What Yahoo Should Do

In this economic day and age, cash is king.  As markets, industries and companies delever in what seems to be a chorus of balance sheet  deflation, the value of cash as an investment vehicle has increased exponentially.  What does this have to do with Yahoo’s strategy ?

First of all, it means that MicroSoft would have to be roofied in order to part with the 10 to  15billion dollars in cash that some Yahoo shareholders hope they will pay for Yahoo Search. As of sept 30th, 2008, MicroSoft had about 14 billion dollars in net current assets.  Why anyone thinks that MicroSoft is stupid enough to give up what amounts to most, if not all of their liquidity is beyond me. Particularly when their net current assets have now fallen a little  below Google’s.  Between liquid assets and borrowing capacity, both have about the same amount of “powder”  in place in the event  “the next big thing” appears on the radar.  I doubt either wants to be at a disadvantage to the other when it comes to potential opportunities.

MicroSoft also has the issue of Facebook. They made a material investment at what was reported as a $15Billion dollar valuation.  So making a major  Yahoo acquisition probably means walking away from Facebook for the foreseeable future.  In what seems like an inconceivable situation, MicroSoft recognizes it doesn’t have enough liquidity to  buy one or both companies and  in these uncertain times, its smart enough not  to try to  lever up and use debt for acquisitions. So forget about any MicroSoft acquisition of Yahoo or Yahoo Search.

It is this recognition which I believe has  defined the Ballmer and MicroSoft strategy towards Yahoo. Ballmer has become the master of talking  in circles about what might happen with Yahoo. He knows when and how to say enough about Yahoo that it totally confuses the Yahoo Board and Executive Team. Confuse them he has. Rather than determining a strategy of profitability and growth, from my outsiders viewpoint, large shareholders and directors of Yahoo have become the “HuggyBear Contingent”. Just a group trying to dress up Yahoo in order to pimp it out to any bidder it can find.

Big Mistake.  Yahoo should be taking the exact opposite approach.

Yahoo has a very simple business. Generate traffic and monetize it. It generates traffic through services and content. It sells advertising around them both. Their strategy should be to acquire every and any company that makes their traffic, services, content or monetization stronger.

Yahoo should be the most aggressive acquirer on the planet right now.  In case you haven’t noticed, everything and anything owned by private equity firms in the media and  technology spaces are on sale at a huge discount.  VC’s are freaking out that their companies not only have no exit strategies, but might also have to close down. No PE or VC in the world wants to make a capital call. Which has created an amazing opportunity. The same on the public company front. Any company that has any level of dependency on advertising has seen their stock tank.  The opportunities for a company with a strong balance sheet won’t ever be any better than they are today.

Yahoo should be on the warpath, vetting each and every media (yes media) and technology company it can sit down with looking for bargains.

It should be taking Yahoo stock and finding every and any accretive investment in the internet and  media space that it possibly can. Some may argue that Yahoo stock is too cheap to use for acquisitions. I beg to differ. The speculation around a potential MicroSoft acquisition, along with a very strong balance sheet  has propped up its stock.  Compared to private and public would be targets, Yahoo stock is amazingly strong currency.

Yahoo should be taking a page from Larry Ellison’s  Oracle strategy of  “if you can’t beat em, eat em” . Ellison has done a masterful job of learning how to make both large and  incremental acquisitions and integrate them into  Oracle to make it a bigger, more competitive company.  Exactly what Yahoo should be doing.Yahoo should set a goal of making 20 or more accretive acquisitions in the next 18 months and then re evaluating where it stands.

If you look at it objectively, this economic crisis and Yahoo’s incredibly strong balance sheet have put it in a position to become a much stronger company via acquisitions. Rather than viewing itself as a straggler trying to push up its stock price. Yahoo needs to set a strategy of strength and acqusition. Yahoo has the opportunity to be the ultimate next generation media company. It is an aggregator of content and services that is the number one world wide digital media destination.  Google has a profound ability of not having any idea how to monetize content.  Google does one thing well, search.  Yahoo is and should be the best at everything else. It just has to stop being afraid of its own shadow

42 thoughts on “What Yahoo Should Do

  1. Pingback: Thoughts on a Yahoo/Microsoft Ad Deal « seed change

  2. MicroSoft had about 14 billion dollars in net current assets.
    heyy microsoft :@

    Comment by çiçekçi -

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  4. Yahoo!’s fundamental problem is marketing. “Do a Google search” and
    “Google it” will never go away. I was impressed when I started hearing
    TV ads where Yahoo! partnered up with a company and asked viewers to
    search Yahoo! for the product. Nevertheless, their search still sucks.
    Their icons are from the 90s (although the new site design is
    rather refreshing). And most importantly, no one knows about their
    products. Take a product, overhaul it, rebrand it and make it
    newsworthy. When was the last time Yahoo! had some free press
    because they had some killer app? The one thing I learned in high school
    programming was that if you want to get the money (or the A), you
    need eye candy. Will Smith also realized this when he got into the
    movie business: 9/10 movies were SFX so those are the movies for which
    he took roles. Functionality is important, but you need to stun and
    amaze and make it into a brand.

    I wish Yahoo! had “Be CEO for a day” because I would totally set the
    place in motion for domination.

    Comment by Dan -

  5. I think the aggregation without integration problem is affecting both Yahoo! and Google. But I see Google making moves to correct that. I hope Yahoo!’s new social networking framework gives them the leg up that they desperately need.

    Comment by Patrick -

  6. Great idea but wrong company analogy, Mark. Oracle is the wrong model. Cisco is the right one. Why? Oracle is akin to the borg; one mother ship product; one master brain; everything disappears into the core (ala Microsoft and Apple). Cisco, by contrast is all about M&A and post M&A integration in a synergistic fashion.

    When the company can’t even integrate its own existing products (as ssampier notes), and has failed every bit as poorly to integrate prior acquisitions, accelerating the process is like feeding mass into an entropic force. Light will not escape.

    Aggregation without integration is Yahoo’s problem and until they fix that it’s just more lipstick on the same pig.

    Comment by Mark Sigal -

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  8. Good idea, but there is no one at Yahoo with the guts to pull it off. Now that Yahoo has been de-Yanged, the remaining employees/directors are just looking to avoid the axe.

    Comment by econ365 -

  9. The problem is that Yahoo already can’t handle the aqusitions that it already has. There is no direction and a number of their services are competing with each other. This idea is only going to make that worse.

    Comment by Kris -

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  11. The sheep never kills the lion, I like the Cuban approach to attack when in a time of turmoil and attack in a time of abundance. Yahoo has the muscle to make the move but do they have the right leader to forge the path to internet dominance?

    Comment by brokerseye -

  12. The aquesitions note is interesting, but I have to agree with the various commenters that the inability to monetize their current brands as well as even identify their ownership of various brands is Yahoo’s key problem. I like the fact that currently they are cutting the fat, various endevers are being dropped. This will allow them to focus on their higher trafficed sites.

    With that said, I think both things can be done effectively. With a new set of management that realizes that finding out how to monetize the busy sites, would do great when new acquisitions occur. That way they now have big brands as well as money coming in from those brands.

    Comment by tblain -

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  14. I agree.

    That said they STILL need to cut head count. For every company they acquire they need to fire 2X the number of employees they brought in through the acquisition. Y! needs different people.

    Y! was already getting too fat when I left at the end of 1999 (and the head count then was about 3000 after we brought you guys in).

    Comment by eriklschwartz -

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  16. I am according with you, Yahoo! Forever

    Comment by dave -

  17. xyahoo is right that Yahoo’s big problem is lack of monetization. That’s pretty much every web-based company’s problem. But there are some success stories – MySpace Music, Linked In, Glam Media, Paid Content, etc. These and similar structures are figuring out monetization and should be the sorts of investment that Yahoo targets. With the right management team (a crew that gets the transition to prosumerism and structured multi-purpose content) Yahoo could make some sick moves during the downturn, even with stock as carrot.

    As web consumers are gradually converted to prosumers (their simple behavior is increasingly valuable and monetizable) the companies that can best convert their output to max add desired value to their web experience will win over their loyalty (The Mandate of Kevin). Yahoo is on the verge of seeing their traffic iceberg break-up because they can’t provide additional value such as Google Apps, Microsoft Office Online, great Search, increased traffic through federation, etc. Folks like Ballmer are licking their lips as they wait for the space at the top of the Alexa rankings to open up as Yahoo stagnates – a user exodus is perhaps as desirable as an uber-cheap Yahoo acquisition. What matters most to them is the opportunity to scale AND monetize their online presence. Yahoo’s move to open-source a bunch of their apps is a good move, especially in search, but the company needs to do a great deal more if it’s to avoid the fate of CNet, which just couldn’t make the most of an online empire. It needs some new brains that understand web content monetization, the prosumer shift and the emergent new structures that will enable both. The hardest part is that these brains must capably integrate new social media properties into the central brand without diminishing their niche appeal or hurting home-grown monetization strategies. This requires sticking to a leading-edge vision, something very counter-intuitive to leadership by stock-holders and/or execs that don’t get the nature and pace of the big transition.

    Comment by alvisbrigis -

  18. Have you noticed though that Yahoo! has really really sucked at obtaining value from its acquisitions. Kelkoo, Broadcast, Rights Media, Blue Lithium, Music Match all cost Yahoo 100s of millions of dollars and yet haven’t worked for them at all. Am sure I have missed quite a few bombs.

    Acquisitions are very risky business unless you can snap up companies for cheap.

    Comment by amitbehere -

  19. I agree Yahoo should be aggressive in courting new developers,
    companies, and products. However, experience shows that Yahoo is not
    very good at integrating any of their good products together. From
    the Yahoo homepage can you tell they own delicious, Zimbra, or Flickr

    Yahoo needs a good CEO and a good management shake-down. It’s
    fine Yang is still Chief Yahoo as long as he does not engage in self
    destructive behavior.

    To this new CEO and management, my thought is as follow:

    Yahoo is either a tech company, a media company, or an advertiser. It
    can’t do all of them at once. Sell off or license out its technology.

    Second, Yahoo probably won’t be the king of search anytime soon.
    However, it’s ad deal with Google was rejected. Selling search to MS
    may make sense short-term; a long-term partnership may make more

    Lastly, Yahoo brand does not have cachet. Google does (especially the
    15-35 market). You may want to work on that. I would especially gear
    advertising to your 40-60 year old executives who are fairly tech
    phobic. IBM does well in this field.

    Comment by ssampier -

  20. I posted a response to your thoughts over on SAI (as “iPhoney”). I’ll regurgitate it here:

    Yahoo really only has one problem: it doesn’t sufficiently monetize its traffic. Think about it. The yahoo.com homepage is the most visited web page. Half of all internet users cross Yahoo’s path. It’s a #1 or #2 in several major categories (Search, Mail, Messenger, Sports, News, Finance) with the notable exception of social networking. So the problem isn’t one of sufficient page views or users. It’s a problem of insufficient monetization.

    That’s why I disagree with your “grab share” strategy, Mark. Yahoo has to figure out monetization. Otherwise, they just grab more low margin page views. I don’t think their goal should be to become the Arcelor Mittal of the internet.

    Comment by xyahoo -

  21. Good comments Mark. I like the fact that you highlight the Yahoo’s strengths and focus on how to be the best in what it does vs. follow the leader approach of today.

    Another issue is that Yahoo is at core an editorially driven content company. It needs to retool itself to be more consumer driven. But these can be easily achieved if Yahoo focuses on what it truly is – content and a media company.

    Comment by mediayogi -

  22. Yahoo needs to be more sophisticated and literate before it can
    really take anything to the next level. It is a low end outfit,
    more Wal Mart than anything else, and that’s where it should
    stay unless it decides it wants to be a different kind of player.
    But what would they be giving up?

    Comment by neath -

  23. I am sorry but I disagree with you completely. If anything, Yahoo! needs to stop diversifying and start focusing on its core business. Going down the path of acquiring more startups for the sake of gaining traffic and “potential” advertising dollars has never actually worked out for Yahoo!. In fact, I would argue that Yahoo! wouldn’t be in the situation it is right now had the company stoped trying to be a dozen different things to a dozen different people. What Yahoo! needs is focus and empowered leadership.

    – Jawad Shuaib

    Comment by jawadshuaib -

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  25. I would say that the lack of interest in Yahoo is do more to the
    quality of Google’s products, rather than poor management on the part
    Yahoo. Google has decided to be a trend setter rather than the
    a follower (like Yahoo and Microsoft.).

    If I was in the drivers seat at Yahoo, I would give it a face lift.
    Simplifying the delivery of the content allows you to more precisely
    pinpoint advertisers content, theoretically increasing their return
    on their investment.

    Google’s approach is housed in simplicity, providing a simple
    search box, isn’t as distracting as the plethora of ‘Crap’
    on the Yahoo start page. To sum up my point, content delivery,
    as well as a lack of “useful” web and off line app’s is
    the crux of Yahoo’s problems.

    Comment by s1id3r0 -

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  29. I’m somewhat dismayed by this idea. Yahoo! just laid
    off 1500 bright, talented people, and you’re suggesting
    they should be acquiring companies? There’s something
    very wrong in that equation.

    Comment by vlbrown -

  30. Yahoo won’t get anywhere as an original content company until it can produce a single blog or property that isn’t an embarrassment to literate people everywhere. Just take a look at the daily blatherings from Yahoo’s writers: http://terriblywrite.wordpress.com

    Comment by Laura -

  31. Google’s contextual relevancy algorithms are far superior to Yahoo!’s contextual ad targeting algorithms. When Yahoo! was going to sign the search ad deal with Google part of that agreement even had Google powering some of the ads on Yahoo!’s Publisher Network.

    Comment by seobook -

  32. Hey Mark,

    Why aren’t you on the run to be Yahoo! CEO?

    That’s the kind attitude Yahoo! should have.

    Comment by Antonio Carlos Silveira -

  33. Mark, I agree with leehoffman. I think you are right on but do you
    think the current management is too beaten up to undertake an
    aggressive acquisition strategy?

    Comment by robertnew -

  34. Media acquisitions would be fascinating, but so much media is so unprofitable right now.

    Of course, that’s what makes their stock so beaten-down and affordable…it would be interesting to see what sort of ad-related strategy Yahoo could come up if it suddenly found itself owning a broadcasting group…

    Comment by researchrants -

  35. Could not agree more. Too bad I think paralysis has set in and working towards quarterly numbers…

    Comment by davidu -

  36. Mark, from as a general business strategy you’re 100% correct. Given Yahoo’s balance sheet, and the general week state of acquisitions, this is the ideal time to go on the war path.

    The problem is that web is both incredibility competitive and very transparent. For Yahoo to ultimately win with acquisitions in this space it has to be able to either buy at a discount to true expected value, or offer a higher growth multiplier once the company has been acquired. This is true even in a deep recession.

    Unfortunately for Yahoo!, I have trouble believing that their current management would be able to do either. There is clearly a vision and management vacuum at the top of Yahoo. To make acquisitions worthwhile, Yahoo has to at least be able to maintain the acquisition’s current expected growth rate (if not be able to help increase it post-acquisition). The problem is Yahoo can’t increase (or even maintain) the value of its current properties, will it really be able to do so with new ones?

    Long story short I agree with your analysis, but only under the umbrella of new management that hopefully is smart enough to be able to see and realize the vision your conveying.

    Maybe Yahoo’s best bet is acquire a CEO with a startup… or maybe from one they acquired in 1999 😉

    Comment by leehoffman -

  37. I still have to believe anything of value (Scale + at least potential monetization) is going to be very expensive. That said, here are a couple they should consider:

    ‘Less’ expensive

    ‘Very’ expensive


    Comment by nycgreen -

  38. Mark,

    1. Good to see you are requiring registrations.
    This will inspire me to update my wordpress.com

    2. Have you considered buying yahoo yourself?
    I’m serious here. You might just the right person
    to ensure yahoo remains a viable contender.

    -dave doolin

    Comment by nothardly -

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  41. hey mark,

    how does yahoo monetize content better than google? don’t they both put ads around their content? or are you just saying yahoo has much better content?

    From MC>
    Google has very little destination content they can put ads around. They have Google Mail, they have Google Finance, they have licensed video content (they cant put ads around user uploaded , unlicensed video). Google makes the vast majority of their money from ads around search and partner destinations.
    Yahoo on the other hand is an actual destination. People go to Yahoo for the Yahoo content.

    Comment by ll8054 -

  42. What’s more, they should get into the app content business, creating widgets like Apple’s App Store on the iPhone, but for all platforms, mobile and otherwise.

    It would allow them to expand their revenue stream in the non-ad space, it would allow them to aggregate content across all client devices, and potentially be the first to spot app usage trends that would result in acquisition fodder.

    Comment by Shafeen Charania -

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