Despite its continuing travails, the near 20-year-old web
search company Yahoo! appears still to have a market capitalization of just
over $40 billion. Not bad, you might think, considering its history of decline that
mirrors the inexorable rise of Google.
But there are lies, damn lies and statistics. I’d estimate Yahoo!'s
core value actually is only about $4 billion.
Why? Because its 16 percent stake
in the recently NYSE-floated Chinese e-commerce giant Alibaba is worth
approximately $37 billion.
Toppled giants
Without what has turned out to be a very savvy investment its
core value would put the one-time Goliath in a bracket with that other toppled
giant in the war for internet domination, AOL, which currently weighs in at
around $3.5 billion in value. To put that in perspective, Yahoo! made nearly
three times that by selling Alibaba stock soon after the IPO
But Yahoo! has always been acquisitive. It’s made over 100 purchases starting in
September 1997, with the web search engine Web Controls, right up to September
2014 when it took over the Indian document handling firm, Bookpad.
Under CEO Marissa Meyer’s leadership, Yahoo!‘s attempts
through acquisition to get off the bell curve of inevitable, laggardly decline
and onto the `S` curves of re-inventive success have massively increased with many months
seeing multiple buys announced. 14 Davids have disappeared into Yahoo!'s maw
so far this year - from Aviate which made
an intelligent home screen for the Android OS to social media transformation business Vizify to Flurry’s mobile analytics. And that was after a busy December 2013 when Yahoo!
closed in on five businesses.
From saviour to
nemesis
Of course, these are wholesale acquisitions, not partial
investments, and it remains to be seen how they fare within Yahoo!
Alibaba too is a salutary lesson for any Goliath – that the David
you invested in could not only help your survive and thrive but could start to
dwarf you changing the markets in which you operate. The paradoxical ultimate outcome of your
search for relevance being your own demise as your potential saviour becomes
your nemesis.
And as an entrepreneur be careful what you wish for, even
with a minority investment, it seems, you could get more than you bargained for
and may up accidentally end up running the show. On the other hand, that could
suit you fine.
That’s something Meyer and her board will have hanging round
their neck in coming months as financial analysts around the world work out how
to value Yahoo!’s share price going forward. The share price, for instance,
dropped nearly 10 per cent after the IPO as investors saw no need any more to
hold Yahoo! stock in order to get a bit of the Alibaba action.
Maintaining meaning
in the market
But such movements are the daily stuff of the financial
markets and Yahoo!'s valuation being linked to Alibaba’s isn't necessarily a
bad thing. The partnership still presents
a major strategic opportunity, one that Yahoo! has needed for years as it’s struggled
to reinvent itself and maintain its meaning in the market.
One of Yahoo!'s
problems, which is shares with many US-originated corporations, not to
mention sports organisations, is that, despite thinking itself a global brand,
it is actually very US-centric in its operations , right down to the vast
majority of its acquisitions being from
North America. Note: for those of you
European entrepreneurs thinking Yahoo! might be a good exit, the reality is 50
per cent of acquisitions of European Davids are done by European Goliaths.
But this US-centricity could work in its favour in this
case. It doesn’t take a great leap in
imagination to work out that Yahoo!’s US brand presence and traffic – it ranks
third in the US for total internet traffic – and historical relationship could make
it good partner to enable Alibaba to build an online retail marketplace in U.S.
A man with a plan?
Some of Alibaba's recent activity in this respect may be portentous.
It’s launched the Esty-alike speciality shop marketplace 11 Main and has made
$200 million investments in both the daily deals site Shoprunner.com and
messaging app company Tango. All of these
could be the building blocks of a sustained assault on the US retail
market. And, of course, Yahoo! may now
be part of Alibaba's larger plan to drive traffic to expand the U.S. arm of its
existing business.
If I was a book maker I’d be taking bets on Alibaba getting
past the partner thing pretty quickly eventually swallowing Yahoo! Whole. After
all, control could be acquired for what it might consider small change. However
if I were the betting sort I’d be thinking just because it could do it doesn’t
mean that it should. In trying to create ecosystems and deliver shareholder
value why buy second hand damaged goods when you have the power and resources
to build brand spanking new?
After all, look what happened when AOL acquired Time Warner. It all seemed good on paper but a very
expensive reality soon dawned. He may be
a man with a plan, but as an English graduate will Alibaba founder and CEO Jack
Ma have learnt the lessons of history? Let’s hope so, if only for the sake all
the Davids queuing up to form part of his future success story.
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