Yang out as Yahoo! CEO

Jerry Yang and David Filo, the founders of Yahoo!

Image via Wikipedia

There’s probably been too much blame piled on Jerry Yang since he returned as CEO of Yahoo!, but I wonder who would want to take his position now?  I guess the successor will have the job of chopping up the company and selling it off:

Yang To Step Down As Yahoo CEO, Search For Successor Begins

Yahoo! Conducting Search for New CEO
Co-Founder Jerry Yang to Step Down Following Appointment of New CEO
and Return to Former Role as Chief Yahoo! and Board Member

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Yahoo is the big loser, but Microsoft isn’t far behind

Unless you were living under a rock, you probably know by now that Microsoft decided to walk away from an acquisition of Yahoo! late yesterday afternoon. A great behind the scenes view of what happened was posted by Kara Swisher here. Earlier this week, a much smaller – almost insignificant – deal apparently collapsed as Microsoft was unable to purchase Xobni for what seem to be reasons that are similar to the collapse of the Yahoo!’s deal. Both Xobni and Yahoo! folks had an uneasy feeling of being absorbed by the Microsoft borg (of course price had a lot to do with it too). Fred Wilson seems to agree that Microsoft’s perceived pariah image in the industry hasn’t subsided. In fact, it may be getting worse under the antics of Mr. Ballmer. From my vantage point, it seemed that most technology folks were uneasy with Bill Gates’ Microsoft, but still had some respect for it as he was one of them. Steve Ballmer’s Microsoft is a different beast. Ballmer is first, and foremost, a salesman. Sales folks aren’t well regarded in this industry. Add to that Ballmer’s hard charging, and strange persona, and many techies just feel uncomfortable becoming a part of the borg. So far Google has escaped this problem, mainly because it is still a technology driven company. The famous “don’t be evil” line comes from an ‘anti-sales’ plea during the early days at Google (listen to Marissa Mayer’s interview on KQED here).

Ballmer the salesman wasn’t able to put together the package, financial and otherwise, that would have closed the deal. Sure it doesn’t make sense to bid up the price of an acquisition, especially if you just bidding against yourself, but Swisher’s post exposes the massive cultural rift between Microsoft and Yahoo…for that matter Microsoft and most other technology companies. That same cultural rift seems to have been a major factor in the collapse of the Xobni deal as well.

So, the general consensus is that Yahoo! was the big loser in the three month long saga, but I can’t believe that anyone would think that, this past week, Microsoft was a winner, at least not yet. $50 billion unspent dollars are certainly going to be used somewhere else, but Microsoft’s failures this week mean that any possible acquisition target will be looking for a higher premium to deal with borg assimilation.

Marc Andreessen’s analysis of the Microsoft – Yahoo drama

We all know Marc, a serial entrepreneur and founder of Netscape, right? Well, if you happen to follow his weblog, you’ll see that he also offers some very good analysis of ‘the events of the day’. Take, for example, his excellent post on the possibility of Microsoft going hostile on Yahoo. Here’s an excerpt:

We are learning that hostile takeovers have arrived in our industry. This is the second major hostile takeover so far — the other was Oracle’s takeover of Peoplesoft — but there will be more.

This is significant because historically hostile takeovers practically never happened in technology. Potential hostile acquirors assumed that hostile takeovers wouldn’t work because the target company’s employees would bail and the target company’s business would collapse.

It turns out that as technology companies become larger and more mature, acquirors are becoming increasingly convinced that neither of these assumptions hold. Perhaps employees of large tech companies aren’t that bonded to current management, and perhaps many of them would actually prefer to work for a larger, more dominant combined company. And maybe as a consequence, the target’s business would do just fine in the wake of a hostile takeover — in fact, maybe it would do better, due to advantages of combined size and scale.

Anyone who has been in this industry for the last five or six years knows that the early, go-go days, are well behind it. Andreessen mentions the Oracle takeover of Peoplesoft as the first hostile act, and that may be true. What we should also remember is that, by going hostile on Peoplesoft, Larry Ellison fired a shot across the bow of every major enterprise software company. Soon after the Peoplesoft acquisition, Ellison went on a tear, acquiring over 40 major enterprise software companies including my old employer, Siebel Systems. Just a few years before, this type of consolidation was not imaginable within the industry because the enterprise software vendors were living under two equally delusional assumptions, the first that double digit growth would not go away for a long time, and second – as Andreessen points out – hostile acquisitions would lead to a mass exodus of talent from the acquired companies. Unlike consolidation in other industries, a software company’s real asset is their human capital. The risk of losing this human capital, it was assumed, served as a natural ‘poison pill’ to hostile acquisition. But, as consolidation becomes a norm, not an exception, people have fewer and fewer places to flee to, undermining the bulwark of human capital flight.

At least through a Microsoft acquisition, Yahoo employees – those that survive the inevitable cuts – will have a management team that has some understanding of their business. Oracle has proven that such acquisitions can drive growth, now it might finally be time for Microsoft to do the same.

My thoughts exactly

Jerry Yang and David Filo, the founders of Yahoo!Image via Wikipedia

Michael Gartenberg just posted exactly what I was thinking on the Microsoft offer to buy Yahoo:

It should have been written

Dear Yahoo Shareholder:

How would you like to get Yahoo’s share price from six months ago back, tomorrow?

Of course the deal will take longer to playout, but it’s already been months since Jerry Yang‘s promise to shake up Yahoo! in his first 100 days as the re-installed CEO and all shareholders have seen is an orderly demise of the stock price. This may be the best exit possible for all involved. As for the longer term play of a combined Microsoft-Yahoo, well that’s harder to predict.