While many have speculated on the ways CEO Marissa Mayer will remake Yahoo, none have correctly predicted what the company has actually become: A safe haven for VC rejects.
Since taking the helm in October, Mayer has snapped up nine young, consumer-facing startups all at varying positions in the hype cycle. Today she announced two in one morning. At this pace, Yahoo might singlehandedly save Silicon Valley from the Series A crunch.
Her targets all generally fit the profile of a Series A crunched startup (though obviously I can’t speculate on each of their exact options when they sold). For starters, none has raised a Series A round. Most had accumulated seed funds in the form of a “party round” with long lists of angel investors but no lead investor. All are consumer-facing. None had experienced any truly notable traction before the deal. (Astrid seems to have been the biggest with 4 million users.) Only one or two had a clear path to revenue. All were well-designed by talented teams of fewer than 10 employees. None of their products were particularly revolutionary or even unique in their categories. All of them were shut down and folded into Yahoo’s offerings upon acquisition with hardly a peep of outrage from their users.
If the above description applies your company, now might be a good time to give Yahoo a call.
Here’s a quick rundown of what Mayer has purchased thus far:
Social sharing app Stamped raised a $3 million “party round” packed with celebrity investors and had nine employees. Video chat platform ONtheAIR raised $800,000 in seed funds and had five employees. Snip.it, a tool for copying and sharing Web content had raised an undisclosed seed round from four seed firms, sold for $10 million. Alike, a mobile recommendation engine for local businesses, had bootstrapped itself. Jybe, another bootstrapped recommendation engine, consisted of five ex-Yahoo employees. Summly, a news reader backed by $1.53 million in seed funding, sold for $30 million. Astrid, a social task manger with 4 million users, had raised backed by $400,000 in seed funding. MileWise, a six-employee travel rewards tracker, had raised $1.5 million in a party round of seed funding. GoPollGo, a public polling company with three employees, had raised $425,000 from Idealab and CrunchFund.
So what is Mayer and Team Yahoo cobbling together with all of these products? Franken-Yahoo has the goal of making itself a part of the daily habits of its users. For all the beatings Yahoo takes from Wall Street and the tech press, it’s easy to overlook the sheer size of Yahoo’s monthly audience. Yahoo.com gets 128 million monthly uniques from 18-49 year olds, for example.
Mayer wants to capture a larger chunk of that audience’s daily interactions with media. By adding all of these tools to Yahoo’s mobile offering, the hope is that Yahoo’s existing audience will become more engaged. Fast Company said it best in a recent profile: “Mayer wants to create a complete profile of everything you love, which will result in more personalized content — and more lucrative ads surrounding it.”
Earlier this week, Mayer defended her most widely criticized acquisition, the $30 million deal for Summly and its 17-year-old founder, on stage at the Wired Business conference. She believes there are cornerstone technologies that Yahoo needs, and she’s willing to acquire them if they’re already not available in-house. One of those cornerstones is summarization. Short summaries of long pieces of text will be important on mobile given the small screen and shrinking attention spans of mobile users, she said. Summly was, in her opinion, the best-in-class offering of this technology.
Speed is another theme for Mayer — she boasted that Yahoo had shipped apps with Summly’s technology within four weeks of closing the deal. She’s called the turnaround a “series of sprints.” The first sprint is apparently to buy small teams, kill their products, and quickly integrate them into one of Yahoo’s myriad of fragmented apps. (I counted 17 in the App Store.) Poof, Yahoo is innovating.
Because these nine targets were good companies but not great ones, most of them would have struggled to raise Series A rounds of funding in an environment that’s hostile to consumer-facing apps. Their founders might have shut down the company, licked their wounds, and then gone to work for Google, Apple, or Facebook. They likely wouldn’t have considered working for Yahoo. But by showing the world that Yahoo is willing to pay to acquire talent — and by the way, now you sold your company, it didn’t fail — Yahoo has changed its reputation to startups. Several seed stage investors have expressed to me that, for the first time in years, solid companies are actually interested in having acquisition conversations with Yahoo, which is a complete change. No longer is Yahoo a boring old dinosaur to be avoided. It’s a place you could sell your company and start working with some smart people.
That makes Mayer’s strategy contrarian — she’s investing in the consumer Web when VC’s are not. I’ve heard it repeatedly: VC’s are playing defense, declining to do certain deals because “they’ll look stupid” for backing a consumer Web company when it’s so out of vogue. Mayer isn’t the only game in town, though. Acqui-hires have been a big part of Facebook’s strategy since long before the Series A crunch. The company has done 37 deals; of them, only Instagram has remained an independent product.
Besides changing Yahoo’s reputation as a place to work, these small deals don’t add up to much in terms of solving the big turnaround problems, like growing Yahoo’s market share. For that, Mayer seems set on a big, transformational video acquisition. Mayer was at Google when the company bought YouTube. (Yahoo had been a bidder.) Yahoo’s play for French video side DailyMotion didn’t work out after the French government got involved. Now she’s plotting a bid for Hulu, according to AllThingsD. Hulu might be an easier target, given how many times the video site has been put on the block in its lifetime.
Historically, acquisitions haven’t done much for Yahoo or its acquirees. In 2005, the company went on a spending spree, acquiring Flickr for $35 million, Delicious for around half of that, MyBlogLog for $10 million, and Upcoming for $1 million. Flickr is widely regarded as a missed opportunity (which Mayer hopes to revive), Delicious’s technology was sold off six years later, MyBlogLog was “left to atrophy for years” before getting shut down, and Upcoming is scheduled to be killed as well.
Those deals were done under a different regime. Yahoo’s latest spending spree, helped along by the Series A crunch, is little-by-little changing Yahoo’s reputation as a place to sell your company. But Mayer’s next challenge — kicking Yahoo into growth mode — will be a much bigger deal.
[Illustration by Hallie Bateman]
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