Alibaba’s IPO has come and gone and with it Yahoo has lost the role of Alibaba proxy and its shares have begun to slide. Yahoo’s Wall Street honeymoon, if there ever was one, is over, leaving the company trying almost anything it can to avoid sliding into oblivion. Having covered Yahoo continuously since its founding 20 years ago it is clear Y! has little chance of managing its way out of this latest of many crises despite all the associated cash. But — if it will — Yahoo could invest its way to even greater success.
Yahoo CEO Marissa Mayer, thinking like Type A CEOs nearly always seem to think, wants to take some of the billions reaped from the Alibaba IPO and dramatically remake her company to compete again with Google , Microsoft , Facebook, and even Apple.
It won’t work.
Those ships have, for the most part, already sailed and can never be caught. Yahoo would have to do what it has been trying to do ever since Tim Koogle left as CEO in 2003 and regain its mojo. There is no reason to believe that more money is the answer.
It’s not that Mayer isn’t super-smart, it’s that the job she is attempting to do may be impossible. She has the temperament for it but the rest of Yahoo does not. Even if she fires everyone, Yahoo still has a funny smell.
In practical terms there are only two logical courses of action for Mayer and Yahoo. One is to wind things down and return Yahoo’s value to shareholders in the most efficient fashion, selling divisions, buying back shares, and issuing dividends until finally turning out the lights and going home. That’s an end-game. The only other possible course for Yahoo, in my view, is to turn the company into a Silicon Valley version of Berkshire Hathaway. That’s what I strongly propose.
Mayer seems to be trying to buy her way ahead of the next technology wave, but having been at this game for a couple of years so far, it isn’t going well. Lots of acqui-hires (buying tech companies for their people) and big acquisitions like Tumblr have not significantly changed the company’s downward trajectory. That’s because that trajectory is determined more by Google and Facebook and by changes in the ad market than by anything Yahoo can do. It’s simply beyond Mayer’s power because no matter how much money she has, Google and Facebook will always have more.
It’s time to try something new.
While Berkshire Hathaway owns some companies outright like Burlington Northern-Santa Fe railroad and GEICO, even those are for the most part left in the hands of managers who came with the businesses. At Coke and IBM, too, Berkshire tends to trust current management while keeping a close eye on the numbers. Yahoo should do the same but limit itself to the tech market or maybe just to Silicon Valley, keeping all investments within 50 miles of Yahoo Intergalactic HQ in Sunnyvale.
Yahoo’s current stakes in Alibaba and Yahoo Japan are worth $36 billion and $8 billion respectively and Alibaba at least appears to be on an upward trajectory. With $9 billion in cash from the Alibaba IPO Yahoo has at least $50 billion to put to work without borrowing anything. $50 billion is bigger than the biggest venture, private equity or hedge fund.
Mayer is smart, but maybe not smart enough to realize the companies in which she is interested could do better under their own names with a substantial Yahoo minority investment. That would leverage Yahoo’s money and allow a broader array of bets as a hedge, too. Mayer can pick the companies herself or — even better — just participate in every Silicon Valley B Round from now on, doing a form of dollar cost averaging that puts $15 billion to work every year. With future exits coming from acquisitions and IPOs (and possibly winding-down its own tech activities) Yahoo ought to be able to fund this level of investment indefinitely. Yahoo would literally own the future of tech.
Silicon Valley companies that make it to a B Round (the third round of funding after seed and A) have dramatically better chances of making successful exits. Yahoo wouldn’t have to pick the companies, Hell they wouldn’t even have to know the names of those companies, just their industry sectors and locations. Forty years of VC history show that with such a strategy investment success would be practically guaranteed.
As opposed to the company’s current course, which is anything but.
If Yahoo made its sports pages a legit alternative to ESPN, they’d have a chance. Instead they have the same liberal slant, only more so.
Yeah, that’s definitely their main problem. An overly liberal approach on sports pages.
It’s not just ESPN. It’s the pink bats – they are a liberal conspiracy if I have ever seen one!!! Bring back bare knuckles boxing and leather football helmets, that will surely cure what ails Yahoo.
… and stop calling me Shirley!
First problem is they have a female CEO. Folks in europe still know you never entrust a woman with major decisions. Yahoo would rather be politically correct than make money. So they are doomed.
http://en.wikipedia.org/wiki/Angela_Merkel
http://en.wikipedia.org/wiki/Indra_Nooyi
I would advice the same for Microsoft as well – huge pile of cash and nowhere to go in terms of products and technology.
Also, maybe Yahoo can shortcut by buying VCs – just get their portfolios…
At least Yahoo’s brief mention in the movie “Frequency” will always be around. To MikeN’s comment above, I find Yahoo Sports’ revamped appearance hard to read. I have preferred CBSSports.com and especially their Android app for a cleaner appearance.
Bob,
What you say is true. They could do that, and there are probably 3 other strategies that will work. At Yahoo! and at IBM the problem is the same. They would have to change the glasses they use to see the world.
Yahoo! is a tech company. Marissa came from a tech company. They see themselves as a tech company.
To change their point of view to an investment company, even if that is a money machine, can not be done. People have a hard time making a big change in how they view themselves and the world. The only time that happens is when they hit bottom or have a big traumatic event. When a company hits bottom, that big comfy cash cushion is gone.
I worked at a company that made phones. After cell phones killed their market, they still make phones, despite great alternatives. Disk companies make drives, even though SSD is stealing their lunch money. I could go on, but you get the idea.
They could do great things with the cash, same for Microsoft, and be the Granddaddy of the next two tech revolutions. Not gonna happen. Now I am sad, sigh.
If you actually knew something about HDD and SSD business, you wouldn`t be writing that.
Same for Microsoft and their overseas cash.
There is one market that has not been addressed by Google or Facebook. It is taking over and controlling the privacy market. Facebook has sold its soul for advertising dollars. Google is in bed with the government and if you think Android has any privacy, you are very misled. Apple has the walled garden but it really watches its users for control and profitability. Yahoo could re-direct its image towards protection of privacy as the privacy company and the social network for those who want privacy, she’d have her niche.
The rise of the internet of things and manufacturers who wish to monitor you in the home will also help propel the privacy niche and yahoo could be the island of privacy, the shelter in a storm full of people trying to monitor and target advertise you to death.
She could move the company mail servers to Switzerland for privacy and protection from US and UK subpoenas, Invest in cryptographic research and start moving the ship.
Market, blah blah blah. What’s your product? Bewiefs? Feewings?
@Darth, you may have something there. When idiots like Jonathan make fun of you its because they are afraid you might be right and that means always a market to exploit. Just secure and encrypted email in a jurisdiction that can’t be subpoenaed is an interesting product, along with a variable encryption service. There is always the storage of data from internet appliances where you could copyright it and maybe sell it instead of just giving it away.
Why not work with Apple and focus on Healthcare Environment, exclusively, using the concept proposed by Darth!!!
I don’t know if you’ve noticed, but Switzerland isn’t quite the haven for those who wish to keep their affairs private that it used to be. If the Gnomes of Zurich bend over and spread ’em for the IRS (which must have attained its international mojo with a little help from Penn & Teller), a server farm would be about as safe as a farmer’s daughter in a frat house party.
Wishful thinking, and a pipe dream. There are far too many levers of control that prevent any large company from becoming the white knight of digital privacy. Apple and Google have pushed back but have gone about as far as they can for now. Switzerland is no longer a safe haven for anonymous international banking, and Ireland’s days as a tax refuge are numbered. When it comes to privacy, despite the domestic laws that may exist in certain countries like Norway presently or Sweden formerly, politics and economics will always circumvent.
Regardless, if Yahoo attempts to reinvent itself, it needs to be an evolutionary process, not a quick gender change operation. Such a process would allow enough time for a firm, steady hand to remake the company into an entirely new entity. Whether any CEO of a major tech corporation has the clout to do so is doubtful, unless Steve Jobs rises from the dead.
I like this. The name yahoo invokes the web of the 90’s which I think immediately poisons the well for “transformation”. By becoming a tech “Berkshire Hathaway”, yahoo can turn this around and use its age as an asset.
This might work for Microsoft as well as part of a larger strategy. I’ve held that MS should wall off Office/enterprise into a wholly owned subsidiary, buy Steam and start distributing all types of software through the platform.
> The name yahoo invokes the web of the 90’s
Or Gulliver’s travels, for the few that read that worthy book.
Do they still delete all your mail if you do not check it for three months?
Bob, excellent.
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Not only is this a good idea, but it could bring about the culture change Yahoo needs so badly. If you go back and look at Yahoo’s existing services — you will see many of them have great potential but are falling behind. If they became financially separate divisions and made them responsible for their success, it could be the kick start many of them need.
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Great CEO’s look at every division — How much money are they making? How are they doing? Are they growing in their market segment? What do they need to do to become a LOT better? They look for both cost reduction and investment opportunities. Every Yahoo division needs to be under this microscope.
I like this idea. Essentially they would be the BASF or DOW of the software industry. Why compete with companies to whom they already lost? A better approach would be to invest in companies and ideas so they can sell the properties for handsome sums to entities that would otherwise competitors. In other words, why compete with companies when you can get them to directly give you money?
I noticed Yahoo impacting my world in a really big way which makes me think they are on an upward track. Yahoo has the best Movie site with more trailers to watch for each film release than any other site. They have the number one photo storage sight, Flickr, which gives you a terabyte of free storage to store a lifetime of photos. Then the more recent addition is YahooTech, headed up by David Pogue. YahooTech seems like the number one tech site for the masses, in my book.
With these three strongholds, I see Yahoo on an upward track in-spite of the fact that their free mail service is unreliable.
Wait. Do you mean that Yahoo shouldn’t buy AOL?
If I were sitting at the top of the board or senior management of Apple, Facebook or Google that’s exactly what I would want Yahoo to do. Self eliminate itself as a competitor and become a venture capital and investment financial management house, another has been firm that becomes dependent, not leading.
Except that they’d provide the seed money for Google’s and Apple’s next gen competitors. Maybe Yahoo gets out of the direct competitive work, but they could have the last laugh.
How about Yahoo go in the direction of creating an app store and partnering with mobile and table device makers in the Android space? Google will not survive as the dominant app store for android and Amazon is already trying to gain market share in Android. There could be room for 3 major android app stores. This might not be too crazy considering some of the recent partnerships happening to try to take on Google. For example, Blackberry has chosen to allow the the Amazon appstore access in their 10.3 OS. Samsung has partnered up with Amazon to create the “Kindle for Samsung” app that has a free book a month. Also, Google has introduced more Google play store restrictions recently to the Android device makers.
I think the Android device makers are getting nervous about the Google play store dominance and are seeking out alternatives. Yahoo has the cloud infrastructure already and the money to expand into mobile/tablet apps and possibly enterprise level apps to compete with Google and compete with the recent Apple/IBM partnership.
Damn – I love this blog and for the first time ever I have totally disagreed with the last two articles published. Are you OK Bob? The one on HR has me so steamed I can’t even comment. This one is short sighted and rooted on old school visions of what Yahoo is. think bigger. Yahoo is building something no other company is creating on the web; essentially a one stop property for news and entertainment.
So is microsoft and facebook? I mean, web portals have been a thing for awhile. They’ve also been dying for awhile. I guess the competition dying out means they’ve proven they can endure, and continuing to invest in it means they will not necessarily be outpaced by msn. I don’t see the point in portals like that, since I know if I’m not paying then I am the product, and I can get what I want by navigating there myself. I can’t even get my webcomics in Yahoo, so it could never be a one stop hub for anyone with interests in similar niches.
Bob what you say is the truth, the whole truth and nothing but the truth, but ike most of your insight and sage advice it will be ignored and then in 10 years or so you can put out Yahoo book to follow up your IBM story. I know the company is in the toilet or at least commencing to circle the drain because just two days ago they asked me to join their Project Weather on Flickr and favoured some of my photos and asked for me to publish more of them into the group. I mean come on, a blind goat could take better photos than me. They are desperate.
Having said that, while they are desperate to find growth to make themselves relevant they are also quite inconsequential in the tech sphere. They are not a threat to the big 5. I think the big boys will let Y! bleed out and watch it fade away into oblivion, I don’t think anyone would be interested in buying them out, at least not yet. Maybe if they join forces with Amazon or Space X or Tesla even, then we would have an interesting wrench in a machine to talk about.
Wait Bob.
The implicit concept in what you are saying is that the innovation in the Internet is finished because the space is all filled. But though FB, Amazon and Google occupy a certain amount of space, a lot indeed, it doesn’t mean that other space isn’t available. It’s the space of new ideas, innovation and re-innovation (do someone remember the Alta Vista quasi-monopoly during the 90?). Don’t take off Yahoo hopes… well it is our hopes too: we all are searching to get a slice of that space.
Yahoo is a web company not a tech company and has an history, a brand and a legacy to respect, so why not trying innovating the web, again?
With that pile of money they can seek for the next great idea somewhere around the world and buy that one and give that idea the chance to get try and publish that idea under their brand. Why not? They could fail hundreds of times and hit the target once to be successfully again or perish in their attempt but they can’t become a VC because THEY ARE a piece of the web… at the same way that IBM is an hardware vendor not a cloud service provider.
Bob,
Here’s an out of the box idea. The U.S. needs some way to encourage small business startups. Yahoo! could set up a division that would assist small business startups. They could supply micro loans, business software, advisory services, and so on.
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They might even focus on those firms that exploit new frontiers – 3D printing, low-cost college education, alternative medical treatment, etc.
I really like your idea. In the end, that means that Yahoo encourages startup tech outside of the purview of VC firms. And, to be honest, if Yahoo decided to take that approach toward companies not in Silicon Valley but in other spots around the country, they could encourage a technical renaissance.
Yahoo’s interference with Flickr hasn’t worked either.
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They took a product which was increasingly popular for the pro-am photographer and happy snapper but ruined it. In the digital age where people want to share photos they managed to miss the point and resulted in a slow site which only added more and more clicks to get to the content you wanted.
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Less is more; Yahoo should simplify to expand.
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I do like the idea of the investment fund. Not just because it’s a good idea, but one of those companies may just end up bigger than Yahoo. Getting in near the ground level could be the best move Yahoo ever makes.
I just hope Flickr survives.
I was thinking about this last night. Is Yahoo really in trouble? I looked at their financial statements last night. Their revenue has been dropping a bit each year. Yes — that is not good. However they are still nicely profitable. Excluding 2012 where they made an unusual amount of money, Yahoo has been operating on a consistent 20-25% profit margin. Yes — one would expect a “tech” company to do better. But the important thing is Yahoo is not in trouble.
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If you compare Yahoo to IBM, you’ll see IBM has been losing revenue every quarter for quite some time. They are maintaining earnings by wrecking the company. Yet IBM’s stock is high. Why is Wall Street rewarding IBM and punishing Yahoo? How do you determine if a company is doing well? By the stock price?
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IBM is popular because lots of people want to sell and buy their stock. Some believe IBM will make more money and buy their stock. Others believe IBM is in trouble and are selling their stock. Wall Street makes money whenever a stock is bought or sold. IBM is popular because many want to buy or sell it. Wall Street loves this. Yahoo on the other hand, though nicely profitable is boring to Wall Street. Fewer investors are trying to buy or sell Yahoo stock.
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Maybe this is a good thing for Yahoo. Maybe it is better for them to fall off of Wall Street’s radar screen. Look at what is happening to IBM. They are desperate not to disappoint Wall Street that they’d sink the company. Does Yahoo need this? I think most of us want Yahoo to survive, grow, and flourish again. The IBM way won’t work. They need to invest in the company.
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I think Bob has some very good ideas. I think the most important thing Yahoo can do is to ignore Wall Street and listen to their customers. The answers and opportunities will present themselves.
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Good luck Yahoo.
I don’t think Wall Street will leave Yahoo alone until they’re bought or sell themselves. I like Bob’s idea but think it should be Apple doing the own-but-keep-them-autonomous thing with Yahoo, Apple has mega-cash but no independent Web services and no social at all. Also no clear successor to Tim Cook. With Yahoo they immediately get Web scale and huge marketing clout to advertise iPhones/Pads and Watches. And a subsidiary company that’s still making a profit.
Yahoo will do neither. They may get lucky and stumble onto the next big thing, but I doubt it, but…
A white knight could save them. Maybe a large telecom company like AT&T could buy them much like the TImeWarner/AOL merger (I know it was a disaster), but with open eyes on what they are actually doing and will deliver, Yahoo content to AT&T customers. However AT&T should wait until the price is right, shouldn’t be to long.
> At least Yahoo’s brief mention in the movie “Frequency” will always be around.
Somewhere I have a Formula 1 picture book from the late 1980s. One of the cars is festooned with advertising from various computer companies. Miniscribe. Digital Research. Altos. Compaq… maybe a dozen of them. And every single one, long gone.
If what you say is true, and one can invest in every B-round of funding, beating the average NASDAQ performance, then some other firm could just as easily create an ETF and do just that. If all Y! has is just a sum of cash I don’t think that puts them in front of any other investment group.
Re: “If all Y! has is just a sum of cash I don’t think that puts them in front of any other investment group.” Good point. Yahoo has employees with a certain skill set. Investing may not be one of them. Just because one has excess cash doesn’t make one good at investing. Sure, they could hire investment types and fire their technical personnel, which would put them in a different business. Good luck with that! 🙂
Correct. ‘Anybody could put together an ETF’.
But who at Yahoo is Warren Buffett? [crickets]
Also, you wouldn’t NEED Yahoo. Why? Berkshire Hathaway’s HO is like, 17 people. They don’t ‘manage’ anyone-the co’s they purchase they do so for the legacy management.
Last, Mayer: a loser. Everyone up thread writes ‘she’s from a tech co”. Q: how many developers followed her from goog -> Yahoo?
A: none.
This prescription sounds like the end game you describe.
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Fundamentally it’s also against the inherent optimism in tech companies. I could see Microsoft following this strategy, but not Yahoo. Microsoft was always a clever imitator (lately not so clever), but Yahoo has been less of a me-too player.
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If Yahoo wants to remain an advertising destination they have to find a way to attract eyeballs and in mobile the OS vendors have staked out their own ad networks.
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That leaves content, a la Facebook, but is there compelling content for mobile eyeballs? Jeff Bezos bought the Washington Post thinking there might be in news. Yahoo could try buying up dying regional newspapers and create a new mobile syndicate.
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In the end I expect Mayer to go down swinging for the fences.
Dear Bob,
I remember an old joke from some time ago (perhaps from you?): Yahoo should purchase all of AOL’s assets including Netscape, move the company to Israel, and change the name to Netandyahoo .
Oh, a former prime minister, Benjamin Netanyahu. I didn’t get it at first.
According to http://en.wikipedia.org/wiki/Prime_Minister_of_Israel he is, and has been so, “since 31 March 2009”.
I stand corrected. Old Benjamin is both a former Prime Minister and the current Prime Minister.
[…] One woman in tech who isn’t underpaid is Yahoo CEO Marissa Mayer. Yahoo realized billions in profit from its investment in Chinese e-commerce company Alibaba which recently launched the largest IPO in history. Even so, Yahoo has struggled under a succession of CEOs to find a leadership position in the technology world. One tech watcher thinks that Mayer should use Yahoo’s increasing cash hoard to get out of being in a business and just own them instead, and in so doing become a technology version of Berkshire Hathaway. Warren Buffett has consistently avoided technology bets for the very good reason that he feels doesn’t understand them. Ms. Mayer (once a key player at Google before taking the reins at Yahoo) has the brains, background and bucks to make a go at this niche, and it may be the “One Way (Maybe the Only Way) Yahoo can Succeed.” […]
Perhaps Yahoo should invest in a company making metal foil drives.
Cringely-Old-Timer. 🙂
RE: Yahoo CEO Marissa Mayer, how can a CEO look THAT good?!
And how hard and how often can Yahoo founders David Filo and Jerry Yang kick themselves? Not enough. When Brin and Page were Stanford grad students and brought their search engine that would become Google to the Yahoo guys to try and sell it to them, the Yahoo guys said they weren’t interested and suggested Larry and Sergey start their own company. Doh!!!
[…] Prediction #6 — Yahoo is decimated by activist investors. Everyone has an idea what Yahoo should do with all that money earned from the Alibaba IPO. And when it comes to activist investors, their idea is generally that Yahoo should find clever ways to simply hand over the cash to shareholders. This will happen. It’s because Yahoo can’t move fast enough to avoid it. If Marissa Mayer thinks she’ll be allowed time to thoughtfully invest that windfall, then she could shortly be out of a job. In one sense it might be better for Yahoo to just make a big stupid acquisition that makes the vultures go away, though I prefer that she turn Y! into more of a Silicon Valley venture capital empire. […]
[…] Prediction #6 — Yahoo is decimated by activist investors. Everyone has an idea what Yahoo should do with all that money earned from the Alibaba IPO. And when it comes to activist investors, their idea is generally that Yahoo should find clever ways to simply hand over the cash to shareholders. This will happen. It’s because Yahoo can’t move fast enough to avoid it. If Marissa Mayer thinks she’ll be allowed time to thoughtfully invest that windfall, then she could shortly be out of a job. In one sense it might be better for Yahoo to just make a big stupid acquisition that makes the vultures go away, though I prefer that she turn Y! into more of a Silicon Valley venture capital empire. […]
[…] agrees with his favorite pundit that Yahoo! should spend all the money they raised from the Alibaba IPO funding other companies and good…. Chris thought this sounded like the often discussed “spray and pray” method of […]