Running With Foxes

GigaOm posted on possible Yahoo suitors today, listing private equity, Comcast/ATT, Microsoft, NewsCorp, and CBS Disney or GE as possible buyers. I know private equity is all the rage with hedge fund managers snatching up companies in a government-subsidized fire sale, but not even a 15% tax rate seems like incentive enough to chop up and ship out the bits of the beleaguered company.

The Merc has a great article on Yahoo and it’s downfall, once again citing the big bet Yahoo made on content over technology. Splitting up Yahoo doesn’t make sense because of the great amount of cross branding on the property. Yahoo’s homepage relies on the content from its array of properties to populate its front page and popular my Yahoo product. There properties are further integrated through their “Three screen initiative” attacking mobile, TV, and the computer. Slicing up Yahoo would destroy this interdependence and make the pieces worth less than the whole. Although the whole does remain an attractive asset for someone like Murdoch, who’s looking to control more media outlets.

But like everyone says, what Yahoo needs is better technology that can reproduce a good success. Mass media has high overhead because it is, in large part, a crap shoot. Some concepts take off, others fail, and like any good portfolio manager, you need the winners to prop up the losers. Just take a look at the top rated shows over the past 50 years and the pile of shows that failed before they even had a chance to succeed. Successes are created by people, and those people have to be coddled, which steals from your profits. Inflating costs of living means that the real costs of production are going to stay somewhat static, unless we start getting Polynesian children to stamp out “Friends” episodes along with those $200 Nikes.

Technology is experiencing decreasing costs. Servers are getting cheaper along with the people needed to maintain them, in large part because it exists in a large competitive market made up of replaceable pieces. So, when you have a hit in technology, your costs to run it are going to decrease over time while remaining easily reproduceable and scaleable. Technology also has a longer shelf life than content, because it builds off itself. The debut of “Joey” shows the same isn’t true for content and Google search is going to have a longer running time than “Seinfeld”.

What Yahoo needs to do is try and commodetize content by combining it with technology. That’s been part of the brilliance of YouTube and Digg. Content’s death rate has been sped up by the internet, where flash in the pan memes are commonplace (I haz internets meme, I killz internets meme), but these two sites have managed to create an ecosystem where these memes are born and die. Best of all, it’s all reproduceable. Every day Youtube users and moderators sift through all the failed content for that diamond in the rough to bubble to the front page.

Yahoo’s purchase of Right Media was one of the first steps in the right direction. A competitive market for advertising will help them garner profits from the winners and ditch the losers. I hope to see more of the same in the future.