Yahoo!’s Downfall… Thanks to Shareholders?

Yahoo! an ex-darling of the web doesn’t appear to have much air left in it’s tyres with yet another announcement of a service being stopped. Yahoo had a music service and with Hollywood deal maker Terry Semel at the helm, invested in this sector by buying music match an creating a pre-Last FM version of social music with recommendations, premium content and deals direct with the artists. It comes as a bit of a surprise though then (or does it?) to hear that a a result of their DRM service being switched off, they will not be able to support some existing users paid-for music subscriptions.

Yahoo!’s Microsoft/Icahn battle has to make one question where the real value in the company lies. It used to be the source of information with it’s initial heirarchy and then through search but as they are largely gone the brands value lies in it’s being a portal of choice mainly in the US and Asia. What caused the poster case of innovation to fall onto the slippery quicksand path?

Clayton Christensen, a professor at Harvard Business School theorised that failing companies are made to fail not by poor leadership by rather the system not allowing them to succeed. He went on to suggest that maximising shareholder returns in a tightly fought battle ground often drives companies to focus on their top products with the highest margins while the true disruption came from below within the lower margin and lower profile products.

Applying this to Yahoo! makes for an interesting thought – is it the structure of the company when faced with massive challenges from Google that forced it to focus on the wrong products, deals and sectors? Did Yahoo! miss the opportunity to really innovate and change the game because their stock price was under attack and Sue Decker was on her back foot all the time defending a failing process thus taking the focus away from what Yahoo used to to – provide innovative services to their users?

Yahoo! Mail, Finance, Shopping (in the US) and Messenger are still hugely popular services but as the embattled firm continues to look to the short-term share price, will the sum of the parts end up more valuable than the whole? If Christensen’s concept is right, it seems to me that there is little chance to break the vicious cycle and acquisition might be a bitter pill to swallow for Jerry Yang but what else is there to do?