Yahoo! Inc. (YHOO)’s Best Acquisition Isn’t Tumblr

Mayer wants Yahoo! Inc. (NASDAQ:YHOO) to acquire young startup tech — like activity recommendation app Stamped and restaurant recommendation app Jybe — and bring them into the fold. If you were to look at the price tag each acquisition has carried, and then to look at the revenue potential from each acquisition, you will begin to wonder whether these acquisitions will pay off in the end. But Mayer’s isn’t trying to acquire businesses; she’s trying to acquire talent.

Mayer’s stated goal is not to integrate these businesses into Yahoo!’s business. The majority have been shut down after their acquisition. Mayer wants their people. Her plan is to get great people first, and have those great people create great products. This strategy has its pros and cons.

The Good and The Bad

On the plus side, Mayer recognizes that Yahoo! has to do something fundamentally different if it is ever going to survive as a company.



YHOO Net Income TTM data by YCharts

Yahoo hasn’t really gone anywhere since the dot-com bubble burst, and something has got to change. The company simply must do a better job at offering quality products, which is why Mayer’s committed to bringing in quality people.

The downside to this strategy is it admits that Yahoo! lacks talent in-house. But with over 10,000 employees, it seems unlikely that Yahoo! is completely lacking in gifted individuals. Instead, it is more likely that Yahoo! has not created an environment where talent can develop.

Google thrives on developing talent. Google Inc (NASDAQ:GOOG)’s VP for corporate development says “Google provides…a vision that tests most entrepreneurs to think bigger than they ever have before.” Google employees get to spend 20% of their time working on a special project of their choosing. This allows budding talent to develop, and lets visionaries hatch new ideas. The Adsense network that drives most of Google’s revenue today reportedly originated with the 20% perk. Can you imagine the company without that innovation?

There’s another difficulty with the strategy of acquiring start-up app developers. Currently, there are more than 150,000 developers for Apple Inc. (NASDAQ:AAPL)‘s IOS and close to 100,000 for Android. Yahoo! Inc. (NASDAQ:YHOO) has acquired 10 of these developers so far. How do you effectively identify the winners among such a crowded market?

Conclusion

It’s wonderful that Mayer realizes that Yahoo! has a big need for a new plan. But acquisitions — even a Tumblr acquisition — aren’t that promising unless the parent company has initiatives to foster employee creativity. Rather than waiting for news on new acquisitions, I’m going to listening to what Mayer has to say about how she is going to develop the talent she has, and any new talent the company might acquire. Only then will Yahoo! be positioned to deliver over the long haul.

Yahoo! has struggled to stay relevant for much of the past decade, and has searched for growth catalysts in things such as video email, a merger with AOL, and rehiring of founder Jerry Yang.

The article What Yahoo! Needs Even More Than Tumblr originally appeared on Fool.com and is written by Jon Quast.

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