Yahoo! – Admission of defeat

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Calling in McKinsey is very unlikely to help.

• Yahoo! has called in McKinsey to help it with its strategy but I fear that McKinsey will make a bad situation even worse.
• Furthermore, fearing further executive losses, Marissa Mayer is thought to be asking her leadership team to sign 3 to 5 year commitments to Yahoo!.
• However, this does not appear to have worked as I understand that Jeff Bonforte, the man tasked with fixing mobile, will be the next man out of the door.
• This could not come at a worse time as Yahoo!’s ills are a direct result of its continued underperformance in mobile relative to its potential.
• The one thing Marissa Mayer has done well is to assemble a series of assets that give Yahoo! good coverage of the Digital Life pie.
• This means that for 74% of the time that users spend on their smartphones and tablets, Yahoo! has a service that can address that activity.
• Yahoo! also states that it has around 600m monthly active users on mobile devices.
• If I put these two together and benchmark Yahoo! against Google, then Yahoo! should have generated around $2.5bn in revenues from mobile in Q3 15A rather than a paltry $270m.
• It is Yahoo!’s inability to execute on the assets that it already owns that is causing this underperformance and I suspect that there is very little that McKinsey can do to help.
• This is because McKinsey will look at each of these assets on its individual merit rather than as a piece of an ecosystem.
• Yahoo! underperforms because its assets are standalone and not integrated together in a seamless, easy and fun to use way.
• This is what Google does so well and is why RFM forecasts that it will generate around $20bn in revenues from mobile devices in 2015.
• Yahoo!’s plan appears to be to try and take on Google in search with a new product called Project Index that looks an awful lot like Google Now.
• To me, this makes very little sense as search is driven by the quality of the algorithms and machine learning that sits behind the service.
• Yahoo! is the weaker player in search and will find it very difficult to compete effectively with Google’s vastly superior machine learning that underpins the intelligence of such services.
• What would be much more interesting would be a proper integration of its assets into which it could then fold Project Index.
• Then users would have an incentive to spend their Digital Lives with Yahoo! and would be more likely to use, what is likely to be, a weaker product.
• Unfortunately, McKinsey is likely to recommend getting rid of some assets and investing in others which I think will lead to no recovery in Yahoo!’s fortunes.
• Furthermore, I think that the best executives that Yahoo! has are more likely to leave than be tied down for 3-5 years as good executives can get good positions anywhere in Silicon Valley.
• Hence, I see no turnaround of the core business and my hopes that Yahoo! will become an ecosystem and monetise to its full potential are fading fast.
• The shares look set to continue their underperformance making the likes of Microsoft, Facebook, Samsung and Apple much better prospects.