It is official: Yahoo is going to buy Tumblr, and I don’t think this will end well. The reason why good turnaround CEOs are so rare is that it takes a very unique skill set. You have to be willing to take huge risks and high stress over a long period of time. You have to be able to campaign the changes you are making to employees, customers and investors, and you have to be very patient because change is slow and if you try to do too much at once, the complexity will overwhelm you and failure will be the result. Particularly for a young and somewhat inexperienced CEO, it is this last that can catch him or her up and you can see this behavior in both Facebook and Yahoo: a desperation to make things happen fast, which is why things aren’t going very well.
Let me explain.
As Meg Whitman has pointed out several times, turnaround takes from five to seven years (HP is shooting for five), but the problem is that boards typically don’t have the patience to last 36 months. This puts a great deal of pressure on the CEO to make it look like he is making major progress well ahead of when actual efforts can have much impact. Taking the pressure off an acquisition is often used to provide a distraction and we saw that in spades when Carly Fiorina bought Compaq. Suddenly, the pressure was off her -- well, it was until that nasty proxy fight -- and folks gave her time once the proxy fight was done to complete the merger.
Pressure drives tactical decisions, showcasing the strong difference between YouTube, which was strategic and core to Google’s mission, and Tumblr, which appears more tactical and more difficult to defend.
Tumblr vs. YouTube
What made YouTube more strategic was that it took Google into a content area that it would have otherwise had difficulty accessing. Video is unstructured data and far more difficult to index so it needed a service that indexed the video for it and YouTube filled the bill. YouTube filled a niche that Google needed filled in its effort to index all forms of content on the Web and better assure its dominance.
It also effectively formed a barrier against someone else figuring out how to do this better first. And once it had critical mass in content, it could defend its turf relatively easily, and once that was done it could monetize the result and be assured that it would lose few customers.
Yahoo’s strategy isn’t as well articulated and the company has a history of jumping around a bit. While it was, with Yahoo Groups, an early leader in social networking, it lost that lead when it instead decided to chase Google and search. Currently, it is one of the strongest content super sites but doesn’t appear to have much social DNA left. Tumblr is targeted at a late teens, early 20s demographic, which is one of the more difficult to hold and the content on the site is very different than what Yahoo typically has. It is far removed from anything Yahoo is currently doing and there is little obvious synergy.
The two successful turnarounds that we talk about in tech are Apple and IBM. Both went through a process of simplification, and then both moved to expand along strategic lines. Acquisitions add complexity and distraction, making it harder to execute a turnaround. In effect, the executive team has to now both concentrate on fixing what is broken and figure out how to integrate the new company into the old one. Acquisitions are difficult to pull off even when the parent is stable, but when both the parent is undergoing change and the acquired company is, as yet, unprofitable, you basically have two very different turnaround-type efforts at once, making the successful completion of either far more difficult than it needs to be.
Take the turnaround process and cut it down to a stable foundation and then rebuild the company from that foundation. Yahoo has started to build out before its foundation appears to be stable and that reduces the probability that the turnaround and merger will be successful.
Wrapping Up: Public Pressure
Turnaround CEOs are pressured to move fast and fix the company in order to retain their job and satisfy market analysts that the firm is providing a good return on investment. This pressure tends to push the turnaround CEO into Hail Mary strategies like high-profile acquisitions, which can make it far more difficult to turn around the company. This is one of the reasons CEOs like Michael Dell seek to go private first so they are free from these tactical pressures while they rebuild the company strategically.
What we are likely seeing with Yahoo and Tumblr is the result of too great a need to showcase fast progress and not enough focus on fully stabilizing Yahoo first. If this behavior continues, the eventual turnaround of Yahoo will be put into further doubt.