The subject of Yahoo's independence will be decided, as it should, by Yahoo's shareholders. The battle to control Yahoo fascinates so many other people because it is a good drama. However, it is more than just drama. Yahoo's independence does impact the Internet ecosystem - developers, venture capitalists and entrepreneurs will all benefit from more choice and more competition. An Internet dominated by GYM (Google Yahoo Microsoft) is better than one dominated by just Google and Microsoft.]]>
Yahoo has a very strong hand to play. It is # 1 in two key markets - start page and webmail. It is still # 2 in search. It has some really good social media assets and developer tools. Facebook's stumbles have left room for leadership in social networking based on open protocols and standards. The fact that Yahoo management has not converted those assets into stronger financial results gives Microsoft an opening and lets Icahn make a strong case to replace the Board.
The case against management is not that Yahoo has made a strategic error. It is that the company has executed poorly.
I do not believe that Microsoft would do a better job. They are still too enamored of lock-in strategies that leverage their PC assets. That would probably destroy a lot of value in Yahoo. Microsoft seem to believe that we are in some late stage of a consolidation game where it is all about hoovering up as much market share as possible. I believe that is a fundamental misreading of the market and that growth in the coming years will come from innovation and not consolidation.
Microsoft has a huge problem that stems from the failure of Vista. Fixing that would open up many really big opportunities as well as generate masses of immediate cash. But that, as they say, is another story. Buying Yahoo is a really expensive way to buy time while they fix Vista.
In which case, if Microsoft buys Yahoo, it will lead to loads of opportunities for entrepreneurs to jump into the vacuum created when Microsoft fails to grow the Yahoo assets. So Yahoo's independence does not matter?
Yes it does matter. We are entering a more difficult period for start-ups, with a consumer recession and jittery VCs. Yahoo with strong leadership has a much, much better chance of withstanding Google's relentless drive to own online advertising than lots of small, under-capitalized start-ups. A strong, independent, public Yahoo is also needed as a buyer for start-ups.
Yahoo's strategy to enable thousands of entrepreneurs to develop on top of their assets is totally right. SearchMonkey was a good start. BOSS is a great next step. It is likely to be followed by more. They could (should) open up at different levels of the stack:
Top: Really simple end user tools, competing with Google Custom Search Engine.
Middle: Services that require good good scripting skills, but where you can still get reasonable results in days without any investment.
Bottom: Services more like S3/EC2, requires real investment but gives total flexibility.
That model enables entrepreneurs to play at whatever level suits their ambition/budget. The revenue share for Yahoo is less at the lower levels, but the volumes will be higher.
Yahoo looks well-positioned in the middle and could do more in the top and bottom layers of the stack.
I don't expect BOSS, or other related announcements, to do anything for the stock price. That's a different game. But Yahoo could have a really strong independent future as the platform for thousands of start-ups. That was how Microsoft rode to glory. Google leaves less on the table for partners. Amazon is only at the bottom of the stack.
Go, Yahoo, go.
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