It is not unusual that Yahoo! has snapped up 10 companies so far this year. But what is unusual is the scale of the purchases.
Is it 1999 again? The heady days of the DotCom boom are long past and yet Yahoo!'s sudden binge of acquisitions – some of them of dubious value – betray the same irrational exuberance and hope.
This year so far, Yahoo! has snapped up 10 companies. This is not that unusual; Yahoo! has acquired nearly 80 companies since it was founded in 1995. What is unusual is the scale of the purchases.
Take Tumblr, a blogging platform for which Yahoo! paid $1.1-billion in March. The last time Yahoo! paid 10 figures for a company was a decade ago and that was for Overture, a search engine marketing company with proven revenues. Tumblr made just $13-million in revenue in 2012 (and zero profit), while Overture made $667-million in 2002, the year before it was acquired.
Now Yahoo! is courting Hulu, a premium online television service, and is said to be bidding between $600-million and $800-million for the property. Hulu makes significant revenues – $695-million in 2012 – and has millions of paying customers. But it also recently lost some of its best people, including long-time chief executive Jason Kilar. Even more telling is the fact that, in 2011, suitors like Amazon and Google were willing to pay up to $2-billion for the company.
Yahoo!'s own finances are looking healthier of late, helped in no small measure by the leadership of Marissa Mayer, its new chief executive. Mayer was Google's 20th employee and is widely respected in the industry as a tough and brilliant leader. Since Yahoo! poached her in mid-2012, all eyes have been on the numbers. And Mayer has not disappointed; already the company is growing revenue again for the first time in years.
This long-awaited growth is what makes these acquisitions doubly puzzling. Yahoo! has spent four years in turmoil, shedding both employees and defunct products in order to shore up wilting profits. The most persistent criticism of the company has been its lack of focus. Any layman can name Google or Facebook's main businesses, but Yahoo!'s proposition is still cloudy. Buying such disparate companies at such high prices is not going to help that problem.
And then there's Yahoo!'s patchy record when it comes to buying companies. In its glory days Yahoo! snapped up beloved "Web 2.0" companies like Delicious, Upcoming.org and Flickr only to neglect them badly and allow their competitors to overtake them.
Yahoo!'s other tendency is to spend an enormous amount on a sexy acquisition and then get zero value out of the deal. The worst example of this, the 1999 purchase of GeoCities, actually lost Yahoo! several billion dollars by the time it was shut down in 2009. Another dud was Broadcast.com – a $5.7-billion splurge that never returned any significant value.
Granted, both those acquisitions were made at the height of the DotCom frenzy when no one was thinking straight. The new Yahoo! is run by very different people in a very different market and they may see potential in these companies that we cannot. But the old criticism still holds true: Yahoo! still doesn't know what it wants to be.
Compare Yahoo! to Amazon – another of the old guard from the Web 1.0 days. Today Amazon is a global player that competes with the likes of Google, Apple, Microsoft and Samsung in everything from tablets, to ecommerce, to video streaming. It has morphed steadily from a discount bookseller into a global web services company that happens to sell electronic books.
And Yahoo!? Yahoo! is still mainly a "web portal" with a bit of email thrown in and some web search. That description sounds an awful lot like it did in the 1990s, doesn't it?
Yes, Yahoo! still makes money and, yes, it still has millions of loyal users. But Mayer should be focussing the company like a laser, not spending billions on new toys. Without focus, it will be just a matter of time until Yahoo! dies, and no acquisition, however sexy, will change that fact.