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I am a programmer, a researcher and a computer scientist on artificial intelligence. My past lives include working on two startups, two universities and one industrial research institution. I have been trading since 2004. Researching stocks is my hobby as well as an important source of income.... More
  • The Right Track Of Yahoo: Focus And Focus On Products 2 comments
    Feb 20, 2012 11:16 AM | about stocks: YHOO

    If you worked in a tech company before, you would notice that the R&D team and the media team are two different groups of people.

    The goal of the R&D team is to build the best products for the company. They are programmers, engineers, computer scientists and researchers. They are proficient in coding and not shy on geek-talks.

    The goal of the media team is to search for advertisers to buy ads. They are marketers, account executives, managers. They are proficient in sales tactics, used to party and socialize in company events.

    Both of these teams are important in a media company like Yahoo (NASDAQ:YHOO). On one hand, without great products, the brand suffers - think McDonald's (NYSE:MCD) without the Big Mac and think Apple (NASDAQ:AAPL) without the iPhone or the iPad. On the other hand, without a great brand name, no matter how great the products are, there would be no sales.

    So why am I saying this? And how is this related to Yahoo?

    The reason is that Yahoo lacks of the right balance between these two teams.

    Think about this: Yahoo, just like Google (NASDAQ:GOOG), Apple and Microsoft (NASDAQ:MSFT) does not lack of an influx of engineering talents. It has a great brand, yet the company is going south, what is the true reason?

    Here is why: Lack of focus on R&D. There is too much being done to make Yahoo a media company but not as much as a Tech company. Without great products, brand loyalty tanks. Here are some examples,

    • Back in early 2000s, when Google come up with the search engine and Yahoo has been losing search market share. Why? Is it because Yahoo's media team didn't do anything? No, because the Google search engine is much better than Yahoo's.
    • Then there was Gmail at around 2004. Users abandoned Yahoo Mail and flocked to Gmail. Why? Again it is because Gmail is a better product.

    As for now, it is tough to find one Yahoo's strategic product which is number one in the market. I cannot see better reasons why the company tanks.

    This makes me conclude that the recent employment of new CEO Scott Thompson is a great development. Business Insider's Nicholas Carlson wrote "There's A Civil War Brewing at Yahoo", Thompson seems to side with the product development team more than the media team.

    Thompson, unlike the previous CEO Carol Bartz, does not need to report to an overbearing board with members such as Yang and Bostock. As Dan Loeb, from Third Point in his open letter once said,

    Third Point LLC, as the beneficial owner of 5.2% of Yahoo! Inc.'s ("Yahoo") outstanding shares, remains extremely troubled by news reports regarding the dysfunction and inequity being exhibited in the process of maximizing stockholder value that the Board is allegedly "managing". We are disturbed but not surprised by this mismanagement given the history of strategic bungling by Yahoo Board Chairman Roy Bostock and Founder Jerry Yang,

    Without handcuffing from the board, Thompson's policy will likely become more effective than Bartz's. His policy of building better product will also likely be successful. This is what Yahoo needs right now: a razor sharp focus on one or two strategic products. Once they succeed, they use the product to re-gain brand recognition. It will then create a positive-feedback cycle and rebuild the company.

    Yahoo can learn from Apple's experience back in late 90s. In fact,from "Inside Apple: How America's Most Admired - and Secretive - Company Really Works" by Adam Lashinsky, Steve Jobs was once bought by Jerry Young to Yahoo's high ranked executives.

    "Yahoo seems interesting," he said. "Yahoo can be anything you want. Seriously. You have talented people and more money than you could possibly need," he continued. "I can't figure out, though, if you're a content company or a technology company. Just pick one. I know which I'd pick."

    According Lashinsky, all Yahoo executives knew that Jobs was right. Yet, no one at that time was able to make such a decision.

    Now, they should be able to make the decision. They should choose Technology.

    In the short and the medium term, whether Yahoo turns around depends on the $17 billion tax-free asset swap deal with Alibaba(OTC:ALBCF) and Softbank(OTCPK:SFTBF). Investors should closely watch the deal. The piece from Reuter suggests that Alibaba's Ma wants to walk away from the deal. Yet, it can also be a negotiation tactics as Ma has tried to buy back the 40% equity several times in recent years.

    If the deal worked out, I believe Yahoo would be a Buy because several undesirable factors which impede the company growth would be gone.

    It is possible that my readers can disagree with my position on R&D but I found it hard to see focus as a bad thing. As we all know, that was how Apple turned around under the leadership of Steve Job in late 90s.


    P.S. Thanks for the feedbacks of SA Editor. Though I still couldn't publish this piece as an article, the writing became a little bit more polished.

    Disclosure: I am long GOOG, AAPL.

    Stocks: YHOO
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  • Modernist
    , contributor
    Comments (2083) | Send Message
    Good stuff, I can relate to the editorial process, hope you do get one through just for kicks.
    17 Mar 2012, 05:51 AM Reply Like
  • 33_Alpha
    , contributor
    Comments (165) | Send Message
    Author’s reply » Hey Modernist,


    Thanks for the comment. I am writing another article these days. Hopefully it can get through.


    17 Mar 2012, 11:15 AM Reply Like
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