Yahoo's Future: The Employee Perspective 11 comments
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Microsoft (MSFT) or Google (GOOG) - what might be the Yahoo (YHOO) employee perspective? While guaranteed outcomes may trump the unknown for investors, a different logic seems to apply for Yahoo employees thus far. That’s understandable at this early stage of the process. It was assumed that Yahoo would occupy its current industry position for a long-time, fighting infinite rounds with Google. Being part of that battle within an independent Yahoo has carried a huge sense of purpose for employees. It’s only natural to want to see this set-up continue. I’m not saying that the fight won’t continue as vigorously under new ownership. But it will be different.
The prevailing view on tradeoffs for employees has gone something like this — the ambiguity of a Google deal buys time and preserves the dream, whereas the Microsoft option brings certainty of the “not-so-fun” variety. These assumptions require some vetting and I will offer ideas to kick-off that thread.
Teaming-up with Google on search buys independence but introduces unresolved issues about long-term positioning of the business. Yes, Yahoo would continue to operate an independent search product as well as it large web apps network such as email, jobs, movies, travel, personals, social bookmarking, photo sharing and finance, while better monetizing search through Google. That sounds great in theory because the only thing changing is that Google’s under the hood of search advertising. The user experience that we know as “Yahoo” would remain in-tact.
But two related issues surface as a result of such a partnership. First, Google has its own ambitions in web apps and their footprint is on a natural collision course with Yahoo’s established properties. Head-to-head overlap is growing (email, maps, personal finance, personalization, and video sharing are directly competitive). You might say that "coopetition" is a common dynamic across industries. In case you didn’t know, Ask.com has an ad-sales outsourcing deal with Google while maintaining its own competitive search technology. They don’t seem to be complaining.
One objection to this set-up, however, would be that the “cooperation” side of the strategy only makes Google better at the “competition” side of it. In the long term, the relationship feeds Google’s coffers to catch-up on the applications side. Unless there’s such a sustainable advantage in these web content properties, which don’t have the network effects of Google’s ad network, it’s possible that Yahoo would be accelerating Google’s entry into its prized content network spaces and categories. On the other hand, Yahoo can argue that with this new focus, it can build out new properties with greater effectiveness. It has, after all, been very successful at it both organically and through acquisition. Yahoo does know web content.
A second consideration is the lack of “clean separation” of ad inventory in the context of how stuff gets sold. It’s not as if search engine marketing is sold as an “island” since ad inventory of different varieties are likely to be packaged, especially in the case of direct sales. According to Jerry Yang’s most recent letter to shareholders:
We also integrated our search advertising and display advertising sales forces, creating a one-stop shop for all of advertisers’ online marketing needs.
This raises complexity in terms of coordination between sales and marketing organizations at the two companies. Who gets to sell what and how does this reconcile with the notion of integrated advertising and marketing programs? Structuring and managing this complexity with a partner (aka, competitor) is not going to be easy. I also wonder about the dependencies between controlling search advertising and search results quality. Amongst the many signals which search engine providers use to assess relevance, isn’t user behavior to search advertising part of that?
On the positive side, the deal does allow Yahoo time to drive some of its newer strategies. The company has been far more successful, for example, than Google in social networking (Delicious, MyBlogLog, etc.). Perhaps it can figure out a way to take these properties mainstream. Also, it has been developing technology that anticipates declining barriers between search and content. Yahoo has been very aggressive in cross-programming of related content across its network and some of those techniques could be based on newer “search-based” technologies. In Web 3.0, we can imagine search being a less explicit user experience and more like the aforementioned approach. This ambiguity raises complexity for Google in terms of valuing a partnership. How can it guarantee specific revenues in a multi-year deal if Yahoo has the right to use advanced technologies to preempt traditional search behavior? I’m thinking about a scenario where Yahoo figures out the next disruption in search which causes it to make search a less prominent aspect of the Yahoo experience. I call this “search will eat itself.” Granted, this is all very speculative and not immediate, but it does make putting together a long-term partnership challenging.
Acquisition by Microsoft simplifies the fate of the business, no doubt. The combined business would make Microsoft number two on the web and dominant in certain categories, while combining efforts to catch-up in search. But Yahoo employees have their reasons for dampened enthusiasm about the Microsoft option. Here are some potential gripes. It brings finality to the Google vs. Yahoo rivalry. Motivation will decline. Microsoft is not a Valley company. A web-only company is different than a broad-based technology firm. Yahoo’s way of doing business is different than Microsoft’s. The Redmond-guys will be in control. Things will be more political and bureaucratic. Microsoft stock has less upside than an independent Yahoo (despite its prior slide). Whether or not these issues can be managed, they’re more personal in nature than the deal-related non-sequitors of the Google option. So while collaborating with Google might leave Yahoo in a potential no-man’s land of industry positioning, it might have greater appeal to employees because preserves the familiar way. Of course, hostile behavior has put a unique context around this situation too. Consider Peoplesoft employees, who were part of a company more dominant in business applications but smaller in size as an overall organization than hostile acquirer, Oracle (ORCL).
Teaming-up with New Corp. (NWS) doesn’t help matters too much at this point either. Tying Yahoo’s breakout strategy to a social networking angle via My Space is a sound objective when considered by itself. But in the context of this scenario (exit option for shareholders at a premium from Microsoft) it’s a weak alternative. This is because My Space is still doesn’t monetize well and Yahoo hasn’t cracked that nut either. Social network monetization is in the early stages. That means nothing fundamental to drive the stock price in the near-term. Perhaps this can work in Microsoft’s favor (recall its courting of Facebook). Assuming that Facebook cannot get the revenue engines moving, can you imagine Microsoft pulling off that acquisition too, say 18 months following a Yahoo deal? They are raising debt in the capital markets for the first time. This would be a tough scenario for Google.
A potential response from Google would be to pull together a News Corp deal which merges MySpace into Google for a stake and, separately, buy AOL from Time Warner (TWX). At that point, we have Google and Microsoft with comparable product portfolios (search, portals/content networks, social networking). I’m totally digressing, but some variant of these configurations are bound to happen if current trajectories persist.
Rolling-up the major tradeoffs for Yahoo employees, this appears to be a choice where certainty collides with the wishful thinking of an ambiguous alternative. Ultimately, employees won’t have much a say in the resolution of the matter and if Microsoft structures the incentives appropriately, they’ll get used to life with a new owner. After the dust settles, the main event will resume, albeit with a shuffling of the board. It’s not lost on anyone that the web is still in its infancy. We’re still early in the game and people will still have a lot worth fighting for even if they change uniforms and teams.
Disclosure: none
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This article has 11 comments:
None of these three have woken up to this and are truely prepared to fight it. Any configuration of these mergers will cause so much internal strife that they will be bickering internally while Rome burns around them.
Interestinh idea. Can you offer some links? I'm skeptical.
That's funny in a search advertising context, since Yahoo's Search Advertising group isn't in the Valley either. They are in Burbank, CA (Southern Cal) -- the result of Yahoo's Overture acquisition.
Yahoo is in a no-win situation. All three major options are depressing to employees.
1. Microsoft buys Yahoo. Ick. "Real" engineers hate Microsoft.
2. All deals fall apart. Stock slides back to 18 or so. Shareholder lawsuits filed. Believe me, Yahoo employees don't care about the stock's "upside". They want the highest price for their options, now. Plus the lawsuits would be a huge distraction.
3. Outsource to Google. Basically this would be giving up. Not much worse for employee morale. And what happens to all the employees replaced by Google? Pink slips?
The News Corp. thing is okay, except it will probably massively overvalue MySpace. It's obvious to everyone under 25-30 that Facebook is far superior to MySpace. Frankly I think MySpace started it's decline in 2007. And what's so great about MySpace anyway? Google themselves complain about the advertising revenue from it.
Yahoo is simply in a very tough spot.
From some perspectives, this has a lot to recommend it, and from others, it is the worst of all possible worlds.
From a Yahoo employee perspective, I suspect that many would abandon ship at that point, but some -- possibly enough -- would be sufficiently intrigued by the prospect of rebuilding their cathedral in granite instead of marble.
"Isn't Zimbra going down the toilet if MS gets Yahoo?"
Correct. Underreported consequences on a MSFT takover: Yahoo will presumably move from LINUX and MySQL (e.g. Flickr) to MSFT technologies, and this will lead to a humongous performance hit, like we saw when MSFT acquired HotMail.
Security will be bye-bye; who'd be dumb enough to put personal data online with MSFT running the show?
Zimbra will be gone.
".net", which has be relegated to use by MCSE's in backward Enterprise server rooms so far, will be pushed for use on the open web.
Silverlight, a technology which has zero chance of making a dent in Adobe Flash as things stand (it offers no advantages and it's not cross platform), will be pushed heavily.
By the time www authorities complain and antitrust regulators take note, huge damage could be done.
www.techyouruniverse.c...
Who will survive - middle management and upper management.
Who will be replaced - developers and technical leads unless they will pick up Program management positions.
Employees will leave , lots of employees will be 'replaced' and layoffs will continue.
But there is not other way for Yahoo that is losing the revenue based on lots of ad serving redundant systems that can not work together by many reasons.
Yahoo MUST BE SOLD - it can not be rebuilt. That is the bottom line.
Board of directors will be much richer, employees is that who will be in an insecure territory.
MS will buy Yahoo. Yahoo will be cut by half. Then it start to grow and many employees will be returning to new MS corporate culture to redevelop and repair damage that had been done during 'transition'... in 3 years advertisement systems and search may start working as they do now but under MS umbrella.
Overall, MS will gain the presence in valley having not only struggling hotmail team but Search and Ad serving company with 10k employees. I can bet that it will go in 3 years to 20k employees as many Live and other Platform MS groups will move to Valley... Strategically, it is THE VERY SMART MOVE FOR MS - kill yahoo as competitor and get started 'occupation' of MS software in valley as well as killing redundant and money spreading structures inside MS - ad center, MSN, MSN live, Hotmail and etc... MS employees also would be 'transitioned' but won't lose jobs as Yahoo's ones. As techy guy I don't like MS software but I am applauding the strategic thinking of Mr. Gates and associates.