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June 21, 2007

Yahoo's Semel Steps Down, Murdoch Wants A Stake in the Company

Yahoo is at some sort of crossroad.  Terry Semel has resigned as Chief Executive Officer, replaced by Yahoo co-founder Jerry Yang.  Semel worked at Warner Brothers for years and brought a media company mentality to Yahoo.  That sent Yahoo down the road to being a content provider but didn't necessarily make the company more profitable.  There's no doubt that Semel grew the company, adding billions of dollars in capitalization and expanding the reach of Yahoo.  That growth, however, has to be measured against a context, and that context is Google.  Despite the fact Yahoo is the most visited Internet site, it fails to make the kind of money Google makes.  That's the paradox of Yahoo: a huge audience but less money-making.

Yahoo's mission is to connect people to their passions, at least that's what it is now. An article in Fortune magazine (via CNN Money) highlighted that Semel didn't know what the mission of Yahoo was beyond delivering value to customers and valuing them.  That could describe any business, even those that are less successful.  Brad Garlinghouse, a Yahoo senior vice president took issue with the company's lack of focus and decisiveness in his Peanut Butter Manifesto.  The name comes from the notion that Yahoo spread its resources too thin, much like peanut butter on bread.  There's a lot of truth to that, even for a casual observer.

Yahoo has been content to grow the company by acquiring this site or that, an integrating them in the fold.  It bought popular photo sharing site Flickr but kept its own homegrown photo site running, essentially competing with itself.  Only recently has it committed completely to Flickr, migrating all users to that site.  Even Google knew the writing was on the wall for Google Video when it bought YouTube. 

Yahoo usually pops up in rumors that sound like mega-deals.  The company failed to buy FaceBook after Rupert Murdoch bought MySpace.  Microsoft seemed interesting in either merging with Yahoo or creating some type of alliance as a counterbalance to the dominance of Google.  It's hard to imagine Microsoft in that position, but they are even behind Yahoo when it comes to competing with Google. Yet, as close as Yahoo comes to pulling off a deal of real magnitude, it never seems to pull the trigger.  It's as if Yahoo may be afraid of changing its culture, thus avoiding major ties to other companies.  At the same time, the undercurrent seems to be that Yahoo will never be able to compete against Google by itself.

Now comes Rupert Murdoch and News Corp. with an offer to swap MySpace for 25% of Yahoo.  With Yahoo worth about $37 billion, that would put MySpace valuation around $10 billion, give or take.  Given that MySpace sold to News Corp. for around $600 million or so, that's a pretty hefty capital gain for Murdoch.  The deal is attractive to some extent as Yahoo is seen as still missing a piece of the social networking pie. There is still the implication of what even a 25% News Corp. stake in Yahoo will mean to Yahoo operations.  There isn't a lot of speculation in the press yet as to how this could play out.  If it did go forward, it could mean major changes to Yahoo.  Based on their track record, it's unlikely Yahoo could cut a deal that would insulate them from Murdoch's influence. 

Yahoo has to figure out still what it wants to be.  Is it a technology company?  A media company?  A search company?  And while it's working that through, it should remember that Google and Microsoft are not standing still.

More details are in the Herald Sun (Australia), Time Magazine, and the New York Daily News.

June 21, 2007 | Permalink

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