Facebook's Yahoo Smackdown: This Is Why Consultants Shouldn't Run Tech Companies

By Sarah Lacy , written on April 3, 2012

From The News Desk

As we wrote yesterday, Yahoo is really no longer being run by Yahoo. Astoundingly for a company as bloodied in the market as Yahoo, it's hard to know if that's a good thing or a bad thing.

That's because it's now being run by a little-known spanking new CEO dead-set on a Hail Mary mission to shake the company out of its malaise by any means necessary. And his brain trust largely aren't technologists. It's Boston Consulting Group and a new board that includes a renowned patent troll.

Say what you will about the Roy Bostock era that turned out disastrously for Terry Semel, Jerry Yang and Carol Bartz-- and I have-- but least the old Yahoo understood the Silicon Valley playbook, even if it couldn't execute on it. The old Yahoo would have realized the patent suit just wasn't going to end the way Yahoo and its activist shareholders wanted.

It would end this way instead: Facebook has countersued Yahoo's slimy pre-Facebook-IPO patent troll surprise, with its own claims that Yahoo is infringing on Facebook's patents to do most of the things that make Yahoo money. And the Valley is largely cheering.

I've struggled for more than an hour to come up with a fresh angle on the story, because it's just so obvious that this was Facebook's next move.

As we wrote from the outset, Facebook has a history of vigorously defending itself. But even if it didn't, it would this time. Why? Facebook has suddenly found itself cast in the delicious role of defender of the vaunted Silicon Valley way and the very name of innovation.

Facebook has the court of Valley public opinion squarely behind it on this one on the eve of its IPO--and that's not always the case with Facebook. Tech blogs don't agree on much, but nearly everyone is united in thinking the move by Yahoo was tantamount to giving up and switching teams from "innovator" to "hedge fund bitch."

Here's why that matters in the long term beyond legal disputes: Most talented engineers, entrepreneurs looking to sell a company, and probably even a good number of advertisers would rather be on the side of a company innovating than a short-term focused hedge-fund pleaser. Ultimately you need that goodwill of those groups to keep building a technology company for the future. Those groups are all wondering right now if Yahoo even still considers itself a technology company.

Think about what Yahoo has done for a moment. It was--presumably-- intending to hold a knife to Facebook's throat just before its IPO. Instead, it made a company that should by any definition be the Valley's Goliath look like its David. No one at Facebook is going to tell you they're thrilled with the mess Yahoo suddenly created. But someone-- at least in the PR or HR or business development departments-- has to be. In terms of the court of Valley opinion, it couldn't have played out better for Facebook.

Facebook has full cover to come back swinging. In fact, Yahoo has almost made it an imperative that Facebook come back swinging to protect other companies that Yahoo may be threatened by and go after in the future. This fight is about so much more than Yahoo and Facebook-- it's keying off of years of anger over software patent trolling that have long been coming to an ugly head. Facebook essentially can turn around and do the same thing to Yahoo, and it's not positioned as counter-trolling. It's positioned as bad-ass vigilante justice. It doesn't matter what is in David's slingshot as long as he takes aim.

Of course it was going to do this.

What can Yahoo say? This apparently:

“We have only just received Facebook’s answer and counterclaims, but on their face we believe they are without merit and nothing more than a cynical attempt to distract from the weakness of its defense.”
Wait, so when you are a dying company that sues a hot company over vague patents to hurt their IPO it's legit but when they do it to defend themselves it's "without merit"? How do you figure? Yahoo just doesn't have a leg to stand on here.

The only thing that would have held Facebook back from countersuing is if Wall Street was signaling serious worry over the issue and wanted a settlement to put the whole thing to rest. My guess is that's one reason Facebook waited as long as it did to sue Yahoo back. And judging by the action, it's clear the Street would rather Facebook swing back than settle. And that suits the Valley, Facebook's staff, and likely the feisty Mark Zuckerberg just fine.