Yahoo Open Strategy could be its salvation

As its stock price plummets, Yahoo's executives must do something tangible and do it quickly to prove to shareholders that fighting a takeover bid by Microsoft was the right thing to do, analysts said this week.

One area where industry observers see hope for Yahoo is in its ambitious plan to use the success of social networking in an initiative called Yahoo Open Strategy. Under the plan, Yahoo will open all its sites, online services and Web applications to outside developers, and give users a "social profile" dashboard to unify and manage their Yahoo services.

Meanwhile, as expected, Yahoo's shares closed down 15 percent to US$24.37 on the first day of trading after Microsoft pulled its offer to acquire the company for $33 a share, or about US$5 billion more than its original offer. Yahoo turned down the offer, saying it undervalued the company, and wanted $37 a share.

Among other moves that Yahoo could be taking to increase the company's value is a reported deal in which Yahoo would outsource its search advertising to Google Inc. However, a deal between Yahoo and Google would raise antitrust questions because of Google's dominance in the search market.

Another possibility is some kind of deal involving AOL. At one point, Yahoo was reportedly in talks with Time Warner Inc. to combine its Internet operations with AOL. Time Warner was also to make a cash investment in exchange for 20 percent of the company.

But the scenario that appealed to some industry observers is Yahoo's Open Strategy initiative, which it started forming last year and was launched internally in September. If Yahoo is able to move ahead with the strategy, it could pose a major threat to the appeal of MySpace, Facebook and other social networks, and give Yahoo the boost it has been seeking for years among Web users, according to analysts.

Karsten Weide, an analyst at IDC, said Yahoo's Open Strategy has exciting potential. "I wouldn't have used the word 'exciting' with the name Yahoo for a long time, but those are actually quite exciting initiatives," he said.

Weide said Yahoo Open Strategy would open up Yahoo as a platform to external developers, similar to what Facebook has done.

"With Yahoo OS, the company unveiled both its new long-term strategy and that strategy's most important component," Weide said. "The hope is that [the strategy] will combine to increase audience reach, traffic, advertising inventory and, consequently, advertising revenue growth," he said.

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