YAHOO SURRENDERS

Burlingame, California: Executives of Yahoo! talk about Wednesday's big ad deal with Microsoft using words like "synergy." The better term might be "surrender." By becoming, in effect, a search-less search engine, Yahoo! is practicing the sort of "hollowing out" that has been the strategy of last resort for struggling tech companies for more than a decade.

Yahoo! may have a popular finance site and an e-mail service that's one of the most popular on the Web, but the engine for its success has been search. Its corporate fortunes have waned with the decline of its search market share. Barring it having some unexpected but epic success in some new realm like social networking, it's hard to imagine a successful Yahoo! that didn't rest on a foundation of successful search.

So why then would Yahoo! want to turn over the core of its business to another company--and a potential rival at that? Because the conventional wisdom of business strategists at the moment says there's nothing wrong with doing so.

Chip maker Advanced Micro Devices, for instance, recently said it was getting out of the semiconductor manufacturing business. It would no longer manufacture the microprocessors it competes with Intel over; instead, that work will henceforth be done by a subsidiary.

While Intel is also dabbling with outsourced manufacturing, it still sees its wholly owned factories as a key competitive advantage and has no plans to give them up.

Contrast AMD's moves with recent steps by Apple, whose current successes are well-known. Aware that the usefulness of its phones and music players are intimately connected with the functioning of the chips inside the devices, Apple has realised it can't exclusively rely on outside chip makers for something so central to its prosperity.

As a result, the company has been on a hiring binge for electrical engineers, and is starting to do in-house the sort of chip design work it had previously left to others.

No one expects Apple to be building a semiconductor manufacturing plant any time soon. But Steve Jobs has clearly recognised that his long-term interests are best served by having more, and not fewer, in-house chip design capabilities.

The moral is straightforward: Successful companies control those parts of their business that are core to their success; unsuccessful ones can't afford to and make excuses for why they don't need to in the first place.

If Yahoo! is unwilling to put a stake in the ground over search, it's difficult to image what part of its business it regards as worth fighting over. Will it next outsource e-mail, or financial stories, or display ads?

As with abandoning search, any of those steps might give the stock a short-term bump as investors fixate on whatever modest short-term revenue bump the deals make possible. But each time it does that, it becomes more of a shell of its former self, less in control of its own destiny and less able to deal with the inevitable new challenges that it will face.