By Douglas MacMillan
A few times a year, Yahoo Inc. organizes dinners for the
entrepreneurs who sold their startups to the Internet company and
still work there.
The dinners are a chance for the more than 50 young stars--such
as Nick D'Aloisio, the 19-year-old whiz kid who sold news
aggregation service Summly for $30 million--to swap tips on how to
navigate within a big company. Sometimes they also vent their
frustrations to Chief Executive Marissa Mayer, said people who have
attended the meetings.
Keeping happy this group, dubbed Foundrs, is vital for Ms.
Mayer, who has relied on small acquisitions to replenish her
workforce and save the company from Internet irrelevance. In just
under three years, she has spent more than $2.1 billion to acquire
52 startups, more deals than any tech company but Google Inc. over
the same period, according to CB Insights.
Ms. Mayer defends the strategy as necessary to reinvigorate a
staff that was too dependent on stagnating legacy businesses. While
the CEO has cut nearly 3,000 workers since 2012, she has added
about the same amount over that time, many of them through
acquisitions.
"If you actually look at the achievements of some of the people
who have been acquired at Yahoo, you would argue [this strategy]
has been wildly successful in order to help change the products,"
said Jacqueline Reses, Yahoo's chief development officer, who
oversees acquisitions.
As Ms. Mayer's turnaround attempt drags on, her challenge will
be to retain a jumble of acquired engineers, designers and product
managers who may find a 12,000-person tech giant unappealing
compared with life inside a startup.
"Yahoo is slow to change and bureaucratic, and that can easily
frustrate individuals from startups that are used to doing things
quickly, without having to check with HR or legal," said John
Sullivan, a professor of management at San Francisco State
University.
Yahoo has naturally lost some of its acquired talent. At least
16, or roughly one-fifth, of the more than 70 startup founders and
startup CEOs who joined Yahoo through an acquisition during Ms.
Mayer's tenure have left the company.
Among the founders who have moved on are Rockmelt founder Eric
Vishria, who left Yahoo to become a venture capitalist at
Benchmark, and Lexity co-founder Amit Kumar, who left to create a
new professional networking app.
"Because Yahoo is such a large company, the focus for certain
groups was on maintaining and growing existing businesses," said
Mr. Kumar, who sold Lexity to Yahoo in 2013 but left a year later
because he was put in charge of a slow-growing small-business
division.
"It was more a turnaround situation than it was creating new
products and services," he said.
More departures are expected. Yahoo typically gives employees
who join in an acquisition an equity award for staying two or four
years. Several founders who are approaching the two-year
anniversary of Yahoo acquiring their startups plan to leave in the
coming months, according to people with whom they have shared their
plans. Yahoo bought 14 companies from May to July 2013, its most
acquisitive three-month period under Ms. Mayer.
Other founders, who asked not to be named because they agreed
not to discuss their departures from Yahoo, said it was hard to get
motivated to help with Ms. Mayer's turnaround. They cited various
frustrations, including projects that were delayed or killed by
management or held up by competing factions inside the company.
For its part, Yahoo said it has worked to retain its acquired
founders by giving them roles in the company that suit their
experience.
"We want them to be missionaries, not mercenaries," Ms. Reses
said.
Ms. Reses points to numerous entrepreneurs who have risen
through the ranks at Yahoo since selling their startups.
Acquisitions brought in Jeff Bonforte, who now oversees mail and
messaging products, and Simon Khalaf, who was recently promoted to
run Yahoo's home page. A team led by Arjun Sethi, the founder of
shuttered messaging startup MessageMe, is now building a new
mobile-messaging product it hopes to compete with services like
Facebook Inc.'s WhatsApp.
Paul Montoy-Wilson and Mark Choi, the founders of Aviate, a
smart home-screen for Android phones acquired by Yahoo in 2013, say
working at the larger company has helped their product reach a
bigger audience. Team members from other acquired companies, such
as Astrid and Incredible Labs, have helped them develop Aviate into
a smarter tool for predicting what users will need based on the
time and date and their physical location.
In general, founders are working to help Yahoo reverse a
decade-long shift of advertising dollars to Google, Facebook Inc.
and Twitter Inc. after relying too long on premium, high-priced
display ads instead of cheaper, more targeted ads like its
competitors.
Last week, Yahoo reported first-quarter revenue fell 4% from a
year ago to $1.04 billion, excluding commissions paid to search
partners. Ms. Mayer has attempted to offset the declines in Yahoo's
desktop display-ad business by investing in emerging areas like
mobile, video, social and native ads. Her mobile group, staffed in
part by several acquired teams, generated $234 million in the first
quarter, up 61% from a year earlier. But in the same period, the
company's total display ad revenue--which includes mobile--declined
year-over-year for its fourth straight quarter.
Yahoo's tendency to buy startups and shut them down has drawn
fire from activist investor Starboard Value LP, who argued that
"many of the acquired companies were, and still are, losing a
considerable amount of money."
Though the company received a windfall from the sale of its
stake in Alibaba Group Holding Ltd., Ms. Mayer has felt pressure
from investors not to spend too much on large acquisitions. Yahoo
had $5.29 billion in cash and short-term securities at the end of
March.
Most of Yahoo's acquisition spending has been for just three
companies-- Tumblr for $990 million, video adservice BrightRoll for
$583 million and mobile ad network Flurry for $270 million. The
remaining 49 deals totaled $352 million, or an average of $7.2
million per acquisition.
Ms. Reses, who joined Yahoo in 2012 after spending a decade at
private-equity firm Apax Partners, says she looks to acquire teams
who show promise despite struggling to execute on their startups.
She said she evaluates thousands of potential deals a year and
"aggressively" pursues less than 100.
Silicon Valley "is littered with hundreds, if not thousands of
failures every year that no one pays attention to," Ms. Reses
said.
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