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Summary:

Yahoo CEO Marissa Mayer has spent more than $1 billion on over a dozen acquisitions, deals that have been all over the map in terms of size and focus. Is there any coherent strategy at work here?

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photo: Getty Images

Yahoo’s CEO Marissa Mayer has been snapping up companies so quickly that it’s almost hard to keep track of them all: in just the past week alone, deals have been announced for three companies — Qwiki, something called BigNoggin and Xobni — with a total cost estimated at more than $100 million.

Xobni, an email inbox-management service that has been around since 2006, was Mayer’s most recent purchase, with an estimated price tag somewhere between $30 million and $60 million. But beneath the shopping spree, is there a strategy that ties these acquisitions together?

One obvious answer is mobile, something Mayer said early on would be a major focus for the company as it tried to revitalize its faded business: of the 17 acquisitions that Yahoo has announced since she took over the chief executive job, many have something to do with mobile. Qwiki, for example — which the company bought for an estimated $50 million earlier this week — is a service that allows users to create videos on their phones

Trying to play catch up

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Other purchases, however — such as the $1-billion acquisition of Tumblr, and even the acquisition of Xobni itself — aren’t as obviously about mobile. The Tumblr deal seemed to be designed at least in part to restore some luster to Yahoo’s reputation as a cool web company, and to try and generate more traffic for its advertising properties.

Xobni is clearly meant to help Yahoo’s mail product improve, and yet the company has also been languishing on the sidelines of the tech sector for some time now (as has Qwiki). To some extent, that deal seems to be about trying to catch up with Microsoft and Google on features.

That’s one of the problems with many of Yahoo’s acquisitions: they seem to be attempts by Mayer to get Yahoo caught up to other major players, and that’s a strategy that rarely comes with a big payoff. Is the addition of Xobni going to cause dramatically large numbers of people to switch to Yahoo Mail, or to remain with Yahoo Mail instead of switching to Google or some other service?

At worst, this kind of approach could easily create a sort of “Franken-Yahoo” with disparate parts that fit together but don’t work very well.

Adding services like Qwiki, meanwhile, could generate some more heat and light for Yahoo’s mobile efforts, and so could acquisitions like the news-summarization app Summly, which Yahoo paid an estimated $30 million for — despite a complete lack of any revenue, let alone any profits. But at the same time, the frenzy of deals seems to be more like a scattershot “buy anything that says mobile in its feature set” approach than one that is guided by an overall vision of what Yahoo wants to be on phones and tablets.

Can acquisitions change Yahoo’s DNA?

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As Om pointed out recently, Mayer has the luxury of a deep pocketbook with which to finance her spending spree: Alibaba, the Chinese portal that Yahoo owns a 23-percent stake in, has continued to increase in value to the point where it could be worth as much as $100 billion, and that — plus some hopes for improved performance based on Mayer’s arrival — has helped Yahoo’s stock price improve over the past six months. So the acquisition binge could well continue for the foreseeable future.
YHOO Chart

YHOO data by YCharts

Yahoo has suggested that many of its acquisitions have been about acqui-hiring smart developers and entrepreneurs that it can add to its staff, presumably as a way of injecting some fresh blood into the company and its businesses.

However, Om has also argued in the past that even Mayer and her acquisitions will likely prove to be incapable of changing Yahoo’s core DNA, a cultural miasma that has stymied the efforts of several CEOs before her and made the company a synonym for snatching failure from the jaws of victory. Can the former Googler stitch together the startups she has acquired into something approaching a winning strategy? That remains a rather large question mark.

Post and thumbnail images courtesy of Getty Images

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  1. Yahoo is an evil company and will always be — They have no options but failure.

  2. Acquisitions are good only if they add value to the strategy. If mobile is Yahoo’s top priority, they should be focusing on this space. A big ticket deal like Tumblr wont help. Mobile, yes but what in it? That is the question that Yahoo has to answer. To me the strategy seems to be a little fragmented. Hope I’m wrong.

  3. I think the current CEO is overpaid for what she can do and Yahoo is a zombie company waiting for its final end. Yahoo is going to go the way of Altavista… Goodbye Yahoo – over the years you continued to add features and products that no one wanted, and took out those that people cared about but that were expensive for you to maintain. I guess the only thing that Yahoo is good at is making mistakes…

  4. I suspect none of this will pan out. Mayer had little experience heading large efforts, leave alone recovery efforts. It was really surprising to see her hired to lead Yahoo. It was a hail mary of sorts. She’s clearly trying to figure out what to do in a bad situation, but she doesn’t have the experience to deal with it. Most of these acquisitions are suspect, and her overall strategy seems weak or missing.

  5. A “shopping spree”? If the CEO of Yahoo was male, this title would have called Yahoo’s recent acquisitions something that didn’t connote images of a sixteen year old girl at the mall.

    1. alexmedawayhasleftthebuilding SV Thursday, July 4, 2013

      wrong, it would still be shopping spree, which would still be the simplest way to qualify it. get a life.

    2. Mathew Ingram SV Thursday, July 4, 2013

      Agreed — I’ve used the term “shopping spree” with companies run by men as well. To me, the term just describes someone who is spending a lot of money buying things, something that both men and women do.

      1. You’ve used the term with companies, correct. I find article applying the term to Cisco, Facebook and Zynga. The term has, however, not been applied to the company as in those examples. The point is that is has been applied to Marissa Mayer.

    3. It could have been applied to Yahoo. It has, however, been applied to Marissa Mayer, very probably because she is a woman and that is what every day sexism narratives tell us women do.

  6. Steve Zecola Thursday, July 4, 2013

    This note is one of many that take the position that Yahoo doesn’t have an effective strategy. Given that many of these commentators are financial analysts, they often focus on Yahoo’s flat to declining revenue for online advertising. Others say that being a technology or product company isn’t a strategy. Some people say the company has no vision for how Yahoo fits into the market 5 or 10 years down the road. This note seems concerned on how all of pieces will fit together.

    To develop an effective strategy, one needs a good understanding of the situation. While there is not enough space here to lay out a detailed situation analysis for Yahoo, let’s just look at some high-level issues.

    The overall advertising market is about $500 Billion a year.

    The online advertising market comprises just north of 15% of that.

    The mobile advertising comprises about 1% of the total.

    On the flip side, print advertising gets a much higher percentage of ad revenue than its percentage of consumer engagement.

    Now let’s think about where the market is going by looking at a 20 year old. Does that person spend much time reading print? No. Does that person have a home phone and a mobile phone? No. The younger crowd have a mobile phone. With 4G technology soon becoming available, will that person have broadband connection from the telco or cableco? No. They will be able to view (and send) videos (and “TV”) over their mobile device.

    Now let’s look at Yahoo. Among other things, Mayers has said that she is focused on mobile and video. What does that mean? It means that Yahoo’s long term strategy is to go after the 86% of the ad market that it doesn’t compete for today. Now it’s your turn to connect the dots of each of Yahoo’s moves. There is no reason for her to do so for you. But I can guarantee you that Marissa and her troops won’t stop the acquisition game until there are substantial video capabilities available from Yahoo on mobile devices. If anything, I happen to think Yahoo is moving too slowly in the acquisition game, particularly for a major video play.

    Steve Zecola

    1. Interesting insight about the long term prospects of mobile advertising. The mobile orientation together with the acquisition of Tumblr suggests that Yahoo is trying to incline itself toward the younger population. Yet, some of the acquisitions do not clearly fit into this. I hope Mayer has a strategy of packaging all the startups in a way that will not only bring a growth in profits which will justify the acquisition expenditures, but just as importantly refresh Yahoo’s corporate identity. On a last note, for any investors interested in Yahoo, “serial acquirers” as Ben Graham has called companies who grow through acquisitions have usually not fared that well in the past. Without the clear strategy mentioned before, I would be apprehensive before purchasing Yahoo stock.

  7. chris paschalidis Thursday, July 4, 2013

    Steve Zecola , great analysis

  8. alexmedawayhasleftthebuilding Thursday, July 4, 2013

    have you people even looked at yahoo recently? things are starting to come together nicely and it’s all even getting sort of a uniform look. you can now go from mail to movies to answers to weather to flickr to news to games to finance without ever touching a chrome tab. tumblr remains as yet not integrated, which is a little weird, but i suppose they can take time to figure that out and try not to drive away hundreds of millions of young users.

    yahoo is gonna live way, way longer than facebook, because as you’ll notice people get pretty sick of each social network very quickly, it’s an intrinsic quality. have you noticed your fb friends have stopped posting? everybody gets sick of that eventually.

  9. Kevin Kind Songs Thursday, July 4, 2013

    “A fool and their money are invited everywhere.”

  10. @ Steve Zecola. To add to what you’ve said above, I think there’s another angle to Yahoo’s acquisition story : Personalization. Flash back to Mayer’s interview o 60 minutes earlier this year where she reiterated that the next wave of computing will be user personalization. Take a look at all of Yahoo’s acquisitions : Tumblr, Qwiki, Summly. All of these follow a similar model that lets user’s specify their interests and builds on these interests by recommending/aggregating related content. What these acquisitions have also got Yahoo is the ability to turn user data into a personalized web – which could set the stage for Yahoo’s application ecosystem on mobile.

    1. Steve Zecola acg Friday, July 5, 2013

      Good point, ACG. If Yahoo hits the trifecta of video, mobile and personalization, the irony is that its Asian properties will be a drag on its rate of capital appreciation going forward. That’s why I’d like to see Yahoo spin off the Asian properties including Alibaba to its shareholders. It’s a nice problem to have.

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