Two weeks ago Yahoo made Panama, it's new search advertising platform, public and opened the service to all new Yahoo advertisers.  The company is still in the process of moving existing customers over to the new system, but the hype surrounding Panama was building for months prior to its release.  This was the system that was going to revolutionize Yahoo and make it competitive against Google.  BusinessWeek seems to think that Panama isn't enough.  In an article entitled "Why Yahoo's Panama Won't Be Enough", Catherine Holahan lays out a handful of reasons that Yahoo is still destined to lag Google, despite the release of Panama.

I agree, partially.  I don't think Panama is going to save Yahoo.  But I don't agree with Holahan's reasoning or assertions about what Yahoo should do to supplement Panama.

To start with, Holahan says "rivals have gained ground by focusing on other methods of delivering targeted ads and brand experiences to online consumers".  They have?  Show me some statistics that show Google, Yahoo's main rival, is anything but a search advertising company.  They're exploring radio advertising and print advertising.  They bought YouTube in the hopes of monetizing it.  But nothing has come of any of those things yet.  Google makes billions of dollars on search advertising and little else.  Don't tell me Yahoo is falling behind because other companies have jumped into other areas of advertising.  For the time being, that's just not true.

Next, Holahan states:  "The competition also has been working hard to sell advertising on the social-networking and user-generated content pages that have exploded on the Web in the past two years".  I agree that social-networking and user-generate content are emerging as some of the more popular forms of online content.  But to say the competition (Google) has increased its lead by taking advantage of those sites is a little preemptive.  Yes, MySpace is a popular website.  And yes, Google ads appear on MySpace.  But MySpace isn't the reason Google is successful.  Furthermore, I'm not convinced social networking is a good long-term advertising solution.  We'll see if Google's social media advertising is still paying off in a a few years.  My guess… it won't be.

I think Panama will actually close the gap between Yahoo and Google in the short term.  I say short term because I don't expect Yahoo to exist in its current incarnation in the long term.  I've been using Panama for a couple of weeks now and I admit that it's much, much better than Yahoo's previous system… but it's still not as good as Google's.  Over the next few quarters I suspect we'll see Yahoo's ad revenue begin to climb… to the point where its rate of growth might actually be higher than Google's.  Honestly, it really has no where to go but up.  When that happens, people will start talking about Yahoo's "comeback" and Yahoo as the next $500 stock.  But it won't last.  When the reality of the situation comes crashing home, and the newness of Panama wears off, Yahoo's rate of growth will crash right along with it.

In the meantime, Yahoo will be trying to compete with all of the perceived advances Google has taken.  They'll probably end up buying Facebook and will become so focused on making money on it that they'll be less search-focused.  While Yahoo, Microsoft, and even Google are busy spreading their fingers into as many markets as possible, some little guy… like Ask.com… will come in and surprise them all.  Why?  Because the company that focuses on search will ultimately have a better product.  Being "big" doesn't guarantee success.  Yahoo was bigger at one time.  And Google came out of the virtual woodwork and crushed them.  Someone else will come along and do the exact same thing to Yahoo again.  And maybe even Google.

Holahan also talks about several external factors that have led to "the slump" in Yahoo's business lately.  Competitors… new start-ups… and even advertisers.  The cause of Yahoo's slump ultimately has nothing to do with any of those external influences.  Yahoo is in a slump because they've been trying to focus on too many things for a long time.  They want to be everything to all people.  They've expanded beyond their means.  They've been making a lot of bad choices.  Their internal management structure is a mess.  Ultimately, Yahoo is in a slump because the company is being killed off slowly from the inside by bad choices, bad management, and a lack of focus.

Finally, Holahan suggests that advertising marketplaces might be a good way for Yahoo to squeeze every last bit of money out of advertisers.  In fact, she quotes an analyst as saying that Yahoo could earn an extra billion dollars in revenue from such a tactic, specifically one focused on social networking sites.  I don't see that happening.  AdBrite has been trying to get us to do the same thing for years.  It hasn't really worked that well for them.  I mean… they're not up there with Google in advertising dollars.  So no, I don't think that will work either.

Bottom line:  Yahoo is in the situation it's in because it got beat.  Google's product is better, Google's infrastructure is better, and Yahoo is spread too thin to even be able to react.  By the time the damage was done, there wasn't a thing that could be done about it.  And that's why I don't think an independent Yahoo will even exist in the long term scheme of things.  They'll merge… they'll get bought out… something.

So no, Panama will not save Yahoo.  In the coming months and years, I think Yahoo's fate will become all too apparent.