Problem: How to fix Yahoo. Many years ago when I was working as a strategy consultant we would occasionally discuss significant strategy problems that were in the news. In those days, one of the most interesting was Apple. At that time, Apple had fired Jobs, had some failed products (Newton) and held only 2% of the PC market. Many people thought that their strategic error was in not licensing out their hardware and operating systems (the Wintel model). Their seemingly absurd insistence on absolute control of everything appeared to be killing them in a world of commoditized PC offerings. Looking at what they were good at (design, customer interface, creating buzz) I felt that they should become a consumer electronics company - I was not alone in this. I thought they might be able to out Sony, Sony. Most anyone I engaged in this conversation pointed to the lousy margins in consumer electronics and dominance of existing players, as well as the 'race for the next feature' aspect and felt that it was the worst place Apple could go. Most everyone felt that Apple was doomed to be a niche product maker for designers and schools and that the only people who didn't know it were the people at Apple themselves.
Well, we all know how that story turned out.
Enter Yahoo. Yahoo has followed an interesting path. They made their name (somewhat literally) by being one of the first internet search engines, then portals. Back then, with relatively slow internet speeds and ineffective and undifferentiated search engines people tended to open their browsers to sites that aggregated many of the things that they wanted in one simple and convenient space (here is their history: http://en.wikipedia.org/wiki/Yahoo!). As bandwidth grew and search engines (notably Google) became more efficient it became less necessary for consumers to open to a portal. This, in conjunction with the dotcom meltdown changed the landscape for Yahoo - yet, they didn't really respond. They made some investments (Alibaba being most significant), bought some companies, changed their management, and tried to develop new service offerings for the customers. To my mind, these service offerings (and their failure to gain traction) we hampered by a flaw in Yahoo's premise.
For a long time there was a billboard on Bayshore (US 101) in San Franscisco, as you approached the bay bridge that looked like a illuminated motel sign - 'Yahoo, a nice place to stay on the internet' or something like that. I always thought, when passing it, that it was a concrete example of something I have observed in many successful companies - a failure to recognize reality. To be sure, there was a time - around 1999, when people wanted to find a nice place to stay because moving around on the early web - fraught with slow speeds, broken links, irrelevant content - was a drag. But that time passed - only it seemed Yahoo didn't know it. Rather, what we saw in the post Dotcom meltdown was the rise of the monopolies: Amazon, Priceline, Facebook, Google, etc. Companies and sites designed to deliver concrete value to consumers in the most simple and inexpensive of ways. With this, the web became less of a sideshow (as it was in the early days) and more of a tool: a life-utility for people. Maybe the folks at Yahoo knew this. If so, they didn't seem to act on it. Because of that inaction they are in their current situation: there is no 'there there.' I'm hardly the first person to notice this, I'm sure. With the recent acquisition of Tumblr and impending investment in Snapchat, however, Yahoo seems to be continuing on the 'nice place to visit' trip down memory lane.
Yahoo is a big business full of lots of smart people. Lots of people visit it everyday. And they make money (primarily from advertising) when they do. However, that doesn't mean that they are a vibrant business. Rather, what they are continuing to reap are the benefits of switching costs. In business, developing switching costs is a great tool to increase sustainable advantage. The idea is: your customers invest (time, money, both) into making your solution work (in this case, setting up e-mail accounts and making that their contact point with friends and colleagues). Sometimes it arises as a habit - people are satisfied reading Yahoo news and so never look for anything else. Once your customers have things going (a personalized Pandora station, netflix movie list, etc) they are loathe to switch to a competitor because they would have to go through all that work again. So, you get to keep them - unless the competitor figures out an easy way to switch and/or offers something so compelling that it is worth it to go through the hassle and expense again. To a different degree this is how brands and many other heuristic decisions work. You try something, it works sufficiently, and then you don't have to spend the energy, money or brain power to go through the evaluation process again. So, Yahoo is a strong brand, and their customers have developed switching costs that keep them around. So far so good. However, Yahoo needs new customers to fuel growth. The question then becomes how to get them.
'Duh,' right?
So, they turn to the 'latest rage' path. This is a pretty popular path to follow. Facebook is doing it. Google is doing it. Heck, it seems everyone is doing it. And so is Yahoo. Here, you find something that is in the news and incredibly (however you want to define that) popular. You buy it. You now get those customers and maybe some of that cool popularity washes off on you. Yay! However, that is rarely how it really works.
Popular things cost a premium. Integrating them can be very difficult - they know they are rock stars and in their secret (or not so secret) hearts feel they deserve to be treated as such. The second they are purchased a significant amount of their 'cool' goes away. And finally, and perhaps most fatally, they are ephemeral. With extremely rare exceptions (like a true monopoly like Facebook) the value equation they offered is already in the process of being eclipsed by the next greatest thing: Instagam, Pinterest, Tinder, etcetera. So, from a financial perspective such things are akin to wild bets.
No, more of the same old stuff isn't going to work. Why? Because the fundamental value equation is flawed - it is based on a set of thoughts (and attendant culture) that went away a while ago. Other category killers like Facebook are winning the eyeball game. And the competition for advertising dollars is ridiculous. What Yahoo needs is a new value equation and a new way to make money. I suspect they (as least some of them) know this. Good news is that this is a solvable problem. The challenge, however, is that it is hard.
My friend, mentor and former colleague, Dr. Hamilton Helmer, came up with a nice taxonomy to describe the situation: tuning versus transforming.
Tuning is what they are attempting to do. It's when you either take your current technical skills and offerings and refashion them to a new audience - but one that's not too new, or you bring some new technologies to existing customers - but again, not too new. What we are really talking about is shining up the old value equation: new features or releases, sales to customers in adjacent spaces. Tuning.
When you bring significantly different customers or technologies into the equation you are 'transforming.' And when you do both you are truly 'diversifying.'
In the interest of brevity I won't go through a bunch of examples - I'll just stick with Yahoo and what they should do. They need to transform.
- Figure out what they are good at - these are generally referred to as their 'competencies.'
- Figure out what they are good at that is transferable to new markets or customers - generally called 'core competencies' (See 'Competing for the future.')
- Figure out significant, attractive markets that those competencies map to.
- Figure out the other pieces of the puzzle they need to succeed in those markets (resources, partners, tech skills, customer skills, etc)
- Figure out how they are going to win - this is a big one that people often neglect. Just because you can enter a market - even at scale - doesn't mean that you have sustainable competitive advantage. The nature of advantage changes over time (again, see Helmer) and you need to figure out how you are going to do that.
- Execute. (this deserves a blog in itself).
This is (should be) almost achingly obvious to any senior executive. So, if it's obvious, why aren't they doing it?
Well, the problem (like the solution) is almost always the same - people.
Here, there are (at a minimum) two primary issues - politics and culture. While I separate them for simplicity's sake, they are really intermixed.
The issue with Politics is much the same in corporations as it is in Government: people who are in power want to stay in power (and if possible, get more). This is much more important in the strategy, tactics, and implementation they choose than what is optimal for the profit of the company. While this could be seen as some sort of 'power corrupts...' force, or an example of a Marxist 'gotcha!' it's really not. It's just how humans are built. (See "Why beautiful people have more daughters.") While it is the single biggest impediment to excellence in companies today, it is not a problem that is without a solution (or at least, one that can be somewhat dealt with.)
The second, culture, is again an unavoidable (or nearly so) aspect of human self-organization. Companies have cultures. They are like biological systems - they have a cultural immune system (see Pirsig ZAMM). If something threatens that immune system (like a divergent idea, or a 'hard truth,')the system goes to work and attacks it. The system likes status quo. Big time.
In the case of Yahoo, you have a company with a lot of money, that still makes a lot of money, that used to have famous founders and was culturally significant, that now has a celebrity(ish) CEO. However, everything that they currently feel good about is based on things they accomplished a long time ago when things were really different. Because of the economics involved they are still enjoying the benefits of those early wins. This temporal separation between cause and effect can be devastating. So, this is a problem.
It gives the culture a false sense of identity. (People love to visit us. We need more people to do that more often.)
It gives the culture a false feeling of success. (We make money selling advertisements because people love to visit us.)
It leaves a 'this worked before (magnificently) so all we need to do is tweak to get it again' stain. (Just got to get more customers to visit us and all will be well.)
It makes significant, real, transformative change incredibly difficult.
Well, 'significant, real, transformative' change is incredibly difficult for pretty much every company - Yahoo is not alone. Again, much of this is simply due to human nature, not poor management.
However, this too is solvable.
This blog is the set-up. The real 'meat' of what exactly to do for each of the problem areas identified will follow if there is interest.
And, like I said at the start - nobody asked me.
P
