Yahoo looks to regain past glory with location services

By moving into the hot location-based services market, Yahoo Inc. hopes to shed its second-tier status and return to its place as a major Internet player.

Yahoo made several moves to reassert itself today at the seventh-annual Web 2.0 Summit in San Francisco. Most notable was its unveiling of a service called Local Offers that it said will give users information about local merchants along with coupons and information on deals at stores in their neighborhoods.

With the move, Yahoo follows top Internet players like Google and Facebook into the location services business.

“People have largely written Yahoo off, and it will take a great deal to get them to reverse that opinion,” said Rob Enderle, an analyst at Enderle Group. “But this works around where Yahoo was traditionally strong and consistent — the super portal model that the firm was built around.”

Yahoo was an Internet pioneer with its early development of a search engine, an e-mail service and news aggregation tools.

However, in recent years, Yahoo has slipped far behind Google in the hot search market while Google’s Gmail service has taken a huge chunk of the free e-mail market that Yahoo once dominated.

In the search business, Yahoo has joined forces with Microsoft to take on Google . The agreement between the two companies calls for Microsoft’s Bing search engine to power the search tools at all Yahoo sites.

Now Sunnyvale, Calif.-based Yahoo is looking for another boost to its business. A well-implemented location-based service could be just what the doctor ordered, said Augie Ray, an analyst at Forrester Research.

“Yahoo doesn’t have the luster it once had, but it remains a powerhouse site with significant traffic and users,” said Ray. “That said, it has to innovate to stay relevant, and its local strategy is a good innovative step.”

Foursquare, an early entrant in the location services market has been deeply into that business for a while now. And last year, Google unveiled Latitude , a service that lets people use mobile devices to track the exact locations of family members and friends. This past summer, Facebook jumped into the fray by launching Places, a smartphone-based service that enables users to let their friends know where they are.

Now Yahoo is looking to build its own location services niche by bringing neighborhood merchants and consumers together.

“Be where the consumer is. This is about mobile,” said Blake Irving, Yahoo’s chief product officer. “Consumers love local offers, but today it’s difficult to find the best local deal. They have to dig through coupons that come to their front door or postal mailbox. Yahoo can make this much easier for them.”

Ray noted that Yahoo is smart to try a different take on location services.

“Yahoo’s approach is different. It isn’t focused on creating yet another check-in service or a place for consumers to submit ratings and reviews,” Ray said. “Instead, Yahoo is offering the kind of neighborhood-based content that people want. The design is simple and works well both on a PC and in a mobile browser, which can further help adoption.”

However, Enderle warned that Yahoo must do a good job marketing the service, something that the company has struggled with in the past.

Local Offers could pull people back to the Yahoo sites, but only if Yahoo can get the word out about it, he noted. “Marketing will have to step up,” Enderle said. “But Yahoo hasn’t shown much competence in marketing of late.”