Pando

What Twitter and Yahoo should do next

By Sarah Lacy , written on January 14, 2016

From The Yahoos Desk

There’s a new maxim in Silicon Valley: Be careful what Chris Sacca wishes for.

So far this year, Twitter’s stock has fallen every day. Today it dipped to yet another new all-time low at $17.27, well below $13 billion in market cap. Granted, it’s been a bad year so far overall for tech stocks. But Twitter has fallen sharper.

Given that Square is down too, 2016 is just not shaping up to be Jack Dorsey’s year.  

But the media is -- so far-- giving Dorsey a pretty big pass on things. Re/Code’s recap of his first three months was about as softball as you could get, and if you Google “Should Jack Dorsey be replaced” you get nothing but announcements about him getting the job or getting ousted from Twitter in 2008.

I don’t propose that swapping him out will help Twitter. That’s not because of any great confidence I have. We were one of the only tech publications to say loudly that his appointment was a mistake, cult of the founder be damned, Twitter’s employees, shareholders, and users deserved a full time CEO. Also a mistake: His tanking of the stock at the first earnings call, by throwing his predecessor under the bus. You don’t set yourself up like that unless you are confident you have an immediate fix. Dorsey clearly did not have an immediate fix, or apparently a subsequent one. Was Moments supposed to be his big move? Or sneakily swapping the Moments icon with Notifications so users accidentally clicked on it? Roll over, Steve Jobs! 

I’m just not a believer that simply replacing a CEO will magically solve a company’s problems.

Expect a coming tsunami of hot takes on who might buy Twitter now that it’s so “cheap.” Spoiler: No one. Because it isn’t cheap. It’s cheap compared to where Twitter was and maybe what it could have been, and certainly next to Facebook. But $12 billion is still a huge amount of money. Even in a time of enormous valuations, only a handful of private companies are worth that much. And those are ascendent companies.

The companies who could afford $12 billion-- Facebook, Google and the like-- don’t need Twitter and don’t like buying broken things. And every moment Twitter gets “cheaper” it’s because it appears even more broken. So as the price decreases, the stigma increases.

And this is before you consider that corporate M&A guys have put dealmaking on pause while they watch what happens to unicorn valuations this year. There are undoubtably be far better buys amid companies who can’t raise late stage capital at prices they are used to, and don’t have the numbers to go public in a sour market. Let’s see how Snapchat does at monetizing. Snapchat for $20 billion is an exponentially better move for Facebook or Google than Twitter at $13 billion.

It’s a mini-version of Yahoo’s problem for the last decade: Even at a reduced stock price, it’s still expensive. It’s astounding Microsoft ever made an offer. There was no one else who could who would.

Given I’ve compared Twitter to Yahoo twice now, let’s talk about Yahoo’s 2016.

Mayer is under out-and-out assault and a new plan to “save” Yahoo is bandied about everyday. The Wall Street arm-chair quarterbacking has reached absurd levels.

The normally sharp Andrew Ross Sorkin notes that she could have bought all sorts of scorchingly hot companies instead of spending all that money on Tumblr, stock buybacks and those crappy acquihires.

What could she do with the $9.4 billion of cash she used for buybacks?

Start making your dream shopping list. There was a time when Netflix was in her price range before its stock rocketed to a market capitalization of more than $50 billion. If she had arrived at Yahoo three months earlier, she could have picked off Instagram. Spotify, the music service, has been available the entire time. Snapchat, at one time, would have been a perfect acquisition.

But she never made any of those deals, instead opting for tiny bolt-ons that thus far don’t appear to have moved the dial.

Sure! That’s how acquisitions work! Instagram sold for $1 billion, and Yahoo had $1 billion! Why didn’t she think of that?

He seems to miss the fact that Instagram sold to a pre-IPO Facebook for $1 billion, and it was Facebook’s product that made Instagram the broad phenomenon it is. Kevin Systrom wouldn’t even sell to then-hot Twitter. And Snapchat turned down even triple that deal from Facebook, so clearly it wouldn’t have sold to Yahoo. Reed Hastings has never been a man seeking a buyer for Netflix, and what a bizarre combo that would be if he was.

It’s like arguing women everywhere missed an opportunity to marry George Clooney because he happened to recently get married.

More absurd is a recent report from Edison Investment Research, which insists that Yahoo has all the assets it needs to generate some $1 billion in annual mobile ad revenues, not the less than $300 million in does currently.

From the report:

Yahoo already has assets that cover 75% of the Digital Life pie and it also claims to have 600m monthly active users on mobile. If we assume that Yahoo had executed on its assets such that a thriving ecosystem had been created on mobile devices, then it should have generated US$, 923m in revenues from mobile devices. Instead it generated just $271m in revenues from mobile missing out on 93% of the revenue opportunity open to it. Most worrying of all is that management was happy with this figure strongly indicating that it has not realised the scale of the opportunity that it is missing out on. 

Except these assets are old, lame, fusty, and don’t have the kinds of demographics you’d need on mobile to command premium CPMs. I already get stock prices, weather alerts, and celebrity news elsewhere on my phone. Yahoo is too late with too little that’s differentiated. It continues to do as well on desktop because of legacy and habit. It never had either of those on mobile.

So since everyone else has proposed an absurd plan to save Yahoo, I’ll throw mine in.

Yahoo and Twitter should merge, Mayer should run the company with Dorsey in a key product role that makes the best use of his talents, while actually being a more appropriate part time job.

Adam Bain should take over -- and fix-- all of Yahoo advertising since he’s the single greatest management asset Twitter has. I mean, his biggest problem is he’s monetized too well, according to Wall Street. Well, Yahoo would give him more inventory. In fact, make Bain COO so he stays. Give him anything he wants.  

And since people like to pretend Dorsey is the new Steve Jobs, why not waltz into Yahoo and act like it? Do what Jobs did when he came back to Apple and kill every product that isn’t great. Ruthlessly. Or spin it off. No doubt there are some international auto, finance, weather verticals that would snap up some of Yahoo’s assets if they aren’t core to where the company can make money, grow, and be relevant in the future. Yahoo mail is hot in South East Asia.

With all the dreck gone, start a venture fund like Google Ventures. Companies may not want to be acquired by Yahoo, but cash is cash, and many quality startups would love the chance to get the advice of Bain, Dorsey, and Mayer. Hold an office hour for those companies once a week between you as incentive.

After all, we’re entering a crunch time of venture capital. No better time to be the one eager to do a Series A deal. Sure, some might think of you as a big, dumb checkbook, but they already did during Mayer’s acquihire days. Far better use of cash to build real relationships with up and coming companies and founders before they ascend, not just their call of last resort when they are about to go under, management is exhausted, and just wants somewhere to rest and vest.

Throw moments and Yahoo’s home page together since they’re basically the same thing anyway and neither is very good. Katie Stanton is in charge of Twitter’s news team and Mayer once made a hard run at trying to hire her. Let her lead it. In fact, make the improved Moments the Yahoo home page. Boom. User growth. Twitter gets grayer and more mainstream, while Yahoo gets hipper and more mobile-centric.

What other overlaps do they have content wise? Remember I said I get weather, stock alerts, and celebrity news elsewhere on my phone? It’s mostly in my Twitter feed.

Finance: Buy StockTwits and reinvent a modern Yahoo Finance vertical around Tweets that move and analyze markets.

Celebrities and sports: Twitter is the place you watch the Oscars, and the place you watch the Superbowl. Use it to make Yahoo relevant and mobile centric again in two core Yahoo verticals. Decimate the old Yahoo properties but keep their URLs, traffic and desktop habits.

Oh, and Dorsey doesn’t have to waste time figuring out what Twitter looks like without the 140 character limit, because, well, he’ll own Tumblr. (Which he may want to spin off too… I never quite understood how that fits… but I’m guessing Bain can monetize it better than anyone has.)

Downsides? Toxicity. Yahoo message boards rival the worst trolls on Twitter. But neither company has ever seemed concerned enough to do anything about the problem.

Reception? It’ll be viewed as two drunks leaning together, same as the HP/Compaq merger. But if Bain stays and they put together a credible plan of making real cuts or spin offs to irrelevant products and reinventing verticals using the news and immediacy of Twitter, they can articulate a vision of a profitable and more relevant company.

And one the Valley would unquestionably root for. Mayer, Dorsey and Bain are all three beloved and respected figures who the Valley feels have taken on unenviable tasks and gotten a bum rap. And there’s legacy nostalgia for the Yahoo and Twitter brands and what they’ve meant to the Valley.

I’d be stunned if the cultures clashed. Yahoo has spent a decade in Google’s shadow, and Twitter has done nearly as long in Facebook’s. Both feel unappreciated. Both want dramatic change. Both want a chance to be something again.

I’m sure there are a million reasons this plan is absurd and won’t happen. For one it would take an absolute, cold, unfeeling bloodletting of staff between the two and the spin off or rebooting of core Yahoo verticals. All of that takes guts no one has had yet with Yahoo. It would take Jeff Bezos levels of I-don’t-give-a-shit-what-you-say-Wall-Street confidence. Noisy troublemakers like Chris Sacca would have to fall in line. They’ve done enough damage already.

But it’s less absurd than bitching that Mayer just wasn’t smart enough to buy Instagram and Snapchat. It’s less absurd than pretending if Twitter falls just a little lower, Google will buy it. It’s less sad than watching them both fall in value day after day.