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Summary:

Yahoo and its decision to go nuclear on Facebook has drawn much attention and ire. So even though the knives are out for Yahoo, I for one am willing to listen and look for alternative theories on Yahoo and why it sued Facebook.

goingcrazy

So earlier this morning Spark Capital partner Bijan Sabet and I got into a major conversation over Twitter via direct messages. Let’s just say it was a rather frank exchange of opinions and arguments on Yahoo and its decision to go nuclear on Facebook and by extension crossing a line. Bijan, like many industry insiders such as Fred Wilson and Brad Feld, who have both written about the Yahoo-Facebook fight, is a thoughtful guy and his arguments were well reasoned.

Now I am the first one to beat up on Yahoo. In recent past I have beaten on Yahoo worse than a farmer taking a cane to an obstinate donkey. So even though the knives are out for Yahoo (hi Sarah), I for one am willing to listen and look for alternative theories on Yahoo and why it sued Facebook. As I wrote/reported yesterday that there is a lot of angst over how Facebook jacked Yahoo’s address book within Yahoo.

Yahoo behaving badly, two explanations

In addition, I have two theories, both on the assumption that Yahoo is actually not seeking money from Facebook, but instead has alternative/ulterior motives.

  1. Yahoo is looking to renegotiate its 2009 deal to integrate Facebook Connect and extend it by, say,  five years at terms that are favorable to Yahoo. The previous deal was not quite what Yahoo had hoped for. Sounds a little far fetched? But it is totally plausible that in two months we will see both companies announce undying love for each other and have a public kumbayah moment.
  2. The second theory is somewhat simpler. Yahoo is actually looking to show to the world (aka real patent trolls) the true value of its massive patent portfolio. I am betting, the company wants to get rid of as many of patents and get as much money as possible for them. Selling those patents can be lucrative. A few billion here and a few billion there, and suddenly CEO Scott Thompson is sitting on a pile of cash he desperately needs to distract Wall Street. Of course, no better way than showing your patent muscles than going after Silicon Valley’s holiest cows of the moment: Facebook.

Patent sales would be part of what seems to be a house-cleaning strategy. In yet another internal memo (that nosey Kara Swisher and her sources), Thompson is saying a whole lot of changes are coming at the old Yahoo.

1) Focusing intently on those parts of the business that have a competitive advantage.

2) Liberating all of us to work faster and make better decisions.

3) Thinking really creatively about how to build new businesses that leverage our trusted relationships with users.

Translation – I am getting ready to jettison a whole lot of business units and maximize return on all our assets, so get ready to pack your bags, because you might be going with those businesses. Apparently the company is already shopping its ad-tech businesses.

Getting old is hard

My argument with Bijan was that Yahoo is 17 years old and that is a long time in Internet years. It has missed two major shifts – social and mobile – and it doesn’t have much choice but to basically go down the path it has chosen. Patent lawsuits and the eventual sale of that portfolio are just part of going down that road for Yahoo.

Of course, many would argue that if Apple had that fatalistic attitude, it would have meant no Apple, no iMac, no iPod, no iPhone and no iPad. Yes that is true. But when Steve Jobs took over Apple, they had three months left and they took a bet. It paid off. What if it hadn’t!? Past history aside, there was a crucial difference – Steve Jobs, who was a one-of-a-kind leader and who made Apple a one-of-a-kind company.

The Apple Defense

Yahoo is not Apple. Hell, even Google is not Apple. So, no, we cannot use the Apple resurgence as a case study of a comeback. It is hard to find a resurgence story in technology. Sun Microsystems? Dead! Digital Equipment? Dead. Dell, trying but not sure where they are going! Motorola? It is run by Google – enough said. IBM – perhaps, but they changed businesses and approach to what they did. And again, Lou Gerstner (look him up kids) was one-of-a-kind CEO.

So back to Yahoo suing Facebook: it is too early in the “game” and more details are only going to follow. So Bijan, Fred and Brad, if you want to sweat about something, then worry about a reality where Intellectual Ventures owns most of Yahoo’s patent portfolio.

  1. I think that Yahoo assumed that Facebook being in a quiet period would make it difficult to defend itself. That would give it leverage to gain a positive settlement (either cash or a better deal with Facebook).

    They severely misjudged the third party outrage.

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    1. third party outrage? I think most of us are cheering for yahoo and see it returned to it’s mid/early 90s position of dominance.

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      1. can you qualify “most of us” please?

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    2. I think they didn’t count on many self-interested parties who are well versed on the art of social media to go as vocal as they did.

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  2. By doing this Yahoo may be jump-starting the patent wars for the web, by raising the value of web patents in an “offensive” way. Soon we might start seeing big companies, small companies and especially patent trolls start suing other companies left and right to make a quick buck on some worthless web technology patents.

    The web is what it is today because of the *lack* of such a war, and because of the high permissiveness for what web companies can do. So forgive me for not siding with Yahoo, no matter what their reasons are. In this case the goal absolutely doesn’t justify the means, and they deserve much more than the backlash they’ve already gotten.

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    1. Lucian

      The web is almost 18 years old and well, it has been a long time for peace to reign (paraphrasing you.) As the web matures, we are seeing exactly the same pattern we have seen in other industries. Whether we like it or not, this is the new normal and folks have to deal with it. The long term impact of all this — remains to be seen, but agreed that it is going to be hard. We had relatively peaceful 2 decades on mobile as well before patent wars broke out. Just pointing out.

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  3. “Silicon Valley’s holiest cows of the moment: Facebook.” Please pardon the swerve, but to paraphrase Clara Peller “Where’s the silicon?” If this is what Silicon Valley has become (Facebook and Yahoo battling over social software IP) Then we’ve pretty much completed the evisceration of the Valley. Going from gadgets of tangible value to the foundationless “service economy” that has gutted the rest of America. Overhead functions becoming ends in and of themselves. Now it’s “Look what I can get a computer to do. All I have to do now is figure out how to ‘monetize’ it (buzzword for the decade) and I can leverage it into billions. Regardless of whether it does anything useful.”

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    1. Silicon is in Santa Clara, Taipei and in China. Okay not trying to be an ass, but I do agree with your thought process though not entirely convinced that we are seeing the end. I think the idea of what is tech is changing and what is a tech company is changing and becoming broader.

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  4. I get pretty tired when I want to comment, like now, and am required to share the inner workings of my profile and preferences on Yahoo, Google, etc. This was rather refreshing not to have to share anything other than my opinion. You Go Yahoo. It has been my home page since the beginning.

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  5. Provocative article… However, with all the gorilla dust raised about this in the past few days several important (?)points are missed. First, the “reign of peace” you refer to was broken by Steve Jobs, not a patent “troll”, two years ago when Apple sued All-Things-Android (except of course Google). That declaration of war changed the game forever, not Intellectual Ventures or Yahoo!.

    Second, the average percentage of the S&P 500 company market value comprised of intangible assets has climbed from 15% in the mid 80′s, to more that 80% today (closer to 100% for technology companies). Why is that relevant? Well, it shows that public equity investors are willing to pay dearly for intangible assets such as patents and capitalized R&D, meaning that a big piece of what they purchase can be intellectual property.

    Which leads me to #3: a lot of Facebook watchers believe, quite sincerely, that a big portion of this highly touted $100 billion market value IPO is comprised of Other People’s Inventions (backed by Other People’s Money). So, logically speaking, why is the IPO largesse limited to FB employees and the lucky investors, when a lot of the technology they use for their success was invented by others? It’s no different than the smartphone patent wars where the integrators are being sued for patent infringement by those who believed they were the innovators.

    Finally, fourth (and most controversial, no doubt): venture firms, a highly clubby group for decades, invested in new companies because of the teams and business models, not the technologies inherent in their success. VC’s treated the value of IP as their own private promote, not wishing to pay up for it but certainly willing to take the goods if and when they materialized. To my way of thinking this occurred so that VC’s did not have to conduct any kind of freedom-to-operate due diligence in a marketplace that was crowded with me too’s. So, I see a lot of disingenuous howling coming from folks like Fred Wilson, who’s had his nose in the trough for a lot of years, and now sees that he’s going to be forced to respect other people’s private property rights when he makes (or monetizes) one of his investments.

    Yahoo, while perhaps an operating zombie, is entitled to offer its shareholders the same kind of value recognition that Nortel gave its bondholders when it sold its patents to the Rockstar Consortium for $4.5 billion. The need to resort to a patent suit is probably due more to the realities of the legal system we’ve all created, and the narcissistic attitude of Facebook management, than it is some nefarious plot. Simply put, Yahoo investors are entitled to ALL the value they created during its corporate existence, even if they have to break a few dishes to obtain it.

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    1. Bernard San Gil Friday, March 16, 2012

      Yes, yes, yes!!
      A hundred billion times yes.
      The way every tech blogger and his/her dog are jumping to defend Facebook and call Yahoo a troll is pathetic and disappointing.
      Yahoo!’s new CEO is doing what should have been done many years ago. That’s proper corporate governance, not trolling.

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  6. Jeffrey McManus Thursday, March 15, 2012

    Not necessary to use Apple as the standard corporate comeback story. You can use Sony circa 1980 for this. Yahoo needs to develop (or buy) a Walkman-like product and things will turn around quickly. But a company that’s in this position can’t cut its way to success — Bartz tried that.

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  7. Harminder Singh Thursday, March 15, 2012

    Could Yahoo become more of a content producer? I remember reading somewhere that their web TV series’ are doing quite well. This could be especially useful as they could leverage their international partnerships to market them. Maybe content can still be king, not the networks or the platforms.

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  8. Francis Rushford Friday, March 16, 2012

    The presumption that patents have no value better explains Yahoo’s position. While many call it the Free Pizza and Beer Mentality that Software or any technology should be free and that Patents are so yesterday because it’s about a new pardign. While all of that my “sound cool”, it indirectly ignores the free rider burden and it tells the world to expect to be paid for anything means you are insane.

    The Yahoo problem is that they believed much of this themselves. It is in the DNA of Silicon Valley it seems. As the founders and the IPO investors and lawyers cash-out, the public investor is left with a Company that has little value in protecting its IP and value it, even less.

    It is not until the company is ready to crash, the Team that has the mess that is left have to be adults and business people and make prudent business decisions to avoid or minimize the risks of the lawsuits to come from shareholders and creditors.

    The statement by AOL’s CEO, that they did not look at our patents, until the Nortel patent sale keeps with the culture and the change that comes with risks of shareholder and creditor lawsuits down the road.

    Considering the fact that Facebook “borrowed the idea” from someone else, and it gets the story and film gets an Oscar Nomination keeps with the culture and mentality.

    It is fine that many people embrace the culture, they should just not ask the public for money.

    Cisco was sued for Patent Infringement many years ago, and cranked up the PR machine that patents are old and ancient. Cisco received much applause. When Cisco believed Huawei ripped off their IP, Cisco didn’t respond that we should fight it out in the market, as they had with Lucent. No, they sued Huawei for patent infringement, but at that time there was no talk about patents being so yesterday.

    Google had taken this view to heart by copying books without regard to copyrights.

    Today, Google has gone wild suing everyone in sight with the patents they got from the acquisition of Motorola.

    If you have no protection and borrow, then protection is so 20th Century. When it harms your business, then it is wrong.

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