So, was Icahn speculating on price alone -- based on Friday's closing price of $11.51 Icahn has an unrealized capital gain of about $10 million -- or is he investing in the longer-term prospects for Yahoo?
My guess - and it's strictly a guess - is that he's betting on the medium term. I don't think he's planning on taking over the company himself. My guess is that he's hoping someone - presumably other than Microsoft - will buy it.
I find Yahoo! fascinating, in an odd sort of way. I use Yahoo! Mail, which works well, and I occasionally click on stories on the front page. But I also think of it as a great missed opportunity.
Is Yahoo! a media company, or a tech company? I'm not sure management knows. It started out as a tech company, and it still functions that way in some respects - the aforementioned email, for example. It is still operates a search engine. I have bought almost all of my domain names through Yahoo!, because it's easy. But I blog through Google, because I never could figure out how to do it through Yahoo! And, of course, GeoCities is a shell of what it used to be. And what it could have been.
On the media side, Yahoo is obviously a new media company, but it's sort of an old media company's version of a new media company. I'm generalizing here, but it seems like a vast majority of its content is simply aggregated from somewhere else. God knows it's comprehensive - pick a mainstream news topic, and you can probably find it on Yahoo! College basketball? Sure. Latest from the Mideast? In here somewhere. But it doesn't generate much new content, if any. There is no original investigative reporting done for Yahoo! Which is fine, because it's a media company, but not a journalistic enterprise.
It seems to do many of these things well. But I don't really care. I tend to find my information at sites that are either specialized, or that I know will have detailed information in a place that is easy to find. For example, on Saturday night, I wanted to find out the score of the USC-Notre Dame game, so I went to latimes.com, because I know that, for the LA Times, covering the Trojans is a high priority. I'm sure Yahoo had that as well, but it will be part of the overall college football coverage.
The economic rationale for a search engine is simple: it gives you the ability to do something that you could not otherwise do. Without search engines, the Web would be a vast wilderness, nowhere nearly as rich as it is now. The price you pay is an ad on the page of search results. A very small price for a great benefit. For the consumer, that's a sweet deal. It also makes sense for the company, because delivering the product costs very little, and it's highly scalable. The bandwidth and computing costs for each search are almost negligible.
But the economic rationale for a media aggregator like what Yahoo! has become are very different. The costs are much higher, and it's harder to differentiate your product from your competitors (who may also be your partners).
Yahoo! has many things going for it. It's at the center of a vast network; it has relationships all over the world. I don't think it's necessary for it to choose to be either a media company or a tech company; I think might be able to pull off both. But it has to be excellent at both. Right now, it's a decent tech company, and it's a decent media company. But Google is a great tech company, and the New York Times is a great media company. There are many other great tech companies, and many other great media companies. Right now, Yahoo! is neither.