Social Media Screwups Illustrate Why Yahoo Is Doomed

It botched a Facebook deal and is wringing Flickr dry

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Everyone should know by now what a disaster of a media company Yahoo! (NASDAQ:YHOO) is. But if not, let me get you up to speed on the machinations of the last few years via a few bullet points:

  • In 2008, Yahoo rejects Microsoft’s (NASDAQ:MSFT) $44.6 billion offer at the urging of co-founder and then-CEO Jerry Yang. (The company’s current market value is under $19 billion.)
  • Yang is pushed to a backseat in 2009 after people realize how stupid it was to scuttle the MSFT deal. Hard-charging Carol Bartz becomes Yahoo CEO in 2009.
  • In 2010, Yahoo gives up on search altogether by running back to a jilted suitor and plugging in Microsoft’s Bing algorithm. A decade ago it was No. 1 in search.
  • After revenues dropped from more than $7 billion in fiscal 2008 to less than $5 billion in fiscal 2011, Bartz is unceremoniously fired. Yang begins to openly pray for a buyout to save his company from oblivion.
  • Things are desperate this year. Yahoo lays off 2,000, or 14% of its work force. Founding father Jerry Yang is cut out entirely. The company sells off a stake in Alibaba Group — the one part of the business that actually is growing — in what one writer calls “selling the family silver to pay the mortgage.”

Are we all up to speed? Good.

Kicking around Yahoo is easy based on the headlines and fundamentals. But lost in the balance sheet is the general feeling that Yahoo is a rudderless organization with an utter lack of creativity and no real plan to get back on track.

To me, nothing illustrates that tale better than Yahoo’s forays into social media.

Flickr and Facebook Failures

Some might not know it, but Yahoo could have bought Facebook (NASDAQ:FB) for $1 billion if it only pulled the trigger. But even more damning than that bargain price in 2006 was the fact a lack of momentum in earnings was the biggest reason Yahoo pulled the plug on a Facebook buyout.

Thinking quarter-to-quarter while ignoring long-term trends is a fairly common habit on Wall Street … but that’s no excuse for a missed opportunity like that.

However, Yahoo’s social media snafu goes beyond the big player. The troubles also resulted from an inability and downright reluctance to grow Web 2.0 elements and instead cram these sites into the legacy Yahoo business.

Consider that at one time, Flickr was the leading photo-sharing site on the web. Serious artists stored their portfolios there, and crazy parents uploaded hundreds of baby pictures for friends and relatives. This was before Apple (NASDAQ:AAPL) iPhones and Instagram were ubiquitous, too, and Yahoo probably was first in line on the photo-sharing front when it acquired Flickr.

Things went OK at first when Yahoo bought Flickr in 2005. It upped the monthly storage limit for free users and allowed paid accounts to operate without a cap. Why not, after all? Yahoo had the scale and the programmers to take Flickr to the next level.

“Yahoo was a good fit initially,” Flickr co-founder Caterina Fake recently told Gizmodo. “It was a great steward of the brand. It was allowed to flourish. In the subsequent two years after the acquisition, Flickr blossomed.”

Of course, the bloom came off the rose soon. As Gizmodo writer Mat Honan puts it, the company was forced to focus on “integration, not innovation” because it wasn’t as profitable as other legacy Yahoo properties like the mail pages or Yahoo Sports.

Thus Yahoo has failed to keep on top of the social photo scene. Yes, some estimates say Flickr has 50 million “users,” and that’s no mean feat. But Instagram already is near or past that mark despite launching roughly two years ago.


Article printed from InvestorPlace Media, http://investorplace.com/2012/05/social-media-screwups-illustrate-why-yahoo-is-doomed/.

©2014 InvestorPlace Media, LLC

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