 million, or $0.24 a share, in the same period a year earlier.

The New York Times points out that Yahoo's display advertising revenue is still declining. In the latest quarter, it brought in $591 million in ad sales, a 3% decline from a year earlier.

Its share of all digital advertising revenues is shrinking, too, while overall ad spending on the Web continues to increase. It now gets about 8.4% of all digital ad revenue, compared to 15.5% in 2009. (Mayer's alma mater, Google, now holds the lion's share, at 41%.)

Its search ad revenue actually improved by 3.8%, to $482 million. Yahoo farmed out its search operation to Microsoft's (NASDAQ:MSFT) Bing in a revenue-sharing deal that is set to expire in March.

Yahoo stock jumped $0.64, or 3.15%, to close at $20.95 on the news in after-hours trading Monday. On Tuesday morning, it was trading at around $20.75, or 2.25% higher, just after the market's open.

Few specifics about the turnaround plan were offered in the after-earnings conference call. Mayer said some of the most substantial changes would be in the "big entry points into our system," such as the home page, search, and email.
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