Is There A Method To Yahoo!'s Divesture Craze? I Think There Is

So, Yahoo! is now looking to sell off even Zimbra, the white-label email company that it acquired in 2007, in what seems to be a crazy effort to get rid of a lot potentially valuable divisions within the company. It seems to be the case that Carol Bartz has gone off her rocker, or that she is not going to stop until, one way or the other, Yahoo! winds up being an outpost of Microsoft in Sunnyvale.

But, there is another possible angle to this weird story, one that is 100% based on speculation and 0% information. And here is how it goes:

1. Yahoo!'s primary pull on the internet is as a content destination. It may still have a massive number of people using its email services, but the money is made in content and using the humongous level of traffic it generates to derive advertising revenue*.

2. The company is not the market leader in the following domains: search, advertising, social networking, B2B services, jobs. Focus on these costs the company time and money and takes its attention away from the primary source of revenue. The company's future lies in being in the same position of leadership which it has right now – being the internet's number one content destination.

This is one place where neither Microsoft nor Google has the upper hand. But that does not mean the lead will remain with them forever.

3. The content model is changing dramatically now due to a variety of reasons, Yahoo! has to change and stay ahead of the curve to remain the leader. If it fails in it, all the Flickrs and Zimbras of the world, won't be able to save the company.

Which Means:

  • Yahoo! will soon have to start Investing heavily in new content models (both production and distribution): They would want to be at the bleeding edge in the domain.
  • The company has to Invest heavily into acquiring new and unique content (even though publications are struggling to make money, content production costs will not go down, unique content will cost even more). Selling the non-core assets frees up resources, both financial and otherwise to do this.
  • Lesser distractions: Other attention-sucking products have to be let go. It is a short-term negative for a longer-term positive.
  • I would expect the company to treat content is the gateway drug into the ecosystem, with ancillary products will built around it, developed in alignment, than as a retrofit.
  • Also, expect Yahoo! R&D to realign their products around content (search is anyway gone for now).

In short Yahoo! wants to further cement their position as the Google of online content. I do not know much of a visionary Bratz is, but one thing she seems to understand well is numbers. There is very much the probability that she has looked at the numbers and realized what almost nobody in leadership positions in the internet domain is willing to openly admit: that the current business models are sustainable at all. Sooner of later we will be forced to find, create and leverage genuine value at scale in it.

Or, it could just be that she is indeed chopping it down to a size that Microsoft can easily gobble up, but I don't think that is the case.

* Taken from Yahoo!'s Q2, 2009, earnings release:

Marketing services revenues from Owned and Operated sites were $858 million for the second quarter of 2009, a 16 percent decrease compared to $1,016 million for the same period of 2008. Marketing services revenues from Affiliate sites were $520 million for the second quarter of 2009, a 9 percent decrease compared to $571 million for the same period of 2008.

As it can be seen Yahoo!'s own sites generate the maximum revenue for the company. What the company is now aiming to do is to put more effort and infrastructure behind the former and get rid of the pieces that generate the latter.

Never mind.