Yahoo's Third Way

  By Michael S. Malone           

             One of the more curious features of the current duel over the fate of Yahoo! is that a surprising number of Silicon Valleyites, whom one might think would cheer for the hometown entrepreneur Jerry Yang, have taken the side of the Outlanders arguing for a Microsoft take-over mid-wifed by the redoubtable, but ominous, Carl Icahn.

            I can hardly claim myself an exception to this:  in the pages of the Wall Street Journal, I called for Yahoo to take Microsoft’s offer; an opinion I repeated in my ABCNews column.

            Yet there is no small irony in taking this position.  After all, it wasn’t that long ago that Microsoft was Silicon Valley’s most feared competitor – and for Gates & Co. to even contemplate entering a new market was tantamount to a death sentence to the companies already there.  I don’t seem to remember anybody cheering on Microsoft when it crushed Netscape a decade ago.

            By the same token, it has also been a source of pride among Internet companies that theirs is a young person’s game, requiring the combination of intellectual flexibility, bravado and naiveté (i.e., not being crushed by the failures of the past) usually found only in youth.  So why, then, are we cheering on a septuagenarian corporate raider as he attacks a home-grown Web company run by one of the youngest Fortune 500 CEOs – raised in San Jose! – in America.

            The answer, I think, is a combination of indifference and contempt.  The indifference arises from the fact that Yahoo is largely seen as a once-great, but now fading, enterprise.  It was one of the hottest companies on the planet in the mid-nineties, crashed, made an extraordinary come-back in the dot-com era, crashed again, and managed to come back one more time.  But now, in a spectacular failure of vision, it has once again fallen on hard times.  And, as Silicon Valley is notoriously ruthless on fading companies, we have essentially written Yahoo off – despite the evidence of its past resurrections.

            The contempt is a little more complicated.  There is a sense in the Valley that Yahoo had a strong position and a huge opportunity – and then frittered it away over the last few years while Google raced past.  There is also the general feeling that Yang, though a brilliant guy and a co-founder of the company, is only CEO now to fill the vacuum left by the departure of Terry Semel  . . .and that he is in over his head.   Thus, his resistance to both the overtures and threats by Microsoft and Icahn is seen as less the product of reasoned strategy and more sheer petulance:  he doesn’t want to give up the company he created, he hates Microsoft to the point of madness, and he is willing to burn Yahoo to the ground before he lets anyone else have it.

            In fact, there is no evidence that any of this is true.  Indeed, Yang seems to have a number of loyal lieutenants and Board members ready to take his side in the matter.  They can’t all be crazy.

            But they probably all are doomed.  At this point, it is hard to imagine how Yang and his team will ever hold off the combined forces of Microsoft and Icahn.  The two sides seem locked in an embrace that will only end with the ignominious departure of Yang and the triumph of Icahn and Ballmer.

            As for the rest of us, perhaps we should be careful what we wish for.  Silicon Valley may rue the day when it cheered a corporate raider in the destruction of one of its iconic companies.  As Google grows stronger, we also may find ourselves wondering whether we shouldn’t have given Yahoo the chance to revive itself one more time.  But most of all, as we watch Yahoo die – and it will die, because as far back as Shlumberger and Fairchild (indeed, even further) no Valley company has ever successfully survived the acquisition by an outside corporation.  Maybe it’s the water, certainly it’s the Valley culture, but the moment Yahoo is purchased by Microsoft its fate is sealed.

            So here is a thought problem for all of my fellow Silicon Valleyites, and all of those who don’t wish to see the annihilation of a once-great company – and the welcoming of two foxes into our neighborhood henhouse:  Is there a Third Way, another option, that neither keeps Yahoo at its current status quo under Jerry Yang, nor throws it to the wolves of Redmond.

            An employee-shareholder mutiny perhaps?  HP’s employees nearly pulled it off against Carly Fiorina.  A local merger perhaps – assuming that Google isn’t just toying with the company?  A consortium of local investors prepared to take the company private? 

            Silicon Valley is the home of innovative thinking, not just in technology but business management.  So how do we save Yahoo and make it world class again?  What did Thomas Wolfe say?  Look homeward angel (investor).