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Wednesday, October 22, 2008

Post-Debacle Yahoo Scorecard (Or, Another Open Letter to the Soon-to-Depart You-Know-Who)

Sorry for the slow pace of blogging, but with blogging being "dead," you could hardly blame us.

So in our Post-Semel Scorecard here 14 months ago (a followup to the Open Letter to Jerry Yang of 17 months ago), we noted Yahoo hadn't made much progress on any of our wish-list items (or their own, for that matter). We weren't very happy about it then - for Yahoo's many great people, or for the rest of us. Now, it's pretty much too late.

In the interim, an unlikely gift was offered: a $32+ per share total takeover offer from Microsoft. Particularly in search, this might have created a strong #2. It would have precipitated the downsizing needed to forge ahead into high growth areas. And it might have provided the economic stability needed to ride out the storm that is set to torpedo display ad revenues.

But Jerry and the board got cute. In hindsight, it looks really, really bad. Probably because it was. Now, the talking heads on MSNBC et al. are jumping on the ballistic bandwagon, ranting about the board's irresponsibility, merely parroting what T. Boone Pickens already said not-so-subtly about Yahoo management being "pathetic." It's a terrible shame, because it was a great company with great potential.

Now that the trend is clear -- Yahoo is earning barely pennies a share heading into a diving market for display ads -- things couldn't look bleaker. We told you so? Yes, we really did. And we are at a loss as to why virtually none of the correct actions were taken. Let's review the scorecard items.

* We asked Yahoo to consider acquiring a hot search startup like Powerset. They didn't. In June 2008, Microsoft acquired Powerset. Although this technology is unlikely to set the world on fire, Microsoft shows it is at least trying to work on improving its standing in the sector of online behavior that leads to dollars-per-share in profit, not pennies (or losses). To be clear: committing to a search for the next great thing in search would have led to certain acquisitions as "symptoms" of a real commitment to growing in that high-intent navigation area of the consumer online experience. No one symptom should be seen as a cause of growth or success, but if you aren't exhibiting symptoms of trying, you probably aren't committed to it.

* We recommended that Yahoo acquire Yelp to solidify its role in local search with a young-adult demographic. While the Searchmonkey technology is a nice, esoteric way of partnering with great publishers like Yelp, it's mostly a paper exercise for now. Yelp remains independent.

* There's no way that Yahoo could make any type of buyout offer now for a company like GoDaddy. When their stock was trading above $25 they could have not only afforded to make such interesting plays to solidify their reach in consumer and business services, but they could have conceivably gone to market to raise funds for a major acquisition. The good news (and there is little with the stock trading below $14) is that a bunch of smaller plays in these kinds of areas (domains, et al) are going to be selling at fire sale prices. If the shares of companies like Marchex slump further, they could prove to be good value - though they'd need to be integrated and redundant parts eliminated, so the bargain would have to be good. Here, major opportunities were missed, but this is also a time when Yahoo should cut through the doom and gloom and continue to shop for bargains. Remember how cheaply Yahoo and Google bought great brands like Flickr and Blogger? Surely there are popular services out there in a similar vein, such as PlentyofFish.com (1.5 employees and a direct competitor to Yahoo Personals).

* Research in Motion will likely stay independent unless times get really tough. In any case, Yahoo is now officially too small to buy them, and Microsoft probably would be the most serious contender there given the standing offer they are rumored to have in at RIM.

* Now that the company is barely at break-even and all hell is breaking loose, Yahoo is belatedly proceeding with deep job cuts. Along with the bizarre quasi-poison-pill maneuvers intended to foil a Microsoft bid, the protracted dithering about reducing bloat no doubt led to cynicism and drift within the ranks, to say nothing of a whole range of perverse incentive structures. The all-lower-case communiques from the CEO, far from being endearing, just seem to sum up the cavalier approach taken to the turnaround effort (that's what it was supposed to be, wasn't it?) that started when Yang took the helm.

* We recommended a partnership with Microsoft in search, long before the buyout offer came along. We never loved the idea, we just got tired of watching them compete with one another, and felt that platform consolidation was the tidiest solution for all of us. Anyway, not only did no partnership happen, but Yahoo turned down a $32+ per share offer for the whole company. Many observers feel a full acquisition by Microsoft is still a shoo-in. Yahoo will be lucky to get $18 this time, and that's only because the stock price will stay near there on buyout rumors. On sheer financials the stock should be around $9-10, if that.

* We received piecemeal PR communiques about various "tweaks" to the look and feel of the Yahoo home page, etc. But nothing bold was ever done, and the need to recommit to search (the profitable, cool part of the business) kept receding farther and farther into the distance.

All of that, sadly, is the continuation of a very long trend that started long ago. Many times over, since the late 1990's, Yahoo truly could have committed to search, to say nothing of management discipline and geek culture, but it frequently failed to do so. It got off track many times, in spite of many strengths. Too many body blows to recover fully. Let the speculation begin as to what will become of the Yahoo brand going forward.

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