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I recently gave Marissa Mayer a grade of B following her first year at Yahoo and credited her with attracting an astonishing list of entrepreneurs to join her in a quest to build a new media monster, one targeting mobile, and trying to build products that people will use everyday.
As an avid user of Tumblr, I can see the immense potential that David Karp’s platform can offer.
But the sheer volume of acquisitions has started to make me wonder if Mayer is building a Franken-Yahoo — as many others are styling it — with a 19th acquisition being rumored over the weekend.
The newest acquisition is Lexity (see disclosure), led by former Yahoo VP Amit Kumar. Lexity has raised a lot of smart money, $6 million from investors like Esther Dyson, Joshua Schachter, Vish Makhijani, and Ash Patel and also venture outfits including Spark Capital, 500 Startups, and True Ventures (see disclosure). And the rumor is that Mayer spent over $35 million to buy the maker of ecommerce apps, which will remain running, so this is not just another acquihire. But with 20 acquisitions and around $200 million spent — plus the $1.1 billion for Tumblr — since she assumed the CEO title, you have to wonder if she could do better playing moneyball instead of buying up all the superstars, New York Yankee–style.
Mayer has upped the hit rates on her free mobile apps by new designs, but she hasn’t come up with a strategy for making money. Tumblr is an example of that, writ large.
Brad Stone at Bloomberg Businessweek interviewed Mayer and some of the newly acquired, to find out what the story is. And it reads like reality TV at times:
“Even if its free mobile apps become huge hits, Yahoo has to figure out a way to monetize them. The company is no doubt quietly developing a strategy to advertise within its mobile services, though Mayer will only say she’s focused on developing products that users love. Even there, though, rivals are ahead. Facebook stock rose 30 percent the day after it revealed that 41 percent of its revenue now comes from ads on phones. Although Yahoo doesn’t disclose mobile revenue, Macquarie Securities analyst Benjamin Schachter estimates its mobile ad percentage is well under 10 percent.
“For all her credibility with engineers, Mayer is an unknown to Yahoo’s biggest advertisers. “To be out there meeting with clients and advertisers is not her thing,” says Marla Kaplowitz, the chief of media agency MEC North America. As for its products, “Yahoo still needs to be a lot more nimble,” says Kaplowitz, noting that running large ad campaigns across Yahoo’s stable of services is particularly cumbersome.
“Yahoo’s revenue topped $7.2 billion in 2008 and has since fallen by almost half. For the last 12 months, sales were $4.8 billion. “I’m not confused; I know we have a lot of work to do,” Mayer says, standing up in the URLs cafe as the FYI session is about to begin. “Up until now, things have gone really well. If you tell me that I’ve got to go back to last July and do it all over again, I’m not sure I could. I was optimistic, but a lot of the progress we have made has surpassed even my expectations.”
“By way of explanation she mentions an improbable role model: Sarah Hughes, the American figure skater who competed at the 2002 Winter Olympics in Salt Lake City. “No one thought Sarah Hughes had a chance to win,” she says. Then all the favorites flubbed their routines, and Hughes landed seven spectacular triple jumps and ended up with the gold. “Afterward, Hughes said that she didn’t quite know how she had done it,” Mayer says, “and she wasn’t sure she would ever be able to repeat it. It was the routine of her life.”
But hoping that your competitors — in this case mobile giants like Google, Facebook, Amazon, and Apple — are all going to screw up their “routines” is a losing proposition. And the issue isn’t Mayer, as a soloist, being judged by a panel of judges or even Yahoo getting valued by the market. The question is, Can this ragtag team of mobile app developers come together under her coaching and leadership to turn around a fading Yahoo and make it into a mobile app superstar?
Barry Diller’s IAC is a hodgepodge of media sites — Vimeo, Match.com, OkCupid, TheDailyBeast, and 150 others — and it has posted record numbers this past week, along with a 23 percent rise in second-quarter revenues. But he didn’t plunder tiny startups with zero or low revenues: Diller bought a tone of independent, successful sites and let them run as before but with a centralized ad model. That’s not really like what Mayer is trying to do.
My sense is that to become a monster in the new world of the mobile web, Mayer has to contrive a social architecture for a broad range of media services, and her competitors in that space are Facebook and Twitter. Note that Facebook’s stock surged this week on news that its formerly poor mobile numbers seemed to be turning around. And Twitter has been making a lot of hay in the entertainment sector, like the Sharknado promotion and its seeming dominance as the second screen.
Mayer and company have to hope that these competitors give them time to build something really serious and really social.
(Disclosure: Lexity was backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, Giga Omni Media. Om Malik, the founder of Giga Omni Media, is also a venture partner at True. Now that the deal has been closed, True is no longer an investor.)