by Adam Hartung | Jan 17, 2016 | Current Affairs, In the Rapids, Innovation, Leadership, Web/Tech
Stocks are starting 2016 horribly. To put it mildly. From a Dow (DJIA or Dow Jones Industrial Average) at 18,000 in early November values of leading companies have fallen to under 16,000 – a decline of over 11%. Worse, in many regards, has been the free-fall of 2016, with the Dow falling from end-of-year close 17,425 to Friday’s 15,988 – almost 8.5% – in just 10 trading days!
With the bottom apparently disappearing, it is easy to be fearful and not buy stocks. After all, we’re clearly seeing that one can easily lose value in a short time owning equities.
But if you are a long-term investor, then none of this should really make any difference. Because if you are a long-term investor you do not need to turn those equities into cash today – and thus their value today really isn’t important. Instead, what care about is the value in the future when you do plan to sell those equities.
Investors, as opposed to traders, buy only equities of companies they think will go up in value, and thus don’t need to worry about short-term volatility created by headline news, short-term politics or rumors. For investors the most important issue is the major trends which drive the revenues of those companies in which they invest. If those trends have not changed, then there is no reason to sell, and every reason to keep buying.
(1) Buy Amazon
Take for example Amazon. Amazon has fallen from its high of about $700/share to Friday’s close of $570/share in just a few weeks – an astonishing drop of over 18.5%. Yet, there is really no change in the fundamental market situation facing Amazon. Either (a) something dramatic has changed in the world of retail, or (b) investors are over-reacting to some largely irrelevant news and dumping Amazon shares.
Everyone knows that the #1 retail trend is sales moving from brick-and-mortar stores to on-line. And that trend is still clearly in place. Black Friday sales in traditional retail stores declined in 2013, 2014 and 2015 – down 10.4% over the Thanksgiving Holiday weekend. For all December, 2015 retail sales actually declined from 2014. Due to this trend, mega-retailer Wal-Mart announced last week it is closing 269 stores. Beleaguered KMart also announced more store closings as it, and parent Sears, continues the march to non-existence. Nothing in traditional retail is on a growth trend.
However, on-line sales are on a serious growth trend. In what might well be the retail inflection point, the National Retail Federation reported that more people shopped on line Black Friday weekend than those who went to physical stores (and that counts shoppers in categories like autos and groceries which are almost entirely physical store based.) In direct opposition to physical stores, on-line sales jumped 10.4% Black Friday.
And Amazon thoroughly dominated on-line retail sales this holiday season. On Black Friday Amazon sales tripled versus 2014. Amazon scored an amazing 35% market share in e-commerce, wildly outperforming number 2 Best Buy (8%) and ten-fold numbers 3 and 4 Macy’s and WalMart that accomplished just over 3% market share each.
Clearly the market trend toward on-line sales is intact. Perhaps accelerating. And Amazon is the huge leader. Despite the recent route in value, had you bought Amazon one year ago you would still be up 97% (almost double your money.) Reflecting market trends, Wal-Mart has declined 28.5% over the last year, while the Dow dropped 8.7%.
Amazon may not have bottomed in this recent swoon. But, if you are a long-term investor, this drop is not important. And, as a long-term investor you should be gratified that these prices offer an opportunity to buy Amazon at a valuation not available since October – before all that holiday good news happened. If you have money to invest, the case is still quite clear to keep buying Amazon.
(2) Buy Facebook
The trend toward using social media has not abated, and Facebook continues to be the gorilla in the room. Nobody comes close to matching the user base size, or marketing/advertising opportunities Facebook offers. Facebook is down 13.5% from November highs, but is up 24.5% from where it was one year ago. With the trend toward internet usage, and social media usage, growing at a phenomenal clip, the case to hold what you have – and add to your position – remains strong. There is ample opportunity for Facebook to go up dramatically over the next few years for patient investors.
(3) Buy Netflix
When was the last time you bought a DVD? Rented a DVD? Streamed a movie? How many movies or TV programs did you stream in 2015? In 2013? Do you see any signs that the trend to streaming will revert? Or even decelerate as more people in more countries have access to devices and high bandwidth?
Last week Netflix announced it is adding 130 new countries to its network in 2016, taking the total to 190 overall. By 2017, about the only place in the world you won’t be able to access Netflix is China. Go anywhere else, and you’ve got it. Additionally, in 2016 Netflix will double the number of its original programs, to 31 from 16. Simultaneously keeping current customers in its network, while luring ever more demographics to the Netflix platform.
Netflix stock is known for its wild volatility, and that remains in force with the value down a whopping 21.8% from its November high. Yet, had you bought 1 year ago even Friday’s close provided you a 109% gain, more than doubling your investment. With all the trends continuing to go its way, and as Netflix holds onto its dominant position, investors should sleep well, and add to their position if funds are available.
(4) Buy Google
Ever since Google/Alphabet overwhelmed Yahoo, taking the lead in search and on-line advertising the company has never looked back. Despite all attempts by competitors to catch up, Google continues to keep 2/3 of the search market. Until the market for search starts declining, trends continue to support owning Google – which has amassed an enormous cash hoard it can use for dividends, share buybacks or growing new markets such as smart home electronics, expanded fiber-optic internet availability, sensing devices and analytics for public health, or autonomous cars (to name just a few.)
The Dow decline of 8.7% would be meaningless to a shareholder who bought one year ago, as GOOG is up 37% year-over year. Given its knowledge of trends and its investment in new products, that Google is down 12% from its recent highs only presents the opportunity to buy more cheaply than one could 2 months ago. There is no trend information that would warrant selling Google now.
(5) Buy Apple
Despite spending most of the last year outperforming the Dow, a one-year investor would today be down 10.7% in Apple vs. 8.7% for the Dow. Apple is off 27.6% from its 52 week high. With a P/E (price divided by earnings) ratio of 10.6 on historical earnings, and 9.3 based on forecasted earnings, Apple is selling at a lower valuation than WalMart (P/E – 13). That is simply astounding given the discussion above about Wal-mart’s operations related to trends, and a difference in business model that has Apple producing revenues of over $2.1M/employee/year while Walmart only achieve $220K/employee/year. Apple has a dividend yield of 2.3%, higher than Dow companies Home Depot, Goldman Sachs, American Express and Disney!
Apple has over $200B cash. That is $34.50/share. Meaning the whole of Apple as an operating company is valued at only $62.50/share – for a remarkable 6 times earnings. These are the kind of multiples historically reserved for “value companies” not expected to grow – like autos! Even though Apple grew revenues by 26% in fyscal 2015, and at the compounded rate of 22%/year from 2011- 2015.
Apple has a very strong base market, as the world leader today in smartphones, tablets and wearables. Additionally, while the PC market declined by over 10% in 2015, Apple’s Mac sales rose 3% – making Apple the only company to grow PC sales. And Apple continues to move forward with new enterprise products for retail such as iBeacon and ApplePay. Meanwhile, in 2016 there will be ongoing demand growth via new development partnerships with large companies such as IBM.
Unfortunately, Apple is now valued as if all bad news imaginable could occur, causing the company to dramatically lose revenues, sustain an enormous downfall in earnings and have its cash dissipated. Yet, Apple rose to become America’s most valuable publicly traded company by not only understanding trends, but creating them, along with entirely new markets. Apple’s ability to understand trends and generate profitable revenues from that ability seems to be completely discounted, making it a good long-term investment.
In August, 2015 I recommended FANG investing. This remains the best opportunity for investors in 2016 – with the addition of Apple. These companies are well positioned on long-term trends to grow revenues and create value for several additional years, thereby creating above-market returns for investors that overlook short-term market turbulence and invest for long-term gains.
by Adam Hartung | Mar 1, 2013 | Current Affairs, In the Swamp, Leadership, Web/Tech
Marissa Mayer created a firestorm this week by issuing an email requiring all employees who work from home to begin daily commuting to Yahoo offices. Some folks are saying this is going to be a blow to long-term employees, hamper productivity and will harm the company. Others are saying this will improve communications and cooperation, thin out unproductive employees and help Yahoo.
While there are arguments to be made on both sides, the issue is far simpler than many people make it out to be – and the implications for shareholders are downright scary.
Yahoo has been a strugging company for several years. And the reason has nothing to do with its work from home policy. Yahoo has lacked an effective strategy for a decade – and changing its work from home policy does nothing to fix that problem.
In the late 1990s almost every computer browser had Yahoo as its home page. But Yahoo long ago lost its leadership position in content aggregation, search and ad placement. Now, Yahoo is irrelevant. It has no technology advantage, no product advantage and no market advantage. It is so weak in all markets that its only value has been as a second competitor that keeps the market leader from being attacked as a monopolist!
A series of CEOs have been unable to develop a new strategy for Yahoo to make it more like Amazon or Apple and less like – well, Yahoo. With much fanfare Ms. Mayer was brought into the flailing company from Google, which is a market leader, to turn around Yahoo. Only she's been on the job 7 months, and there still is no apparent strategy to return Yahoo to greatness.
Instead, Ms. Mayer has delivered to investors a series of tactical decisions, such as changing the home page layout and now the work from home policy. If tactical decisions alone could fix Yahoo Carol Bartz would have been a hero – instead of being pushed out by the Board in disgrace.
Many leading pundits are enthused with CEO Mayer's decision to force all employees into offices. They are saying she is "making the tough decisions" to "cut the corporate cost structure" and "push people to be more productive." Underlying this lies thinking that the employees are lazy and to blame for Yahoo's failure.
Balderdash. It's not employees' fault Yahoo, and Ms. Mayer, lack an effective strategy to earn a high return on their efforts.
It isn't hard for a new CEO to change policies that make it harder for people to do their jobs – by cutting hours out of their day via commuting. Or lowering productivity as they are forced into endless meetings that "enhance communication and cooperation." Or forcing them out of the company entirely with arcane work rules in a misguided effort to lower operating costs or overhead. Any strategy-free CEO can do those sorts of things.
Just look at how effective this approach was for
- "Chainsaw" Al Dunlap at Scott Paper
- "Fast Eddie" Lampert at Sears
- Carol Bartz at Yahoo
- Meg Whitman at HP
- Brian Dunn at Best Buy
- Gregory Rayburn at Hostess
- Antonio Perez at Kodak
The the fact that some Yahoo employees work from home has nothing to do with the lack of strategy, innovation and growth at Yahoo. That failure is due to leadership. Bringing these employees into offices will only hurt morale, increase real estate costs and push out several valuable workers who have been diligently keeping afloat a severely damaged Yahoo ship. These employees, whether in an office or working at home, will not create a new strategy for Yahoo. And bringing them into offices will not improve the strategy development or innovation processes.
Regardless of anyone's personal opinions about working from home, it has been the trend for over a decade. Work has changed dramatically the last 30 years, and increasingly productivity relies on having time, alone, to think and produce charts, graphs, documents, lines of code, letters, etc. Technologies, from PCs to mobile devices and the software used on them (including communications applications like WebEx, Skype and other conferencing tools) make it possible for people to be as productive remotely as in person. Usually more productive removed from interruptions.
Taking advantage of this trend helps any company to hire better, and be more productive. Going against this trend is simply foolish – regardless the intellectual arguments made to support such a decision. Apple fought the trend to PCs and almost failed. When it wholesale adopted the trend to mobile, seriously reducing its commitment to PC markets, Apple flourished. It is ALWAYS easier to succeed when you work with, and augment trends. Fighting trends ALWAYS fails.
Yahoo investors have plenty to be worried about. Yahoo doesn't need a "tough" CEO. Yahoo needs a CEO with the insight to create, and implement, a new strategy. And a series of tactical actions do not sum to a new strategy. As importantly, the new strategy – and its implementation – needs to augment trends. Not go against trends while demonstrating the clout of a new CEO.
If you've been waiting to figure out if Ms. Mayer is the CEO that can make Yahoo a great company again, the answer is becoming clear. She increasingly appears very unlikely to have what it takes.
by Adam Hartung | Jul 19, 2012 | Uncategorized
With great public fanfare Yahoo hired a Google executive as CEO this week.
The good news is that by all accounts Ms. Marissa Mayer is very hard working, very smart and deeply knowledgeable about all things internet. Ms. Mayer also was extremely successful at Google, which is a powerful recommendation for her skills. This has pleased a lot of people. Some have practically gushed with excitement, and have already determined this is a pivotal event destined to save Yahoo.
But, before we get carried away with ourselves, there are plenty of sound reasons to remain skeptical. Check out this chart, and I concur completely with originator Jay Yarow of Business Insider – the #1 problem at Yahoo is revenue growth:
Source: BusinessInsider.com reproduced with permission of Jay Yarow
Let's not forget, this problematic slide occurred under the last person who had great tech industry credentials, deep experience and a ton of smarts; Carol Bartz. She was the last Yahoo CEO who was brought in with great fanfare and expectations of better things after being the wildly successful CEO of AutoCad. Only things didn't go so well and she was unceremoniously fired amidst much acrimony.
So, like they say on financial documents, past performance is not necessarily an indicator of future performance.
What Yahoo needs is to become relevant again. It has lost the competition in search, and search ads, to Google. It is not really competitive in banner ads with leader Facebook, and strong competitor Google. It is no longer leads in image sharing which has gone to Pinterest. It has no game in local coupons and marketing which is being driven by GroupOn and Yelp. For a company that pioneered the internet, and once led in so many ways, Yahoo has lost relevancy as new entrants have clobbered it on all fronts.
Because it has fallen so far behind, it is ridiculous to think Yahoo will catch up and surpass the industry leaders in existing markets. No CEO, regarless of their historical success and skills, can pull off that trick. The only hope for Yahoo is to find entirely new markets where it can once again pioneer new solutions that do not go head-to-head with existing leaders. Yahoo must meet emerging, unmet needs in new ways with new, innovative solutions that it can ride to success. Like the turn to mobile that saved the nearly dead Mac-centric Apple in 2000. Or the change to services from hardware that saved IBM in the 1990s.
Ms. Mayer's entire working career was at Google, so it is worth looking into Google's experience to see if that gives us indications of what Ms. Mayer may do.
Unfortunately, Google has been really weak at implementing new solutions which create high revenue, new markets. Google has been a wild success at search, its first product, which still generates 90% of the company's revenue.
- Android is a very important mobile operating system. But unfortunately giving away the product has done nothing to help sales and profits at Google. Yahoo certainly cannot afford to develop something so sophisticated and give it away.
- To try turning around the Android sales and profits Google bought market laggard Motorola Mobility for $12.5B. With a total market cap of only $19.2B Yahoo is in no position to attempt buying its way out of trouble.
- Chrome is a great product that has selectively won several head-to-head battles with other application environments. However, again, it has not created meaningful revenues. Despite a big investment.
- Google+ has its advocates, but it was at least 3 years late to market allowing Facebook to develop a tremendous lead. So far the product is still far behind in its gladiator battle with FB, and produces little revenue despite the enormous development and launch costs – which are still draining resources from Google.
- Google has invested in an exciting, self-driving automobile. But nobody knows when, or if, it will be sold. So far, money spent and no plan for a return.
- Google glasses are cool. But the revenue model? Launch date? Manufacturing and distribution partners for commercialization?
- Google innovated a number of exciting potential product markets, but because it failed at market implementation eventually it simply killed them. Remember Wave? Powermeter? Picnik? Google Checkout? Google answers? Google Buzz? Fast Flip? Google Lively? Squared?
If ever a company proved that there is a difference between innovating new products and launching successfully to create new markets it has to be Google.
So is Yahoo destined to fail? No. As previously mentioned, Apple and IBM both registered incredibly successful turnarounds. Bright people with flexible minds and leadership skills can do incredible things. But it will be up to Ms. Mayer to actually shed some of that Google history – fast.
At Google Ms. Mayer was employee #20 on a veritable rocket ship. The challenge at Google was to keep being better and better at search, and ads associated with search. And developing products, like GMail, that continued to tie people to Google search. It was hard work, but it was all about making Google better at what it had always done, executing sustaining innovations to keep Google ahead in a rapidly growing marketplace.
Yahoo is NOT Google, and has a very different set of needs.
Yahoo is in far worse shape now than when Ms. Bartz came in as the technical wonderkind to turn it around last time. Ms. Mayer takes the reigns of a company going in the wrong direction (losing revenues) with fewer people, fewer resources, weaker market position on its primary products and a weakening brand. Hopefully she's as smart as many people say she is and acts quickly to find those new markets with products fulfilling unmet needs. Or she's likely to end up turning out the lights at the company where Ms. Bartz dimmed them significantly.
by Adam Hartung | May 3, 2012 | Current Affairs, Defend & Extend, In the Swamp, Innovation, Leadership, Web/Tech
With revenues up 39% last quarter, it's far too soon to declare the death of Google. Even in techville, where things happen quickly, the multi-year string of double-digit higher revenues insures survival – at least for a while.
However, there are a lot of problems at Google which indicate it is not a good long-term hold for investors. For traders there is probably money to be made, as this long-term chart indicates:
Source: Yahoo Finance May 3, 2012
While there has been enormous volatility, Google has yet to return to its 2007 highs and struggles to climb out of the low $600/share price range. And there's good reason, because Google management has done more to circle the wagons in self-defense than it has done to create new product markets.
What was the last exciting product you can think of from Google? Something that was truly new, innovative and being developed into a market changer? Most likely, whatever you named is something that has recently been killed, or receiving precious little management attention. For a company that prided itself on innovation – even reportedly giving all employees 20% of their time to do whatever they wanted – we see management actions that are decidedly not about promoting innovation into the market, or making sustainable efforts to create new markets:
- killed Google Powermeter, a project that could have redefined how we buy and use electricity
- killed Google Wave, a product that offered considerable group productivity improvement
- killed Google Flu Vaccine Finder offering new insights for health care from data analysis
- killed Google Related which could have helped all of us search beyond keywords
- killed Google synch for Blackberry as it focuses on selling Android
- killed Google Talk mobile app
- killed the OnePass Google payment platform for publishers
- killed Google Labs – once its innovation engine
- and there are rumors it is going to kill Google Finance
All of these had opportunities to redefine markets. So what did Google do with these redeployed resources:
- Bought Motorola for $12.5billion, which it hopes to take toe-to-toe with Apple's market leading iPhone, and possibly the iPad. And in the process has aggravated all the companies who licensed Android and developed products which will now compete with Google's own products. Like the #1 global handset manufacturer Samsung. And which offers no clear advantage to the Apple products, but is being offered at a lower price.
- Google+, which has become an internal obsession – and according to employees consumes far more resources than anyone outside Google knows. Google+ is a product going toe-to-toe with Facebook, only with no clear advantages. Despite all the investment, Google continues refusing to publish any statistics indicating that Google+ is growing substantially, or producing any profits, in its catch-up competition with Facebook.
In both markets, mobile phones and social media, Google has acted very unlike the Google of 2000 that innovated its way to the top of web revenues, and profits. Instead of developing new markets, Google has chosen to undertaking 2 Goliath battles with enormously successful market leaders, but without any real advantage.
Google has actually proven, since peaking in 2007, that its leadership is remarkably old-fashioned, in the worst kind of way. Instead of focusing on developing new markets and opportunities, management keeps focusing on defending and extending its traditional search business – and has proven completely inept at developing any new revenue streams. Google bought both YouTube and Blogger, which have enormous user bases and attract incredible volumes of page views – but has yet to figure out how to monetize either, after several years.
For its new market innovations, rather than setting up teams dedicated to turning its innovations into profitable revenue growth engines Google leadership keeps making binary decisions. Messrs. Page and Brin either decide the product and market aren't self-developing, and kill the products, or simply ignore the business opportunity and lets it drift. Much like Microsoft – which has remained focused on Windows and Office while letting its Zune, mobile and other products drift into oblivion – or lose huge amounts of money like Bing and for years XBox.
I personalized that last comment onto the Google founders intentionally. The biggest news out of Google lately has been a pure financial machination done for purely political reasons. Announcing a stock dividend that effectively creates a 2-for-1 split, only creating a new class of non-voting "C" stock to make sure the founders never lose voting control. This was adding belt to suspenders, because the founders already own the Class B stock giving them 66% voting control. The purpose was purely to make sure nobody every tries to buy, or otherwise take over Google, because the founders will always have enough votes to make such an action impossible.
The founders explained this as necessary so they could retain control and make "big bets." If "big bets" means dumping billions into also-ran products as late entrants, then they have good reason to fear losing company control. Making big bets isn't how you win in the information technology industry. You win by creating new markets, with new solutions, before the competition does it.
Apple's huge wins in iPod, iTouch, iTunes, iPhone and iPad weren't "big bets." The Apple R&D budget is 1/8 Microsoft's. It's not big bets that win, its developing innovation, putting it into the market, shepharding it through a series of learning cycles to make it better and better and meeting previously unmet – often unidentified – needs. And that's not what the enormous investments in mobile handsets and Google+ are about.
Although this stock split has no real impact on Google today, it is a signal. A signal of a leadership team more obsessed with their own control than doing good for investors. It is clearly a diversion from creating new products, and opening new markets. But it was the centerpiece of communication at the last earnings call. And that is a avery bad signal for investors. A signal that the leaders see things likely to become much worse, with cash going out and revenue struggling, before too long. So they are acting now to protect themselves.
Meanwhile, even as revenues grew 39% last quarter, there are signs of problems in Google's "core" market leadership is so fixated on defending. As this chart shows, while volume of paid ads is going up, the price is now going down. 
Source: Silicon Alley Insider
Prices go down when your product loses value. You have to chase revenue. Remember Proctor & Gamble's "Basics" product line launch? Chasing revenue by cutting price. In the short-term it can be helpful, but long-term it is not in your best interest. Google isn't just cutting price on its incremental sales, but on all sales. Increasingly advertisers are becoming savvy about what they can expect from search ads, and what they can expect from other venues – like Facebook – and the prices are reflecting expectations. In a recent Strata survey the top 2 focus for ad executives were "social" (69%) and "display" (71%) – categories where Facebook leads – and both are ahead of "search."
At Facebook, we know the user base is around 800million. We also know it's now the #1 site on the internet – more hits than Google. And Facebook has much longer average user times on site. All things attractive to advertisers. Facebook is acquiring Instagram, which positions it much stronger on mobile devices, thus growing its market. And while Google was talking about share splits, Facebook recently announced it was making Facebook email integrated into the Facebook platform much easier to use (which is a threat to Gmail) and it was adding a new analytics suite to help advertisers understand ad performance – like they are accustomed to at Google. All of which increases Facebook's competitiveness with Google, as customers shift increasingly to social platforms.
As said at the top of this article, Google won't be gone soon. But all signs point to a rough road for investors. The company is ditching its game changing products and dumping enormous sums into me-too efforts trying to catch well healed and well managed market leaders. The company has not created an ability to take new innovations to market, and remains stuck defending and extending its existing business lines. And the top leaders just signaled that they weren't comfortable they could lead the company successfully, so they implemented new programs to make sure nobody could challenge their leadership.
There are big fires burning at Google. Unfortunately, burning those resources is producing a lot of heat – but not much light on a successful future. It's time to sell Google.
by Adam Hartung | Apr 4, 2012 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Lock-in, Web/Tech
Understand your core strength, and protect it. Sounds like the key to success, and a simple motto. It's the mantra of many a management guru. Only, far too often, it's the road to ruin.
The last week 3 big announcements showed just how damning the "strategy" of building on historical momentum can be.
Start with Research in Motion's revenue and earnings announcement. Both metrics fell short of expectations as Blackberry sales continue to slide. Not many investors were actually surprised about this, to be honest. iOS and Android products have been taking away share from RIM for several months, and the trend remains clear. And investors have paid a heavy price.
Source: BusinessInsider.com
There is no doubt the executives at RIM are very aware of this performance, and desperately would like the results to be different. RIM has known for months that iOS and Android handhelds have been taking share. The executives aren't unaware, nor stupid. But, they have not been able to change the internal momentum at RIM to the right issues.
The success formula at RIM has long been to "own" the enterprise marketplace with the Blackberry server products, offering easy to connect and secure network access for email, texting and enterprise applications. Handsets came along with the server and network sales. All the momentum at RIM has been to focus on the needs of IT departments; largely security and internal connectivity to legacy systems and email. And, honestly, even today there is probably nobody better at that than RIM.
But the market shifted. Individual user needs and productivity began to trump the legacy issues. People wanted to leave their laptops at home, and do everything with their smartphones. Apps took on a far more dominant role, as did ease of use. Because these were not part of the internal momentum at RIM the company ignored those issues, maintaining its focus on what it believed was the core strength, especially amongst its core customers.
Now RIM is toast. It's share will keep falling, until its handhelds become as popular as Palm devices. Perhaps there will be a market for its server products, but only via an acquisition at a very low price. Momentum to protect the core business killed RIM because its leaders failed to recognize a critical market shift.
Turn next to Yahoo's announcement that it is laying off 1 out of 7 employees, and that this is not likely to be the last round of cuts. Yahoo has become so irrelevant that analysts now depicct its "core" markets as "worthless."
Source: SiliconAlleyInsider.com
Yahoo was an internet pioneer. At one time in the 1990s it was estimated that over 90% of browser home pages were set to Yahoo! But the need for content aggregation largely disappeared as users learned to use search and social media to find what they wanted. Ad placement revenue for keywords transferred to the leading search provider (Google) and for display ads to the leading social media provider (Facebook.)
But Yahoo steadfastly worked to defend and extend its traditional business. It enhanced its homepage with a multitude of specialty pages, such as YahooFinance. But each of these has been outdone by specialist web sites, such as Marketwatch.com, that deliver everyhing Yahoo does only better, attracting more advertisers. Yahoo's momentum caused it to miss shifting with the internet market. Under CEO Bartz the company focused on operational improvements and efforts at enhancing its sales, while market shifts made its offerings less and less relevant.
Now, Yahoo is worth only the value of its outside stockholdings, and it appears the new CEO lacks any strategy for saving the enterprise. The company appears ready to split up, and become another internet artifact for Wikipedia. Largely because it kept doing more of what it knew how to do and was unable to overcome momentum to do anything new.
Last, but surely not least, was the Dell announced acquisition of Wyse.
Dell is synonymous with PC. But the growth has left PCs, and Dell missed the markets for mobile entertainment devices (like iPods or Zunes,) smartphones (like iPhone or Evo) and tablets (like iPads and Galaxy Tab.) Dell slavisly kept to its success formula of doing no product development, leaving that to vendors Microsoft and Intel, as it focused on hardware manufacturing and supply chain excellence. As the market shifted from the technologies it knew Dell kept trying to cut costs and product prices, hoping that somehow people would be dissuaded from changing technologies. Only it hasn't worked, and Dell's growth in sales and profits has evaporated.
Don't be confused. Buying Wyse has not changed Dell's "core." In Wyse Dell found another hardware manufacturer, only one that makes old-fashioned "dumb" terminals for large companies (interpret that as "enterprise,") mostly in health care. This is another acquisition, like Perot Systems, in an effort to copy the 1980s IBM brand extension into other products and services that are in like markets – a classic effort at extending the original Dell success formula with minimal changes.
Wyse is not a "cloud" company. Rackspace, Apple and Amazon provide cloud services, and Wyse is nothing like those two market leaders. Buying Wyse is Dell's effort to keep chasing HP for market share, and trying to pick up other pieces of revenue as it extends is hardware sales into more low-margin markets. The historical momentum has not changed, just been slightly redirected. By letting momentum guide its investments, Dell is buying another old technology company it hopes it can can extend its "supply chain" strenths into – and maybe find new revenues and higher margins. Not likely.
Over and again we see companies falter due to momentum. Why? Markets shift. Faster and more often than most business leaders want to admit. For years leaders have been told to understand core strengths, and protect them. But this approach fails when your core strength loses its value due to changes in technologies, user preferences, competition and markets. Then the only thing that can keep a company successful is to shift. Often very far from the core – and very fast.
Success actually requires overcoming internal momentum, built on the historical success formula, by putting resources into new solutions that fulfill emerging needs. Being agile, flexible and actually able to pivot into new markets creates success. Forget the past, and the momentum it generates. That can kill you.
