Coming so soon after Google's YouTube coup, the results have hurt Yahoo's image — particularly given the recent commentary that Yahoo has been slower to respond to the changing online marketplace than Google.
Irrespective of all that, Yahoo remains the world's most popular website, with more than 400 million monthly users, and is a leader in areas such as email and instant messaging.
But the growth of social networking sites is taking some of the sheen off Yahoo, with advertisers shifting advertising budgets in favour of sites such as MySpace and YouTube.
In Asia, the portal remains a dominant presence in all of the key markets, thanks to a localisation strategy that has reaped rich dividends from key clients.
Its joint venture in Japan with Softbank leads that market, along with Yahoo properties in both Hong Kong and Taiwan.
Yahoo CEO Terry Semel has, however, called the Q3 results "unsatisfactory", and is hoping that its new search marketing platform — 'Project Panama' — can turn things around.
Yahoo hopes the news system will enable it to better challenge Google's search market dominance, when it launches in the first quarter of 2007.
Meanwhile, Wall Street remains uneasy — a feeling that has been given greater clarity by Google's dazzling Q3 results one week later.
The consensus view appears to be that Yahoo must buy again, despite acquiring popular photo-sharing site Flickr last year.
The company is reportedly in talks with social networking site Facebook, even as it contends that it feels no pressure to announce a big social media deal.
Diagnosis 1
Is Yahoo really in trouble? The reality is that Yahoo is the most-visited site in markets such as the US, Hong Kong, Taiwan and Japan. So why all the negative buzz? As with many things in the digital world, it is not about who you were yesterday nor are today, but who you will be tomorrow.
And that is where the problem lies with its business and brand. Users don't connect with the once-edgy Yahoo brand as they do now with social media brands like YouTube and MySpace, along with search brands like Google and Baidu. This is seen in the ever-increasing and 'sticky' user traffic on competitor sites. And where users go, ad dollars inevitably follow.
To reverse its negative momentum, Yahoo must leverage its lead in countries like Hong Kong and Japan, where global brands like Google and Fox have limited traction. Be the first to market or acquire quickly when a fad becomes a trend, like social networking or video sharing. Show users, advertisers and the overall market that it is as nimble as it used to be, and can out-hustle local and global competitors. Only then will users believe the brand is still relevant to them. And when that happens, the ad dollars will follow, and Yahoo 1.0 can upgrade to 2.0.
Lawrence Wan, digital director for Greater China, OMD
Diagnosis 2
So far, about 400 million monthly users seem to think that they can get what they want from Yahoo, which is no small achievement. Growth may be slow, but even small percentages translate into large numbers at this point. The recent decision of Yahoo to scale back its promised foray into content production seems to be a wise choice.
With so much content being created by users, did it really make sense to go into this field?
Probably not — and as Google has indicated that it has no intention of following this route, it would have put Yahoo in the unenviable position of being in competition with existing film, music and other content producing companies.
Why compete when you can negotiate to get content or allow others to produce it for you?
It was probably this business intention that allowed Google to negotiate from a partner position to secure deals, rather than from a competitive position, and thus undermine Yahoo's growth plans.
Overall, the doctor has indicated that the patient needs to be kept under observation. However, there are signs of improvement and the overall health of this brand seems to be stable.
Charles Cadell, president, Arc Worldwide Asia-Pacific