If there ever was a proof point for the importance of brand management, this is one. On the one hand, you have Yahoo! whose profits have fallen 23% just in the last quarter, and who has been all but replaced by Google in the search engine space. On the other, you have Microsoft. The behemoth whose efforts to join the search space have been thwarted by Google and who needs to make a sizable investment in an existing brand to even try to compete in this space. In today’s Business Week article, the author points out that Yahoo’s decline of Microsoft’s buyout offer is a highly risky move — one that may end the brand as we know it.

Maybe that’s a good thing. The brand as we used to know it was actually quite different. If you remember, Yahoo helped pioneer the search engine revolution, but with a different spin that they seemed to have forgotten: their communities. Yahoo built communities around search that started the whole Web 2.0 ball rolling. They offered one of the first examples of micro-targeting for advertising. They created brand evangelists that didn’t even know they were brand evangelists, just by being members of Yahoo sponsored affinity groups.

Their brand differentiation is still relevant today. Google hasn’t really gone down this road in a major way, and other search engines don’t have the brand equity that Yahoo has to become major players. Yahoo has both the brand equity and the momentum around their role as search community builder, that only they can really own this. It will require them to quickly reclaim this in a major way, but it is a way out of their free fall. By focusing on their core value and point of differentiation, they can demonstrate to Microsoft, Google and the world that they are still a brand to be reckoned with. But will they? That is the billion dollar question.

–Jen Travis