If you have not yet stumbled across Sue Decker's article in the Harvard Business Review blogs, please read it. Decker, who left Yahoo! in 2009 after being passed over for the CEO post in lieu of former Autodesk CEO Carol Bartz, delivers her view of the investment that effectively saved Yahoo!, and her role in it.
First person accounts are always suspect: one is never certain about how much of the history so presented is objective and how much is subjective. Thus, it was reassuring that the editors of the Harvard Business Review chose to publish it as an interesting curiosity rather than a definitive account or a case study. Still, the article made me a bit uncomfortable, for a few reasons.
The "Everyone Failed" Gambit
First, the author frames an eloquent but ultimately unconvincing defense of Yahoo!'s failures in China (in essence, everything the company did except the investment in Alibaba) that can be summarized in as "yes, we failed badly, but so did everybody else."
That's partly true: the list of US Internet companies that tried to make a go of it in China and failed is long and distinguished. But the ledger is not quite as one-sided as Decker implies that it is.
Google had a viable business in China before it chose to stare down the Chinese government. Amazon has a business and is still in the game, despite having to go head-to-head with China's 900 lb. e-commerce gorilla, Alibaba. Evernote and LinkedIn are making headway with tightly defined value propositions that make sense for China and the rapid refresh cycles that local users demand. And let's not forget little South African NASPERS, a firm largely unknown to Valleywags that somehow managed to run circles around everyone else, making a brilliant early investment in Tencent that may ultimately outshine even Yahoo!'s windfall on Alibaba.
Decker suggests that the relative success of each of Yahoo!'s moves in China can be explained by the degree of control exercised over the China venture by Sunnyvale. The less control Sunnyvale tried to wield, the more successful that venture became. If that explanation seems a bit too neat and simplistic for you, join the club. I'll come back to it shortly.
The False Management Paradigm
Second, the author skims over the fact that the joint venture with Alibaba failed to produce anything of value aside from Yahoo's partial ownership of its partner. The joint venture did not save Yahoo!'s China business: the company's China operating unit, valued in negotiations at $700 million, sank quietly beneath the waves soon after the agreement that handed operational control to Alibaba was signed. If anything, the Alibaba agreement destroyed Yahoo!'s operating business in China, or, perhaps more generously, sacrificed it in the name of a harmonious relationship between the parties.
Given the outcome, one might be inclined to say that the sacrifice was worth it. Perhaps. But neither we nor Decker should harbor any illusions about what this means for Yahoo!: that the company failed as an operating business three times in China, and that despite her assertions to the contrary, the degree of control exercised by Sunnyvale had no influence on the final outcome. Tight control, loose control, or no control, all three models failed. The one management lesson she tries to deliver in the article is a canard.
The Forgotten Brand Problem
Third, there is no mention in the article about what happened to Yahoo! and its family of brands in China. The brands that Yahoo! owned during Decker's tenure - including the "Yahoo!" brand itself, each represented a repository of goodwill. The Yahoo! brand in particular initially occupied a position of great respect among Chinese netizens, both because of its success and because of Jerry Yang's Chinese heritage. In the process of thrice failing to make a go in China, Yahoo! squandered that goodwill, and thus destroyed the value of its brand in the largest online market in the world.
As a senior finance officer, Decker certainly understands the value of goodwill, as does Yahoo!: much of what they paid for their acquisitions was based on the goodwill and the brand value of the firms acquired. Any reckoning of the net value of Yahoo!'s investments in China must therefore take into account not only the sunk costs and the book value of the assets written off, but also the brand value it destroyed in its largest addressable market.
That this issue remains unmentioned in Decker's article is, to a marketer like me, a final though perhaps unnecessary indictment of Decker's narrative. In the end, her piece is not the full account of the deal from the inside promised in the title. It is, rather, an effort both to stake a claim of some credit for Yahoo!'s Alibaba windfall and to exonerate Yahoo!'s leadership - including herself - for the company's poor operating record in China during her tenure.
Decker richly deserves her share of the credit for the deal: in the end, it saved the company. What she cannot claim for herself or her colleagues any credit for operational success in China. Porter Erisman, a former Alibaba Vice President who recently released a documentary about his time working inside the company called Crocodile in the Yangtze offers this thought on how to assess Decker's legacy and her account of Yahoo!'s success:
How Yahoo! performed as an operator and how they performed as an investor are two different questions. If we evaluate Yahoo! as an operator (both inside China and outside,) I think we can all agree that their performance was poor. If we evaluate Yahoo! as an investor, we should take into account their entire history of investments and not just cherry-pick one investment that paid off. On the whole, Yahoo! did well as an investor over the years (due to Alibaba) despite some obvious failures. But people investing in Yahoo! didn't do so because they believed it was a private equity fund. Luckily, the Alibaba investment turned out well and made up for Yahoo!'s failures on an operating level.
Erisman makes a superb point: Yahoo! did brilliantly as a private equity fund and poorly as an operating company. Nowhere was either more true than in China, so I suspect that if we - or Marissa Mayer - are ever to understand what makes Yahoo! tick, we will find the answers in a thorough, unbiased, and balanced account of Yahoo!'s China odyssey.
We will have to wait for someone else to write that account. In the meantime, please read Ms. Decker's article. If nothing else, it is a valuable contribution to the oral history of American business in China.