Know your knitting

Now that the flood of obituaries for the once-great company with the exclamation point in its name has begun to subside, I would like to reflect on the failed effort to turn around this still-iconic brand.

Yahoo's early dominance came from from a solution that was quickly obsoleted by the fast-growing universe of content on the Internet. Yahoo had pioneered the model of curated content with its original directory. Once Google superseded this use case with its search engine, Yahoo moved its chips to a different curation model - the landing page. The company did try to compete in the search space, and looked for ways to enhance its stickiness with browser button bars, but it was the landing page and Yahoo's proprietary and curated content that became its most important revenue driver. This was the company that Microsoft had once proposed to acquire, and would have acquired at a much inflated valuation if Mr. Yang hadn't suffered a fatal bout with tech ideology. The revenue was real, if declining, until that is the twin social and mobile revolutions made the landing page into a Web-age anachronism. Google marked its passing when it turned off its iGoogle portal back in the hoary past of 2013, but Google had a welter of other ad-bearing content sites to turn to, not least its venerable search engine, while Yahoo had no such luxury.

Enter Marissa Mayer in 2012, not long before iGoogle's at the time much-mourned demise. Coming as she did from the product side of the technology-obsessed Google house, she brought with her a certain kind of hammer and went looking for the right kind of nails to hit. To her, evidently, Yahoo was a tech company with obsolescent tech and products, and she was going to buy new products and develop new technologies to vault the old warhorse back into the vanguard, or kill it trying. To an impartial observer, on the other hand, Yahoo was more of a collection of media properties of which its finance content was by far the most valuable, a large cash hoard from the days before, a stake in Alibaba, and far too many engineers working on inferior me-too products that trailed far behind the competition in revenue and penetration. 

Ms. Meyer took this cash hoard, and taking cue from drunken sailors everywhere began spending it, on acquisitions that had no clear path to integration or to revenue, more acquisitions that agglomerated products with no rhyme or reason and no revenue accretion, and on more technology development in house. It was, apparently, her view that Yahoo's future would depend on technological progression, nevermind that Yahoo's technology had never really been its strong suit. Instead of reinforcing Yahoo's core value-adding business, she went all-in on "innovation," which to her meant insourcing all engineering, while at the same time alienating her best people by ending Yahoo's beloved telecommute culture. 

What apparently Ms. Meyer failed to do was take a critical look at the portfolio of value that Yahoo possessed when she had taken over. Already at the time it was clear that Yahoo's strong suit was not technology at all, but rather media content, particularly in the area of finance. Yahoo pioneered bringing quality financial information to the masses, and until recently was the go-to finance portal for much of the business world that did not feel the need to spring for pricey Bloomberg terminals. 

Bloomberg, meanwhile, had been facing an emerging threat to its core business from new ventures seeking to undermine its pricing structure. This threat was hardly unforeseeable, being that as soon as technology makes low-cost delivery of existing services feasible new entrants always seek to take advantage. Bloomberg has been able to beat back the threat so far, but its would-be rivals are well-funded and have long legs.

Let us imagine, instead of a death spiral for the storied Web pioneer, a counterfactual where a new Yahoo CEO less certain in her preconceptions of what the right strategy for a turnaround should be conceives of a merger of these financial media behemoths. Let us imagine a combined company offering a full suite of services from free to low-cost to mid-market and to the top end, all under one brand and corporate umbrella. It seems to me that such an entity would be very well positioned to defend its place as the top media provider of all things finance for far longer than either company alone.

Not long before its ultimate demise Yahoo's valuation, net of the value of its Alibaba stake and cash, fell to below zero. Ms. Meyer, undeterred, will be landing squarely on her two feet, despite having destroyed what value there had been in the company she had taken over with such fanfare. How much more valuable would have the combined Bloomberg-Yahoo enterprise had been if she had not been blinded by her tech obsession? As we have already learned from JC Penney, all companies - even those in the same business - are not alike, and what works for one business may not work for another for the reason that it may have built its value from different building blocks.

To put it another way, before you can stick to your knitting you need to know what it is. 

Being that nowadays everyone wants to be known as a tech company, no matter what it is they are actually selling - e.g. Uber (taxi service), Instacart (logistics) and Airbnb (hotels services) - it is easy to get distracted with technology at the expense of real core value. The fact is, valuations-driven posturing notwithstanding, few of these companies are actually in the tech business. Tech companies are those that make their revenue from selling tech - something that is relatively rare. Some common misconceptions, for example, are Salesforce and Oracle (which sell applications), Apple (phones), and Google (advertising). Google recognized this when it split up the company into the core business and what is essentially a spec lab. Technology is their enabler, not their business, and we get distracted with all the shiny objects at our peril.

Cross-posted to LinkedIn Pulse