Marissa Mayer has been making a lot of small acquisitions since she became CEO of Yahoo! The acquisitions seem similar to what Yahoo! tried to do in 2005. The market wonders now how is this different from before? These acquisitions serve a dual purpose, to make Yahoo cool again with young engineers and to softly reshape the services Yahoo offers, but they won’t directly reshape the company.
Acquisitions are a horrible way to help redefine a company culture, the size of the companies Yahoo has acquired barely number 10 employees or more. With its eight acquisitions the new talent barely registers in a culture defined by 11,000 employees around the world.
But it does shape the perception of the company, not with consumers, but with the engineers that are important to the future of Yahoo’s growth. For Yahoo the growth they need won’t come from the acquisitions of a small consumer startup for $10M but from a great leap in technical innovation that will take years to build or cost significantly more than the small deals they are making now.
Yahoo tried to buy cool in 2005 with the acquisition of “delicious”, the social bookmarking company which was later sold off and Flickr. Flickr is considered to have been a huge missed opportunity for Yahoo with the growth of services like Instagram and photo sharing on Facebook. None of the small consumer services acquired during the acquisition period of 2005 have made a significant impact to Yahoo’s! bottom line.
The previous run of acquisitions were aimed at finding services that could succeed on their own, making Yahoo a portal of desperate services that users might be interested in. But the recent acquisitions appear to be aimed at adding slight improvements to services that Yahoo already has.
Now when Yahoo acquires a company it immediately starts integrating the service into Yahoo’s product line up. Unlike the previous acquisitions most of the services that Yahoo acquires now haven’t gained strong consumer momentum or market awareness.
The most controversial deal Mayer has made was Summly, a mobile startup that creates automatic 350 word summary of articles. Summly was founded by a 17 year old and received less than $2M in seed funding. Yahoo paid $30M for it. While some questioned why Yahoo would pay so much for a company with such a young founder, only 7 employees and minor consumer traction, the message from Mayer was clear, mobile is important, news is critical for Yahoo and she isn’t afraid to pay for the technology gaps missing in Yahoo’s current lineup. Four weeks after the acquisition the technology was already integrated into Yahoo’s products.
But small acquisitions of startups with no revenue and small teams aren’t going to make a significant impact at a company with a market capitalization of $29B. These acquisitions and integrations serve to maintain the company’s market cap by adding new services that will keep users engaged.
Yahoo also has an image problem. Flickr and Delicious were popular companies in their time and their founders are extremely well connected and vocal members of the startup community. Their experiences with Yahoo after being acquired were horrible and the founders of both left immediately after their contractual obligations to Yahoo ended, frustrated by the bureaucratic culture of the company.
Successfully bringing in new startups into the Mayer culture is a chance for her to remove the negative perception that Yahoo as a place where startups go to die and engineers are undervalued. Doing this will make it much easier for Yahoo to compete with Google and Facebook for larger acquisitions, market shifting acquisitions that are going to be necessary to truly impact Yahoo’s business.
Google’s major acquisitions like Doubleclick, Youtube or ITA software which powers most of the travel industry are the type that will really make a difference for Yahoo.
Mayer seems to be thinking along the same line too. She unsuccessfully tried to acquire french video company DailyMotion and the rumour is that she is planning to make a play for Hulu. Both are the type of deals that will make significant impacts into the companies market cap if the integration is done well. We should expect these type of deals from Yahoo very soon.
I give her 24 months to make a big deal. Considering that after the acquisition Mayers won’t have much more time to show how the deal adds to the bottom line. Unlike Google and Facebook Meyers is still a hired CEO with very strong outside shareholders who have a short term outlook.
In the short term one of the many problems Mayers will have to deal with is improving the culture of Yahoo. If they can’t successfully embrace and integrate a $30M acquisition, a $1B acquisition will be a disaster surely to result in her ouster. Consider these smaller deals practice runs for the major deal she is hunting for that will be the anchor to her legacy as a turnaround specialist. I wish her the best of luck. The valley loves an underdog, and she has a lot of work ahead of her. Hopefully her shareholders will give her the time she needs to make it happen.
This article was originally published in Sankei on 5/13/2013 http://www.sankeibiz.jp/business/news/130513/bsj1305130500001-n1.htm