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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Yahoo has been kicking ass for 3 years. I love their strategy to bad financial people see too short term and that management didn't leverage it enough.
Great analysis, couldn't agree more. I will just add that yahoo is for entertainment and that's a huge asset.
Posted by: leafar | July 11, 2008 7:34 AM
Yahoo has been such a strong proponent of standards-based web development and APIs, that it would be a huge loss if they got swallowed up by an evil bohemouth (!!) like Microsoft. Their independence is key to an evolving web. If that means a small more niche Yahoo then sobeit.
As the cliche goes, being the biggest isn't always the best, but the innovation coming out of the Brickhouse can certainly provide substantial gains, if the financial people can get their heads around them.
Posted by: Simon Whatley | July 11, 2008 9:04 AM
Particularly agree with your comment that there is no evidence that suggests that Microsoft can do better but buying Yahoo!. My quick summary amounts to this:
if the company cannot turn its ship around with47 billion dollars, then there is a deeper problem inside that company that their shareholders should be worried about. How about if Microsoft concentrates on improving their own Live Search?
Posted by: YouAreRight | July 11, 2008 4:21 PM
I will divert all my traffic into Yahoo search just don't sell out to MS:)
You pointed out correctly Google gives very little to its partners:(
Posted by: DJB | July 11, 2008 5:42 PM
unfortunately it is impossible for Yahoo to survive as it is right now, even if Microsoft don`t buys it, something that is a given if icahn manages to replace the board. even if that don`t happen, something will have to give because if that fails yahoo shares can fall to 15dlls. and if that happens something worse will happen: Equity firms will get into this and they will break yahoo apart in a way only comparable to something being slayed alive.
there are only 3 possible logical outcomes:
1.-Microsoft buys it (60-70% of happening)
2.-Yahoo merges with someone, somehow (10-20%)
3.-everything fails and equity firms rip it apart (9-19%)
illogical :
1.- Yahoo somehow saves itself and thrives alone (1%)
because while what you propose is logical it is almost impossible for that happen as fast as its needed (6 months)
Posted by: Avatar | July 11, 2008 5:54 PM
Hm, you say that 'An Internet dominated by GYM (Google Yahoo Microsoft) is better than one dominated by just Google and Microsoft.'
But wouldn't the Internet be better if Google had a real opponent (like a Yahoo/Microsoft merge)? I'm in no way an expert, but I tend to think a strong opponent is better than 2 tiny ones.
Posted by: Kaayru | July 12, 2008 7:54 AM
Right strategy?
- Yahoo is still investing in search. Yahoo's other businesses and overall organization suffer if Yahoo continues to do that. The search battle has been lost. Yahoo needs to move on. What happens if Google opens its search stack?
- Abandoned focused on premium brand advertising. Display strategy now centers around competing in the low cpm, machine driven segment - where Ad.com leads today. This is playing into Google's hands. Brand marketers are looking for more value than that. Yahoo is devaluing its inventory.
- Centralized its organization. This usually means too many management layers. Innovators don't thrive in that type of organization.
- No plan to address de-portalization and ensure long-term growth for its audience
An independent Yahoo is great as long as Yahoo moves in the right direction. Otherwise, it may continue to be the sad drama it has become.
Posted by: FriendlyAdvice | July 12, 2008 8:57 AM
Kaayru is correct. A strong #2 position is better for competition.
Posted by: Hashim Warren | July 13, 2008 5:21 AM
It's pretty safe to say that if Yahoo had been a division of Microsoft, innovations such as Pipes, Search Monkey and BOSS would never have been released. Yahoo is actually ahead of the curve in some respects, even ahead of Google. They seem to be searching for ways to use structured data and the semantic web while Google remains wedded to their wonderful search algorithms - an example of the Innovator's Dilemma at work.
Posted by: paket | July 14, 2008 9:58 AM