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Yahoo's Next Problem: Facebook IPO
The Street | December 01, 2011 | 02:01 PM EST

As Yahoo looks for the best deal among a host of potential suitors, its problems may only just be beginning.

Facebook's initial public offering in 2012, and the resulting corporate war chest, will post a formidable challenge to Yahoo's main revenue driver: display ads.

"Yahoo's challenge to defend its display business as Facebook emerges is similar to Yahoo's challenge when Google emerged, in that Yahoo appears stuck on a legacy platform and unable to adapt," says Clayton Moran, an analyst with brokerage firm Benchmark Capital.

With new capital from an IPO, Facebook may aggressively bolster its strong display capabilities, which rely on social media engagement.

In contrast, Yahoo and its highly visited websites are a leading producer and aggregator of news content that isn't reliant on so-called mindshare such as "tweets," "likes," and other social postings.

For Yahoo, such a competitive boost may pose a similar threat as Google's IPO in 2004.

Already, Facebook is presenting a giant challenge to Yahoo. In September, the company rolled out features that allow users to share experiences with friend networks, while simultaneously consuming news.

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