Edgelings

Step Aside Jerry, You've Cost Investors Billions

by Robert Grove

Consider for a minute, the plight of poor Jerry Yang. The founder of one of the initial Internet successes, Yang has watched his baby, Yahoo, slide to the brink of disaster with the stock slumping, competition from the likes of Google marginalizing his industry leadership and jackals like Carl Icahn swarming around the edges calling for his head.

We’ve heard the call and we agree.

When Yang gave Icahn a seat on the board, Edgelings speculated that it was a stalling tactic to buy Yang 90 days to turn things around before the next quarterly report.

Times up.

Jerry Yang needs to quit, today.

Yahoo is trading around $12 a share and the quarterly earnings report next Tuesday (10/21) isn’t expected to be exciting. Yang’s rejection of Microsoft’s generous $31 share offer has cost investors $28 Billion dollars in six months. This will only provide additional fodder for Icahn and his supporters who have been calling for a sale of the Sunnyvale company to Microsoft. The problem is, Yang doesn’t appear ready to let go of his creation just yet and that is a big mistake.

Things have not gotten better over the past 3 months for Yang and in a desperate attempt to retain control, he is negotiating to buy AOL. Why? Who wants that dying enterprise? Speculation is that Yahoo can monitize the AOL properties better than Time-Warner, but in the face of slumping ad sales and Yang’s desperate desire to hold the corner office, there is a real possibility Yang will overpay for AOL to keep the wolves from the door. The attempt will likely fail in these uncertain economic times.

A purchase of AOL may buy Yang more time but it’s stalling the seemingly inevitable. A Yahoo/AOL deal will certainly take any Microsoft offer out of consideration. Aside from who would want to buy this amalgam of dying companies, it’s reasonable to think that the DOJ would block any merger of Yahoo/AOL and Microsoft. So Yahoo would have to go it alone. Yang has yet to prove he can fix Yahoo much less this disastrous merger.

In the face of a serious advertising downturn and a troubled economy, how would Yang fix a doubly broken Yahoo/AOL company? Where will he even get the capital to buy AOL? Desperate people do desperate things and I fear Jerry is about to do just that.  Yang has done great things and it’s hard to let go, but it’s time.

For its part, Microsoft may actually still be a player. Edgelings speculated that the recent Microsoft announcement of a stock buy-back plan may well have been a torpedo aimed at Yahoo stock. If so, it hit. With Microsoft seemingly taking itself out of the play, investors are hard pressed to see who will save Yahoo. With a seeming lack of market support in Yang, Microsoft may be able to bottom fish Yahoo, which may have been the plan all along. But Microsoft and investors better hope Yang doesn’t close the AOL deal first. The deadline is closing fast and Yang may want a deal before the next quarterly announcement and board meeting.

Retirement, legacy and steping aside are  difficult concepts for a young man to understand but such is life in the internet age: Jerry Yang is an Internet pioneer and will always be remembered that way. We have watched with joy the advancements he has brought to the web. It’s unfortunate that his legacy may be tarnished by these current events. And while Yang may have many exciting ventures and opportunities ahead, Yahoo isn’t it.  Jerry needs to step aside and take his place as a Silicon Valley Legend and web founding father. He has nothing else to gain and certainly nothing else to prove. If there is one lesson that Silicon Valley teaches, it’s that the valley does not treat well founders who stay on too long at their own party.