Verizon has announced that it sold off Yahoo and AOL to Apollo for about $5 billion.
As I consider Yahoo’s history, I think about lessons that we can learn from their fall from grace.
As Charlie Munger once said, “All I Want To Know Is Where I’m Going To Die So I’ll Never Go There.”
1. The Future is Inherently Uncertain
Obvious, I know.
But a useful reminder whenever I feel overly confident about a company’s prospects.
Yahoo looked unstoppable for a time. It rejected a $44.6 billion offer from Microsoft 15 years ago. That in today’s money would be worth at least a bajillion dollars.
Intel for a long time was by far the dominant chip maker. Until it lost its edge and now lags behind its competitors.
The only thing we can be certain about is change. And with change brings opportunity.
The main takeaway for me here is to never be too sure about anything. Not about my own thinking, about the current state of affairs, and especially anything to do with the future.
2. Focus and Clarity
It wasn’t entirely clear to me whether Yahoo was focused on being a tech company or a media one. It seemed like they were swinging back and forth between the two.
They tried their hand at media with Terry Semel, tech with Marissa Mayer, and then what appeared to be both tech and media with Tim Armstrong.
The initial thinking behind Verizon’s acquisition of both AOL for $3.8 billion and Yahoo for $4.5 billion was to create a combination that would rival Google as an adtech platform. But it was the media properties that Verizon was focused on.
Now with the sale, Verizon states that the assets being sold are “leading ad tech and media platform businesses.”
The plan under Apollo is to focus Yahoo on gaming and sports betting. We’ll see how Yahoo fares under the new ownership.
For Verizon, despite selling the businesses at a loss, the sale is seen as a win for some since it allows Verizon to regain focus on their core telecom business. It also happens to be where they have a competitive advantage.
3. Decision Making
As a senior executive, what do you really get paid to do? You get paid to make a small number of high-quality decisions. Your job is not to make thousands of decisions every day. — Jeff Bezos
The example of Yahoo goes to show just how important good decision making is.
A bad outcome doesn’t necessarily mean bad decision making. You can have a good decision making process that still results in a bad outcome. A decision is essentially a bet about an uncertain future. Rather, it’s the reasoning that should be judged.
The decision to reject Microsoft’s $44.6 billion may have been the result of sound reasoning given the information available at that time.
The cumulative results over decades, on the other hand, can shed light on whether good decisions were taken.
Management chooses what to focus on, what to invest in, what to stop working on, and so on.
A thought experiment that I like to think about is how Yahoo would look today if we replaced their management team with Jeff Bezos and his senior executives or with Google’s management team a decade ago.
Would we get a decade’s worth of cumulative decisions that leads to a more valuable business or a less valuable one?
Consider Verizon’s decision to acquire AOL/Yahoo to get away from being “dumb pipes” and to compete with a company like Google on ad tech. One may argue that this particular decision was not well thought out.
I found an interesting comment on Hacker News (8/2/2016): It would be great if there was a major telco that was excited about being dumb pipe and just crushing the others. That seems to be what Google Fiber is an attempt at creating but the capital required is so great that only a hundred year old company like Verizon or AT&T is really in a position to execute on that well.
If this dude was on the board of Verizon, they may have saved many billions of dollars for their shareholders. Of course, it’s not easy to get credit for avoiding stupid decisions.
But then again, consistently avoiding bad decisions over the long run can work out pretty well.