On Marines and Twitter

Image via CrunchBase

I’ve been reading a book about maneuver warfare as practised by the US Marines. This is based on principles such as focus, surprise, flexibility, tempo and boldness. In each chapter examples are given and what I have found interesting is they give examples on either side. On the face of it one may think that boldness would emphasise taking action over not doing so.

Applied to the current rumours of Google buying Twitter it may seem like the bold move is to go ahead and buy, but it is not. The bold move is to pass. There is no question that Twitter is the hot startup at the moment. It gets the Daily Show mentions, the celebrity tweets and the avalanche of tech blogosphere coverage. People urge Google into doing the deed and that $1bn is nothing against the cost of missing out. It is true that Google needs another giant revenue stream to continue its growth and that it hasn’t really diversified away from its original idea despite many attempts. The problem is that Twitter is not yet a business. And Google has already been burnt spending 10 figures on another not to be missed startup when it bought YouTube.

If the bold move is to pass the really bold move is to buy delicious from Yahoo. I noticed that Google has added a ‘bookmark this’ button. It is hardly well publicised and I suspect nobody uses it. Unlike Twitter whose value is in the immediacy of its content, delicious has quietly built an alternative index of the web. It doesn’t matter that it is far smaller than Google’s robot built index, its value is that it was built by humans. I only bookmark a few pages each day, on a good day, but those I do have far greater value than something indexed by a robot because I can understand the content of the page far better.

Each page I bookmark links me to a group of likeminded individuals and I am always interested to see what they have bookmarked under the same heading. This is in embryo a ‘PageRank for web users’ rather than links. It has the potential to be a powerful search engine but delicious is not hot any more. It got swallowed by Yahoo and left to rot.

The bold move? Pass on Twitter and buy delicious. They already have Schachter, might as well rescue his creation.

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On too much money

Fred Wilson says there has been too much money in VC and I agree with him. The truth is that there have been no grand slam businesses in the last generation of web companies. None have worked out a business model and become standalone, profitable businesses in the same way Amazon, eBay, Yahoo, Google and PayPal did in the previous generation. And between those there have only been two business model innovations: online auctions (eBay) and search marketing (Overture/Yahoo/Google).

The reason is that there has been no business model innovation in this generation is that there has been no pressure to come up with one. Companies which had built a large userbase would always be able to raise more capital, removing any pressure to come up with a reliable revenue stream. It is possible that the glut of VC money sustaining unprofitable businesses has actually retarded the growth of innovative business models.

However now there is reason to think this is changing. A severe recession increases the pressure to innovate your way to a reliable revenue stream rather than a cool new feature. The value of companies with such innovation will rise relative to companies with many eyeballs and no money. The collapse of CPM rates underlines the diminishing value of traffic.

Traffic is still important but it needs much better ways of being converted into cash. There is a theory that in the Internet age nobody will pay for anything any more. I disagree. If you create something valuable people will pay. And now the money is drying up we’ll have no choice but to work out what that is.

Pic:  Cobalt123

On predictions

It’s that time of year, here’s mine:

1. Kiva will break $100m in loans
2. Microsoft will buy Facebook
3. Google will buy Delicious
4. Microsoft will buy what’s left of Yahoo
5. Jerry Yang will leave Yahoo for good
6. Steve Jobs will step down as Apple CEO
7. Social networking will crack its business model
8. Google’s share of online advertising dollars will fall

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On Carol Bartz

Carol Bartz is Yahoo’s new CEO, and its last. To remain as an independent company Yahoo needs not only a great leader but a great innovator. By appointing Bartz the Yahoo board has signaled it is getting ready for a sale once the market picks back up. I can’t see a 60-year old wanting to hang around too long so Bartz will whip Y into shape, sell it and retire.

To my mind Bartz comes into the ‘manage decline more efficiently’ category of CEO. There is no suggestion in her background that she is a great innovator, her qualification for the job seems to be that she whipped a chaotic Autodesk into shape. Yahoo is certainly chaotic but I suspect Bartz’s job is to bring order in readiness for a sale rather than put it back on its feet, a task which is close to impossible. Charles Arthur picked up on the key phrase in her remarks “I believe there is now an extraordinary opportunity to create value for our shareholders”.

Fairly early on she will start to rationalise the business, getting in cash for valuable yet peripheral assets and selling off a lot of Yahoo’s startup acquisitions. Flickr could go and it would not surprise me to see Yahoo lose Delicious in this fire sale and with Joshua Schachter now at Google that is its most likely destination. She is certainly decisive to carry this off in short order, Bartz was not shy in applying the boot to Sue Decker’s behind. Despite Jerry Yang’s protestations I expect he will formally depart as ‘Chief Yahoo’ once he realises Bartz’s objective is to gut the company ready to be sold.

Arthur points out that Yahoo made “$660m on revenues of $6.97bn”. I wonder how many of its 15,000 contribute to that seven billion dollars. Bartz will not take long to find out and it would not surprise me to see that number cut in half inside a year. That should deliver a short term boost to profits enough to attract a buyer. Once that process is complete Yahoo will go looking for a buyer. The most likely candidate is still Microsoft and they will be attracted by a lower price and willing suitor this time round. An additional benefit to MS is that that can sit back while Bartz does all the dirty work then be seen as the benign saviour rather than moustache twirling villain.

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On the wrong man for Yahoo

Silicon Alley Insider reports that David Rosenblatt is their pick as Yahoo CEO. Their reasoning is based on Rosenblatt’s successful tenure at Doubleclick, the argument goes: Doubleclick is good at selling banner ads, Yahoo has a lot of banner inventory, ergo Rosenblatt is perfect for Yahoo. That is my reason why he is exactly the wrong person to run Yahoo.

Yahoo has a lot of banner ad inventory but banner advertising is a dying business. It is old school newspaper advertising transposed to the internet. It does nothing new or innovative other than plop a message adjacent to something they want to read. Banners are dead and so is everyone who relies on them. In the future we will see far less advertising but it will be far more relevant. Google is the first company to crack this, a lot of Google searches don’t show any advertising and the ones that do show something relevant to the user. That’s why it’s a license to print money.

Google’s vulnerability

Yahoo should attack Google where they are most vulnerable: search. Conventional wisdom states Google is invulnerable in search and anyone who competes with them is doomed. The bones of Cuil and others litter the path of the next person foolish enough to venture into that cave. But recently Google has clearly signaled where they think their weakness lies. It was this weakness which let them to toy with the idea of buying Digg. Google search is built around the choices made by people who create webpages. But they know this is only half of the story, the other half is the web’s users.

Recently we started to see little icons appear next to our search results. One was a little up arrow ‘promote’ and the other a little cross ‘remove’. Google SearchWiki is intended to allow users to tailor search results to their own tastes. Google has recognised that the weakness of its search lies in what it once boasted about, the size of its index. There are now billions of pages on the web but what matters is showing me what I find useful. PageRank uses the natural architecture of the web to find relevant results but there is another way, using the bookmarks created by users. And which is the web’s favorite bookmarking site? Delicious.

Yahoo is sitting on a massive alternative index of the web created by its users and their bookmarks. To an extent they already do some analysis by assigning every link I save with the number of other users who have saved it. What nobody at Yahoo appears to see is that this is the beginning of a completely new form of search backed by a user built matrix of links. Yes it may be smaller than Google’s index but that doesn’t matter. It much smaller but much more relevant as it keys off bookmarks I have saved. It would not necessarily ‘beat’ Google but it would be the first viable alternative to PageRank since Google emerged and as such potentially its equal.

So the answer for Yahoo’s new CEO is simple: build Yahoo search around delicious. At this stage anything other than a game changer is no use to Yahoo.

On the end of Yang

Despite my hiatus I could not let this news pass. Jerry Yang has finally resigned as CEO of Yahoo bringing an end to a disasterous tenure in which he spurned a $33 per share offer to acquire the company only to see it sink to $10. Now this is not all Jerry’s fault, every stock has taken a battering since the summer, but it is mostly his fault. Every move he has made has been hedged around with vacillation and uncertainty because, in short, he is not a leader.

The real reason Yahoo is doomed is that it hasn’t really changed since 1994. Admittedly Google hasn’t really changed since 1996 but Google was built around a genuinely brilliant insight from Larry Page which spelled the end for the portal strategy of which Yahoo was the prime exponent. They may not have set out to do it like MS did with Netscape but make no mistake Google killed Yahoo.

The bottom line is Jerry Yang was never cut out to be a CEO. And like anyone stuck in a job they are not suited to the best thing to do is pack it in. I bet Jerry never felt so relieved as he did yesterday, what Yahoo needs now is someone who thrives in adversity.

On neglect

I’m neglecting the blog. We’re getting to the point where more of my time is being spent on the company plus I have been following the US elections so I haven’t been looking at the tech press so much. I was going to write another post about Jerry Yang’s plaintive cry for a Microsoft takeover but it is getting tedious. He should just quit but nobody else would do much better with Y! They need a Steve Jobs – Yahoo version and that person does not exist.

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On Yahoo coming apart

We are entering the endgame for Yahoo. The company will start to come apart and I think that is the right thing to happen. In a sense Yang’s leadership has been the best thing, if not for the company than for the broader tech industry. Yahoo always struck me as incoherent. Its Asian business is doing well independently of the US and would probably be much better off set free.

The US business has accumulated a lot of different sites which would perform better as tighter, more focused independent units. Delicious is one obvious example I have written about many times in the past. Flickr was another I initially dismissed as ‘money losing fluff’ but I now admit I was wrong. I saw the light when I started to use it and when the did the Getty deal. At the moment these and others are trapped inside Yahoo’s bureaucracy and being dragged down by it.

People talk about the benefits of size but all these really boil down to is common accounting, payroll and other back office functions. I have been reading a lot about organisation and the one I find most appealing is WL Gore. No unit in the company can exceed 250 people as that is the limit for an effective organisation. When the limit is reached a plant is split in two. It seems to me that this is the only way to run large organisations – as a federation of smaller ones all of which have maximum autonomy. Yahoo’s main problem at the moment is that its best companies are being crushed by its own size. It is the corporate equivalent of the Soviet Union and we all know how that ended.

Pic: Chen Yang

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On how not to manage

Image via Wikipedia

The latest episode in the Jerry Yang series ‘How not to manage’ is airing. Tonight’s installment? How not to fire people. Kara Swisher reports:

these sorry souls have not been officially selected yet and true departures will not start immediately

What I like about Jerry Yang is that you can learn how to be a successful CEO just by doing the opposite of what he does. He is the George Costanza of management. It is a classic case of someone doing a job they are simply not suited to. Jerry’s just too nice to fire people so he agonises over it and by doing so makes it 100 times worse. Somebody please put him out of his misery.

On Yahoo dying

I haven’t written about Yahoo for a while because there is nothing to write about. Yahoo is dying.

Mike Arrington reported the latest stock drop, it now stands at $13 after turning down $31 from Microsoft. With the markets in turmoil everything is down good and bad. But while most tech stocks will come back stronger Yahoo will not make it.

The basic problem is management. As CEO the buck stops with Jerry Yang. He is not a leader and it shows. He is constantly looking over his shoulder and conducting reviews. In this position a leader should know what needs to be done, have a plan and get on with it.

You can get away with muddled management in a truly great company. I don’t have that much more faith in Eric Schmidt, the money machine was in place when he got on board and he has done not much except ride it. Google has such a great business that it doesn’t matter that the rest of their plans go off half cock. You can’t get away with it in a company that is in trouble. Great leaders can turn around ailing companies. Look at Steve Jobs, Apple was on the floor when he went back, arguably in a worse position than Yahoo was in when Yang took back the reins, and it skyrocketed after he went back. Say what you like about him but Steve Jobs knows where he is going, when he went back to Apple he didn’t need 100 days to sort it out. He knew what to do before he arrived.