BUSINESS BLOGS
BUSINESS BLOGS
category: business
04 Feb 2008

Fred Wilson suggests ways for Yahoo! to remain out of Redmond’s grip. Fortune runs with that prognosis, too. Yesterday, Henry Blodget tried to offer alternative suggestions, too.

Here’s what Wilson concludes:

So Jerry and the Board of Yahoo! should resist the bear hug and split up Yahoo! instead. It’s the right thing to do for the company, it’s the right thing to do for the shareholders, it’s the right thing to do for the employees, its the right thing to do for the web services that Yahoo! owns, and most of all its the right thing to do for the users of those web services.

Fred is one of the most respected VCs on either coast and a real good guy that gives VCs a good name, but, with all due respect, his vision is blurred by his bias as a VC to have one more potential exit option.

Here’s what I think, from my vantage points (not a VC):

- As a new media executive: I think Yahoo is unable to cut deals quickly due to a lack of technology automation, a lack of direction, consistent change of the guard, revolving doors at every position. They have a fantastic array of assets, but they need to be in a rush and hustle. I don’t see that from the front lines.

- As a shareholder: what does it say that shareholders are ecstatic about an [initial] offer of $31 per share when this is neither a 52-week high let alone a post-dot-com-recovery 5-year high. We as shareholders have largely lost faith in the senior management of Yahoo! Jerry Yang seems like a genuinely smart, able, honest, nice and cool person, but a CEO he is not. Of course, it does not help that he became CEO of a company in disarray, but that is what Yahoo! is. Microsoft, on the other hand, as executed in its core divisions at a breakneck pace and as much as it is embarrassing to hear Yahoo! executives say “gosh, we’re surprised MSFT went public with this” we’re quite impressed by the fact that MSFT has the bravado and vision to go public with this.

Most importantly, so long as Google will have YHOO to surpass as its stock comparable, then Yahoo! will fare poorly.

I have reservations about what MSFT would do, but I suspect MSFT will largely do to YHOO what it has done to aQuantive: not much. MSFT is not looking to prostitute Yahoo! and make it a platform to roll out cloud computing services, it’s simply looking to duplicate its online advertising revenue streams to match the streams of Windows and Office. There is nothing wrong with that.

- As an analyst: what MSFT is doing here is leveraging its balance sheet to spruce up its income statement and kickstart growth. This is smart for MSFT. It generates $12B in free cash flow each year, has $20B of cash on hand, no debt, even if it must go into debt (I suspect $10B of debt, of which $5B will be used for the deal and $5B will remain on hand) it can get a really high grade and repay it within the year! By adding YHOO’s $6B revenue stream to its income statement, MSFT adds 10% to the top line and probably a lot more to its bottom line.

- As a user: I have been using My.Yahoo since 2000. I stopped using it this year when they relaunched it and it was buggy. I have not logged in into Yahoo! mail and use Gmail. As I spend more and more time on Google services I found myself asking “why do I still root for Yahoo! then?”

It then became clear: Yahoo! has a short/mid term problem and it is all about people. People come and go. Long term, Yahoo! can do well and will survive. It’s a shame that Yahoo!’s employees, management and even existing shareholders might not see to live the upside.

As a VC, I would hope that Fred Wilson et al. understand that if a company’s people don’t get the job done, they need to step aside and let others get the job done.

Even if Yahoo! decides to do all of these wonderful things, existing Yahoo! shareholders doubt that Sue Decker et al. will deliver.

Put more bluntly, the only way I would vote for anything other than a sale to MSFT is if the landscape at the top (CEO, President, SVP, EVP, VP) was materially different. I am definitey NOT saying that Yahoo! has no competent and smart people at the top, bottom or the middle; I am just saying that for the past 3 years, Yahoo! has not been a place where the best and brightest excel or are rewarded. What’s that saying “A players hire A players, B players hire C players, etc.”

With 15,000 employees, all it takes is 10 or 20% of B players for the place to rot.

Ultimately, when you run down the different pros and cons, it is overwhelming positive for MSFT and YHOO merge.