Yahoo's M&A Mishaps - Wisdom After the Fact

If you've read my blog before, you know that I think M&A is generally a collosal waste of organizational resources (money or equity for the purchase + the time wasted to 'integrate' and synergize) and it is driven generally by ego and empire-building visions.  It serves to enrich investment bankers and consultants for the most part. 

And in my view, companies should focus on the more controllable dimensions of growth, e.g, organic growth, innovation, etc. 

But if there is one thing that I am, it is fair (or at least I think so).  And so an article in yesterday's Wall Street Journal entitled "Yahoo Might Long for M&A Do-Overs" was a bit misguided with its Monday Morning quarterback'ing.  The column basically looked at the bad deals that Yahoo has done over time and offered it's 20/20 hindsight wisdom.  Let's take a look.

1. Geocities - Yahoo paid $3B.  Ouch - not ideal.  But then there is a comment that "Had they done things right with GeoCities, there would be no Facebook, YouTube or Myspace."  Really?  I'm not sure the technology was ready back then, nor was the advertising monetization model as prevalent or was social networking all the buzz.  Sure Geocities could have become these, but it seems a bit unfair to expect that Yahoo would have come up with all these innovations.  Facebook and MySpace are possible today because of other advances.  Plus, if you ever used GeoCities, it was pretty terrible as far as I remember. 
2. Facebook - Supposedly Yahoo had made an offer for $850MM which Facebook rejected.  At the time when Zuckerberg rejected a $1B offer, everyone thought he was crazy and the popular media especially.  Now that he has been proven right (given MSFT's investment), Yahoo has become the idiot.  This is just media fickleness.  And honestly, at this point, who knows if the the social network thing has some legs?  They're not converting ads (per Google's last release) and so there is a chance Facebook and MySpace are just other new entrants in the hype cycle.
3. Broadcast.com - So this deal for which Yahoo paid $4.3B gave us colorful Mark Cuban.  Again, this was bubble level prices so a bad deal.  I agree with the WSJ on this one as the biz model of Broadcast.com ("helping conventional radio stations extend their reach by broadcasting their signals over the Internet") was pretty lame.  Wonder who in Yahoo created the deck supporting this one?  Probably some good influencing and PowerPoint skills.
4. YouTube - Google got it for $1.65B which relative to Broadcast looks like a bargain.  But you can't use Broadcast's price as an indicator of any kind.  Sure Yahoo coulda, woulda, shoulda gotten YouTube but what would they have done with it?  Bolting on interesting, high growth products with no business model onto an existing business is not a viable long-term strategy.
5. Google - Yahoo could have bought them for $3B and they didn't.  Idiots?  Not so fast.  Who knows if Google would have become what it is within Yahoo? 

This type of second-guessing is fun perhaps, but not necessarily fair or productive.  Overall, you have to have a real strategy and then these deals could have done somewhat better or maybe they wouldn't have been done.  The problem is that Yahoo hasn't evolved its strategy over time.  Just trying to add eyeballs and buying something because its growing quickly and people think it will be worth something is not a reason to buy. 

At the end of the day, if Yahoo had innovated its search platform, it would need none of these.  Look at Google's profits and revenues.  They're still wildly dominated by search which was Yahoo's biz model.  Again, innovating and growing organically would have served them much better than their past M&A activities.  This holds for most industries.