Yahoo Restructuring: What About Hosting?

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The exterior of the super-efficient Yahoo Computing Coop data center in Lockport, New York.

It's been a full six months since corporate upheaval at Yahoo prompted us to wonder whether there are changes in the wind for the company's hosting and data center operations. Back in September it was the departure of CEO Carol Bartz that triggered speculation. Now comes word (via Kara Swisher) of plans for a major restructuring and significant layoffs at Yahoo.

"While Yahoo has been subject to numerous layoffs over the years, none has been as large as what is now being contemplated to slash costs," Swisher writes. Yahoo confirms that its leadership is "engaged in a process that will generate significant strategic change at Yahoo, but final decisions have not yet been made at this point." The reorganization will reportedly target "marginal businesses" and "arenas in which the company has lagged."

What About Yahoo Hosting?

Both of those descriptions might be applied to Yahoo's web hosting operation, which was reportedly on the block during the last major round  of asset sales in 2009-2010, but failed to sell and has been losing ground ever since. Yahoo Small Business was once one of the largest shared hosting operations in the U.S. That includes its online store, one of the leading turnkey e-commerce offerings for small businesses.

But since it was taken off the market in early 2010, Yahoo Small Business has shrunk from about 2.2 million domains hosted to about  1.65 million today. The recent trends indicate the decline is continuing, with Yahoo losing about 5,000 hosted domains per week. Meanwhile, competitors like HostGator and BlueHost are gaining between 6,000 and 10,000 domains per week.

Is hosting a part of the core vision for Yahoo, which in recent years has focused on content and advertising. If not, is there a buyer for the Yahoo hosting operation? Some of the companies that reportedly made offers to buy all or part of Yahoo are also players in the infrastructure business. Silver Lake Partners, which reportedly among the groups seeking to invest in Yahoo, is part of the group that bought Go Daddy last year, and is also a major investor in Vantage Data Centers.

What About the Data Center Budget?

The cost-cutting would also seem to call into question some of the big-ticket capital expenditures planned for the company's infrastructure. In early 2011 Yahoo said it would invest at least $500 million in further expanding its data center network. The company has also been preparing a new data center design for a series of next-generation facilities it plans to build in 2012 and beyond.

Nonetheless, in recent weeks, Yahoo's data center team has been moving ahead with its plans to expand. Last month there were reports that Yahoo was close to finalizing a deal to buy another 14 acres of land adjacent to its data center in Lockport, New York.

As we've previously noted, Yahoo's data center team has been overhauling its infrastructure to run its IT infrastructure more efficiently, saving many millions of dollars in energy and construction costs using a unique "chicken coop" design that runs almost entirely on free cooling. The bottom line: Yahoo's value is rooted in its huge audience, and the company needs data centers to continue serving content to support its ad revenue.