It's Time for the Valley to Grab Torches, Pitchforks and Head to Sunnyvale

By Sarah Lacy , written on March 12, 2012

From The News Desk

The two pieces of news about Yahoo today are likely not a coincidence. Perhaps the exact timing of the stories is, but there's almost certainly an underlying cause and effect.

Just hours after the Wall Street Journal reports details on activist shareholder Daniel Loeb's plans for his run at the company, the New York Times DealBook answers back with a story about Yahoo following up on their threat from a few weeks ago and suing Facebook for patent infringement.

Yahoo is sadly a company that is running itself like a teenager trying to placate angry parents. It's unable to fix the systemic, underlying problems like its woefully bloated staff, lack of direction and complete failure to adopt any sort of modern strategy. So like a teenager that has neglected to study all semester and can't do anything about its failing grades now, it's trying to take short term measures to please the street. It's the equivalent of distracting the parents from the report card with a hastily cleaned room.

The first thing they did to placate shareholders was an insanely complex deal to sell off the Asian assets in a way that wouldn't give more value to the IRS than shareholders. That appears to have hit the skids, which is just as well, since Loeb has indicated that those assets are the best part of the company and will only grow in value over time. (Sorry, Jack Ma, but if anyone is in Yahoo's stock for more than the short term, Loeb is absolutely right. Keeping the asian assets is the best chance at Yahoo ever growing in value again.)

So what else can Yahoo lob out as a near term "Hey don't hate us, Wall Street!" peace offering? Suing Facebook for patent infringement, that's what. As we wrote before, this is pathetic, particularly considering the timing just before Facebook's IPO. Yahoo is trying to hold a gun to the company's head at its most vulnerable time to get a big payout and wound a company that's actually innovating. It's the same thing Yahoo did to Google just before its IPO.

I don't think this move will do much to help Yahoo. For one thing, it would be a protracted legal battle. Facebook doesn't have a track record of writing big checks to make things go away. Its legal department likes to fight. So even if Yahoo won, the board members and management would likely be out on its tail by the time it did.

Sure the odds are higher that Facebook might settle with the IPO hanging in the balance. But only if bankers start to tell the company that it'll dramatically affect demand. If this were Yelp or Pandora, it might. But it is hard for me to imagine that the most anticipated IPO of this whole generation of companies will hinge on a patent troll. And if it does, all of Silicon Valley is in trouble, not just Facebook. In fact, weaker Valley companies are even more vulnerable to the whims of a failing Yahoo, lashing out as it dies, trying to take others with it. (PaidContent has a nice rundown of the incredibly vague patents in question here.)

If everything everyone has told me about Yahoo CEO Scott Thompson is true, he must have to take a lot of hot showers these days to scrub the stench of patent troll off of him, particularly after his bombastic statements that Yahoo was going to get back to innovating under his tenure. It's just another proof point that Yahoo is a rotten organization that no CEO can seem to fix.

Jerry Yang may have exacerbated Yahoo's slide with his ballsy-but-ill-advised decision not to sell the company to Microsoft for $40 billion. But at least he didn't cave to the anti-Valley demands of activist shareholders.

The Valley should step up its own pressure on Yahoo: Social pressure. Yahoo's board and management are part of Silicon Valley and they should be getting an earful from everyone they know. Startups should refuse to sell to Yahoo, potential employees should refuse to join the company. (Well, more than they already are refusing...)

Because this isn't just about Facebook. If Yahoo gets away with these claims most of Silicon Valley's consumer Web industry will be vulnerable. I hope Facebook fights. The best thing to come out of this could be that Yahoo finally pushes the patent troll game too far, and we get real reform.

(Bizarre photo courtesy of Shutterstock. Seriously, it was the only image I got for "torches and pitchforks," but it sort of fits since Yahoo is a Frakenstein of silos at the point.)