On July 25, Yahoo, once a $125 billion behemoth, sold its core Internet business for a mere $4.8 billion to US wireless communications service provider Verizon. Author, entrepreneur and start-up coach Santosh Kanekar analyses the deal
The dust has settled. The lucky ones are going to make a truckload of money. Some fears will increase and for some, Christmas has come early. But what is in for you? How can you apply the lessons from this deal to your business? We need to look at the history of Yahoo and its business to capture these six key lessons:
WHEN YOU DISRUPT, BE READY TO BE DISRUPTED
When Yahoo came in, it was the hot tech company – the proverbial new kid on the block. It defined what portals can be. But at heart, it was a search engine and a mail provider with tools which supported these two platforms.
Somewhere down the line, it forgot this. No significant developments happened. Even when Google started rising with its page rank algorithm, Yahoo made very weak attempts to remain cutting edge in what it was offering to customers. It was focused too long on surviving rather than raising the game. Surviving takes your attention away from growing revenues.
HOW FAST ARE YOUR REVENUES GROWING?
If your advertising revenue is not growing in line or faster than industry, you need a better monetization model. Every business must have a revenue model. Since the heart of Yahoo is Search and e-mail, both free, they were dependent on the advertising model.
Nothing wrong with that. Even Facebook and Google dominate with their advertising model. The key word is Dominate. They dominate the space they occupy and hence command top dollars for advertising. Even now, their growths in advertising are in double digits and together they control 45% of the $186.8 billion global digital advertising market.
Yahoo was losing share of this rapidly growing market. While it made all efforts to recover, the truth was it had to either get customers to pay for their services (I used to have the Yahoo Finance App on my phone) or look for a buyer for its business.
HOW FAR IS EVERYONE FROM NORMAL?
When looking for valuations, look at the state of the market around you. The Internet business models have always focused on valuations. While most offline companies sweat more about the P&L performance, the Internet businesses have always focused on balance sheet expansion. To make a sell decision, you need to find if the valuation of similar businesses is in sync or away from the mean.
GREED AND HOPE ARE BAD TRADING PARTNERS
One lesson I have learnt from my trading is that there is no place for either Greed or Hope. Both of them make investment decisions emotional when it should be rational. Greed makes a seller believe that he can get a higher price. “Everyone is getting a higher price than last year” or “We are the world’s greatest and we can command any price”. The reasons may be many, the result is the same: Overestimation. Hope rears it head when things start going downhill. “If I just wait it out, it will become better for me” or “This is a cyclical downturn and once the upswing starts, I will fetch a higher price.” Bad idea. A price is when buyer and seller agree on the value. The same buyer may not be around next time.
INVEST SOME OF THE CASH IN ASSETS WHICH MAY PAY OFF YEARS LATER
Jerry Yang was not only a genius to start Yahoo but also to buy shares in Alibaba along with Softbank. Today, the Alibaba shares in Yahoo are estimated to be worth $30 billion. Six times the enterprise value of the Internet business!
Most Indian companies have always invested in real estate knowing that investments tend to help tide over in difficult time. Many CFOs have sold holiday homes, head offices in prime localities to tide over difficult times. Hence, when your business generates excess cash, consider investing in vehicles which can create value for you in the future.
A HIGH PROFILE CEO CANNOT SALVAGE A SINKING BUSINESS MODEL
Marissa Mayer was supposed to be the CEO who would turn around things. She was more in the news for her compensation and e-mails than the business performance. To be fair, she did her best especially in the revised deal with Alibaba. The larger point is that if the business model is losing its shine or the model is broken, a “star” CEO will be unable to salvage it.
A business which has lost it mojo or has temporarily got disorganized or a crisis which has suddenly come, may need a high profile CEO to get the required confidence back – often more in Press than within the business. But, a broken business model needs a board level commitment to either steer in a new direction or sell off. These are lessons I picked up. What about you?
(Santosh Kanekar is the author of Stop Reset Start, Growth Rocket launcher and leadership coach. He founded BeLive Corp, which advises global hedge and alternative funds. He also advises start-ups on planning and business acceleration and has coached individuals and businesses to deliver high performance results and launch their own Growth Rocket.)
