What is Yahoo!’s strategy?

After last week’s acquisition spree of BigNoggins Productions, Qwiki, and Xobni, Yahoo! has acquired 15 companies in the last nine months. Looking over the acquisitions, it’s hard for me to make heads or tails of Yahoo!’s strategy. They’re acquisitions have consisted of mobile applications and gaming companies (Astrid, Summly, Loki Sudios, GhostBird Software, Milewise), social applications (Stamped, Snip.it, Alike, Jybe, Tumblr), gaming (Playerscale, Bignoggin Productions), video (Rondee, Qwiki), and email/CRM (Xobni).

In my experience, acquisitions are generally done for the following reasons:

  1. Solidify a market position
    Acquiring an upstart in a market you already compete in can help to solidify your position by bringing in more products, services, and talents to enhance your competitive positioning.
  2. Add revenue
    Acquiring a company that is generating significant cash, preferably on the bottom line, can improve your balance sheet and provide funds for investing in other areas of the business.
  3. Acquire talent
    If you know a company’s team really well, you may want to acquire their talent, in addition to their product and revenue, in order to infuse new ideas and talent into the existing business.
  4. Defensive positioning
    In some cases you may want to acquire companies to keep them from falling into the hands of your competitors.

Based on the style of acquisitions Yahoo! has been making, #3 seems to be the strongest possibility, with #1 a remote possibility, but neither these strongly support the range of the acquisitions they’ve made. In fact, it’s not clear to me what their strategy is regarding the acquisitions.

In any case, from my experience, acquisition sprees generally don’t have a happy ending. Of source, there are always exceptions to the rule, but acquisitions are hard, especially when it comes to integrating them into the existing company. The acquired companies usually have a hard time giving up their autonomy and taking direction from superiors (a reason why many people left to start their business to begin with), and existing employees are unhappy their projects have been passed over in favor of the new, shiny toy that executive management has purchased (and is forcing upon them).

I suspect that Yahoo! is going to have a lot of challenges integrating these new “toys” into their existing collection of products, and I am very curious to see how this story turns out. Unless Marrisa Mayer and her executive team has some insight which I am not aware of (which could quite possibly be the case), I suspect that we will see a number of write downs and product shutdowns in the coming years when Yahoo! is forced to shed the weight of these acquisitions.

So what would my advice be? It’s better for a company to focus on growth from within, and then supplement their portfolio and talent, on an occasional basis, with strategic acquisitions that strongly support the existing business. In other words, I wouldn’t recommend going on a shopping spree and buying companies to see what sticks. Instead, it’s better to pinpoint acquisitions that service a particular need the company has.

If that is Yahoo!’s strategy, pinpointing and servicing company needs, they must be in more trouble that I originally thought because their actions indicate they have an awful lot of needs.

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