How to Fix Yahoo: The Innovator’s Dilemma (Exclusive)

Fri Sep 9, 2011 8:17am EDT

EXCLUSIVE

Yahoo -- a great media company, a pioneer in its day and one of the largest aggregators of traffic in the U.S. and abroad -- is a valuable company that is undervalued in the market and ripe with opportunity.  

The primary question now is whether it makes sense to keep it as a consolidated media company or if it is time to break up the assets and create numerous mid-sized businesses to operate independently.  But the challenge is -- how do you transform a legacy property with large scale valuable assets into a dynamic, innovative idea factory?

 

Also read: AOL Keen on Yahoo Merger -- Again (Report)

I can attest, this an incredibly hard problem to solve. It can be an expensive and stressful venture for those of us who have attempted to lead the transformation of a legacy brand.   In a world where startups can be created on shoestring budgets and new brands are launched every 10 minutes, we h

ave to question whether our industry can sustain reinvention. 

Are new online brands and technologies simply easier to make successful than reinventing old ones?

Our industry loves invention -- we reward it, worship it and all strive to be that next inventor. The challenge is when we confuse invention from reinvention. Invention is to create something new, reinvention is to make something old, new again.

Internet entrepreneurs believe that ideas and products need to have constant iteration, constant innovation. We build upon, and upon and upon -- never stopping. We stack our organizations with project managers, product managers, developers and designers -- constantly trying to improve, improve and improve our product lines. The flaw is we sometimes don't recognize when we’ve hit the point of diminishing returns.

Given that early stage innovation is cheap and fast and later stage innovation is expensive, slow and often unrewarded, it’s time for us to fundamentally change the way we think of legacy assets. We must accept that peaked properties need to be put on maintenance mode and put our energy into investing in new products.

During my time at both AOL and Myspace, we frequently used boating as a metaphor. My colleague, Dave Morgan, and I took a few weeks aside during our time at AOL and mapped out a completely new operational strategy from the current one. He liked to say, "Separate the fast moving boats from the slow moving boats." I think this is true.  

 

 

Also read: Who to Run Yahoo? Strong Candidates Abound -- But First a Vision, Please

(Note: some folks will think about the BCG Matrix as a similar structure, with the four growth share quadrants of Stars, Question Marks, Dogs and Cash Cows.)

Three examples of the Growth Share Market:

AOL’s AIM, for instance, has had no meaningful, game-changing innovation in recent years. Yet during my time at AOL over three years ago, we had large teams dedicated to developing the next version of AIM and new features. This is similar to many legacy products in various digital media company portfolios. High cost, low return. On the other hand, AOL's Patch and Editions product lines -- new projects for AOL -- feel new, exciting and like they could be meaningful to the business.

At Myspace, we often debated whether to "upgrade the ship or move the passengers into new ships." Although we made massive technical improvements to the Myspace platform and launched a renewed brand and product line for Myspace, we failed to capture the attention of the world -- as did Yahoo’s $100M rebrand campaign.

In retrospect, I now realize that for digital companies, once your brand is set, it is near impossible to truly reinvent.

So, going back to my original question -- how do you transform Yahoo, a legacy property with valuable assets of scale, into a dynamic innovative idea factory?   

They should “separate the fast moving boats from the slow moving boats." Put the new and growing products and maintenance products in totally different organizations with different comp structures. Allow the fast moving boats to go forth unrestricted. Stop upgrading your old ships when they slow down too much -- move those passengers onto a different boat. 

I believe there is a still huge opportunity at Yahoo -- if they start with a complete change to how the organization is structure, how they build product and if they focus their best resources on completely new projects. 

They should cease expending energy and time on legacy assets. The next phase from Yahoo may not maintain the Yahoo brand or even leverage the existing Yahoo asset base.  It is possible, as Google has shown with Android, that a departure from the core brand and product base to enter a new market may be the best growth strategy for these consolidated digital media businesses.

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