I said it before and I'll say it again: the only winner in the trifecta between the Google-Yahoo-M$ drama would be Google. As the dust from that war settles, it's clear now that Google had the upper hand at all times. While it was clear that Google would be the clear winner, the one company that wasn't a clear loser was Yahoo in all of this.
Perhaps, much of what we're seeing is really bad timing since Yahoo is in the midst of an economic meltdown. They have been trying to move forward from a technical viewpoint, now making their search completely open (Search Monkey), creating their version of an application engine platform for developers using PHP as their main language, moving into their own social space with Yahoo ID and OpenId as key components, as well as pushing forward with the media.
Despite all of this, they still do not have a single vision for a business model and seem to be relying primarily on advertising for their revenue source. The Google deal was supposed to help boost their revenue, but supposedly the regulators, in considering the deal a monopolistic pact between both companies, have apparently scared Google off at the last minute (ironically when Obama was elected president...hmmmmmm....). Some say that the AOL potential buyout was another huge factor.
Whichever way, Yahoo's prominence in the market is fading fast. But only if they solely intend to depend on online advertisement as the key factor for their revenue source. They are a good competitor to Google, but they are unfocused and would need to shutdown many services and refocus their business areas to target Google's online advertisement/search marketing strategies if they want to reclaim that part of the market.
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