Why is Yahoo not buying back its stock?

In a recent Fortune article, Yi-Wyn Yen suggested that Yahoo’s management should announce a major buyback the way Microsoft and Hewlett-Packard did. Yi-Wyn Yen quoted Argues Canaccord Adams equity analyst Colin Gillis as saying “If Yahoo [executives] really thought the stock was worth $40, then send a signal of confidence and show us that you mean it.”

When a company buys back shares of its own stock, several things happen:

  1. There are fewer shares in the open market, which makes current shareholders shares worth more.
  2. It increases the potential dividend ratio and earnings per share ratio for current investors.
  3. Most importantly, it sends a signal to the market that the company feels its stock is trading below market value and therefore is a good buy. This is often more important to people than any of the technical implications of a stock buy-back.

In the past two months, Microsoft announced a $40 billion buyback, HP made a commitment to buyback $8 billion, and just recently even Oracle announced an $8 billion buyback of its stock.

If I was an active investor, I would normally interpret this as a signal that a company feels spending money on buying back shares is more valuable than spending it on something else within the company. If Microsoft were so bullish on their future outlook that they were willing to buy back $40 billion worth of stock, I’d most likely be buying the stock as well.

I find it surprising that Yahoo has not yet taken this move given the fact that they’ve recently been trading at five year low of $12. This after Microsoft offered Yahoo $33 per share just a few months ago. Yahoo’s current state of affairs has resulted in thousands of angry Yahoo investors looking for any signs of life from the company.

At $12 per share, the market value of Yahoo dips below $17 billion. In its current state Yahoo would be 15% the size of Google and only 8% the size of Microsoft. While it’s still a valuable entity, Yahoo was worth over $140 billion dollars in 2000.

Right now, investors need to see confidence from Yahoo’s management about the future. With the stock tanking, layoffs pending, and the Department of Justice looking deeply at Yahoo’s deal with Google, there are few things for Yahoo investors to get excited about.

Should Yahoo decided to do a major stock buyback, it will indicate to the investment community they firmly believe the value of the company is greater than the current price, and that management is confident enough in their strategy that they think it’s worth buying back shares at this low price.

Yahoo may also have something else in store, such as a new strategy that requires significant investment. But until they make their intentions clear and give some comfort to investors, I don’t see their stock rising anytime soon.

BNET Interviews Jay Bhatti

Q&A with Spock.com’s Jay Bhatti

PDF of Article

By Erik Sherman Oct 28, 2008

Search long and prosper.Spock.com is a relatively new search engine focusing on information about people. Co-founder Jay Bhatti was formerly a Microsoftproduct managers in Windows server marketing and then in consumer services. He left in 2006 to help start Spock. We spoke with him about the company and its current activities.

BNETYour PR firm wrote that Spock.com is “considered the leading people search index on the web and rivals Google, MySpaceLive, and Friendster when it comes to people search.” On what figures or studies do you base that?

Jay Bhatti: You can look at articles at TechCrunch,BusinessWeekTim O’Reilly and VentureBeat have talked about us. Our traffic is growing about 25 percent a month every month, we’re beating out more of our competition for distribution deals. I think you’ll see more and more that partners want to work with us as a leading [source of information about people]. Look at the accolades and awards as well: best in class at Web 2.0 Expo, accolades from PC World, from CNET.

BNETI’m not trying to be contentious, but many companies that received a lot of positive press have gone belly up, and business partners have self interest when making such a statement. How about independent assessments by the analyst firms?

JB: We’ve reached out to some of these independent companies. They said, “We’re going to review the people search space.” But it’s fast and growing and hasn’t been covered by the independent analysts [yet]. We’re looking forward to having independent [study]. I think we’ll do very well in those. Until one of those reports come out, the things we have to rely on is the awards we’ve won, the number of magazines that have said we’re the ones to watch, our usage growth, and the partners we’re getting.

BNETWho do you see as your serious competition?

JB: From the pure people search space it would be [such companies as] iSearch.comWink.com, and Pipl.com. They all have a pretty different strategy of how to execute in the market. Pipl is focused on doing a simple metasearch and not creating their own content. Wink is doing more social search and that type of extraction. The focus we’ve had is building out a very big IR [information retrieval] team and [doing] our own crawling and information extraction.”

BNETWhat do you think users are looking for?

JB: They want to be able to type in a name or some type of attribute and they want the answers to come back instantaneously. Most likely they look at more than one source. They’ll do a search on Google and then Yahoo because the index is a little different and the answers are a little different. What we want is that you type in Google and then go to Spock and do an advanced search.

BNETDon’t most people use only one search engine?

JB: That’s not what the data we’ve seen has shown. It came from another independent source. It basically said that people surprisingly use more than one search engine when they’re looking for something specific. For example, if you want to book an airline ticket, you might go to Google and type in cheapest ticket, then you might go to Expedia or Kayak because these sites do a pretty decent job on that particular vertical. You do the same thing on products as well. For a laptop, you might go to Google and then go to Dell.com orShopping.com or Amazon.com.

BNETSo you want to be that second choice when someone is looking for information on a person?

JB: Exactly. That’s the mindset we’re trying to build into the consumer. We want you to think of us as the Amazon of people search.

BNETThat means you’re trying to get people to change their habits. How do you manage that?

JB: It’s not changing their habits. They do what they do on the web. Trying to get them to change their habits in reading is really hard. What we’re trying to do is like Kayak. You do this by getting good information on your product out and then keep improving your product. That’s the most important thing. If you get a user who hears about it from a friend or reads about it and they go to Spock and say, “Whoa, this is pretty good.” It’s hard to build a brand because there are so many sites out there. It’s not 1996 when if you have a web site that’s halfway interesting that people will come by because there’s not a lot else. It’s important to work with distribution partners or syndication partners, web sites that want people search and get them to say powered by Spock. It’s going to give us more search volume, give a better experience for our users, and give us incremental revenue that we wouldn’t’ have gotten otherwise.

BNETSo you depend on partners to give you exposure. But aren’t larger sites moving away from promoting brands that aren’t their own?

JB: I thought that too, but there are still a lot of these co-branding [deals] going on. MSN is one of the most trafficked properties in the world, but if I click on dating or real estate, it’s syndication through partners. Yahoo is the same way and has a lot of their stuff being powered by other services. As we go in the marketplace, we notice that a lot of these companies don’t have the resources, energy, and resources to focus on some little thing that would be valuable. It’s a very easy win for them. I went to a major online property that does music and things like that. They said, “We’d love to have biographies of celebrities. We only have the time to source this on the top 50 celebrities, but we know there are thousands of celebrities that would get us a lot of traffic.” When a b-list celebrity has news about them, they’ll go to the partner site because they know there’s good content on it. Sometimes the best attribution is that we power that content. You see that all the time. I haven’t seen that much of a pushback from partners that we look at. They’re usually fine with “powered by Spock.” A company says for consumer experience, we want to say powered by whatever so the consumer knows the data is coming from this source and we’re being honest with them. If something’s wrong with the data, they’re not liable. It is a peculiar thing in the tech space. You don’t see Ford saying engine made by Mitsubishi in Japan.

BNETBut that was like the deal Yahoo once had with Google. Then after Google became known and starting getting the traffic directly, you could argue that Yahoo hurt its business.

JB: They thought they were in the business of content, and Google didn’t. When you look at some other areas like financial data, a lot of these sites — Google Finance, Yahoo Finance, MSN Finance — they’ll get data provided by Reuters or Bloomberg. That partnership won’t go away soon because they don’t want to get into the financial information game. And that’s probably what [former Yahoo CEO and chairman] Terry Semel thought when he did the deal with Google.

BNETWhat are you focusing on now?

JB: There are three things we’re focused on in the company. On is to continuously refine the product. Number two is working with our partners and getting more distribution deals and traffic to the site. The more we know about the data people are looking for, the more we can design the products for that. And then what are the best venues to make the product as monetizable as possible.”

BNETWhat are your revenues?

JB: We can’t share that right now. We want to keep that revenue and cost data private. Our monetization scheme is pretty simple. We show text ads that are relevant to the search you did. We can’t monetize as well [as general search] because no one is typing in plasma TV. But we are going to monetize a lot better than any social network could do because we do have intent. When people come to Spock they are looking for information. If the ads are relevant, we get a decent click-through conversion. It all comes down to making sure the advertisers have a good quality experience.

BNETWhat keeps you up at night?

JB: I feel pretty confident about our business because we’re focusing on the right things. I’m not worried about consumers because they will continue to do people searches. The real thing I look at is the capital markets today. It was a correct adjustment they made. I just worry that they’ll go too far in the other extreme where they don’t invest in anything. I noticed in the last week or so that people are investing a pretty big round into Like.com. I think a lot of VCs are saying that there are only a small number of deals in the Valley that are really interesting. The people who build those businesses will have pretty good options on their hands.

BNETHow long before you break even?

JB: I don’t know. One of the things about a start-up, it’s like a rocket ship. For us breaking even is about having more distribution. If we get two or three more big deals we’ll be close to breaking even. I look at it not as much of a timeline as getting deals done. If we close three big deals that we have in the pipeline tomorrow, we could be break even next week. We’re thinking in terms of the last quarter of 2009.

Erik Sherman is a freelance journalist whose work has appeared in Newsweek, the New York Times Magazine, Technology Review, the Financial Times, Chief Executive, and other publications. Follow him on Twitter.

Yahoo hires consultants to advise them on layoffs. Did they make the right choice?

I know a thing or two about consultants. I used to be one for nearly 5 years in the fast paced world of high tech consulting on Wall Street. We would advise banks on everything from what database to buy, to how best to setup global technology infrastructure and headcount.

When I heard that Yahoo hired Bain to help them figure out what to do with their organization, I started having some reservations about such an approach.

It’s not that I feel hiring consultants is a bad thing. On the contrary, if you need a specific technology implemented and don’t have in-house expertise, or if you need some detailed market research, then a consulting firm is by far the best option since they work with various companies in your industry. But, if you hire consultants for corporate strategy, then you are asking for potential problems.

Hiring consultants can represent an unnecessary waste of resources. As a VP or C level executive, you should already know more about your business than some hired hands that comes in for 6 weeks to propose a “transformational” roadmap on how to reshape your company. In addition, often times a company already has a sense of what needs to be done, and will look to consultants merely for justification or validation for their actions.

After I left the world of consulting and joined the tech industry, I was surprised to see how many times senior executives would hire consultants, wasting hundreds of thousands of dollars on a consultant’s recommendation, that in the end was no different than what the executive wanted in the first place. Not that an executive is likely to complain about the cost. More often than not, transformational consultants are brought in as an executive scapegoat to blame for the layoffs or change.

Yahoo, in hiring a consulting firm for its corporate strategy will likely face warranted and unwarranted criticism from both sides.

One of the reasons why Yahoo might have made its decision public was to show the market and their employees that they were being as careful and diligent as possible in determining what cuts needed to be made. In hiring a top company like Bain, they undoubtedly hope the marketplace will view their hiring as an indicator of their desire to get the best possible advice and implement the best plan.

Yet, in my conversations around Silicon Valley, there’s a vastly different vibe in response to the news on Yahoo. There’s a strong sentiment among insiders that Yahoo hired Bain because they do not have the operational leadership in place at the top and management is disconnected from the workings of the organization. In addition, Yahoo management wants to disconnect themselves from certain hard decisions and having a consultant is the easiest way to save face.

One person I spoke with cited the management principles of Jack Welch, who has no patience for any of his executives that would choose to bring in management consultants. Jack firmly believed that if you have to bring in an outsider to tell you how to run your business, then maybe you belong someplace else. One of the people I spoke with even went as far to say that Yahoo’s decision to hire Bain only proves that Jerry Yang is not the right person to run Yahoo.

I feel as though the comments on Jerry are a little harsh as I’m personally a big fan of Jerry Yang and what he’s done. I respected his stance during the Microsoft bid, and being an entrepreneur in Silicon Valley myself, I know how hard it is to create a valuable company, hire great people, and navigate through the rough times that come in the tech sector every few years. After listening to people complains about Jerry Yang, I often ask them how many multi-billion dollar companies they’ve started?! Jerry created one of the darlings of the Internet and the most visited site in the world, yet he’s still getting blasted for every move he makes or does not make. While I certainly don’t agree with everything Yang’s done at Yahoo, I have a tremendous amount of respect for the decisions he’s made and the challenges he faces today.

Unfortunately for Yahoo, there is really no right way of doing what has to be done. Had they not hired Bain and the layoffs include the wrong groups, then people will blame them for not thinking through the process. However, even if Yahoo gets the ideal outcome and strategy in the long-term, it will still be perceived by some people, that the management was weak for having to go outside for something that could and should be done by senior leadership directly.

Ultimately, Yang will need to disregard the short-term noise people in the valley and Wall Street make. He’ll need to make the final call on what strategy to implement, and regardless of where that plan comes from, if it is the right one for Yahoo, I am sure Yang will pick it.

McCain and Palin Leading in Search

While the current economic mess has led to a down fall for a number of industries, interest in this year’s election has never been higher. CNN recently reported that over the past three months an additional 3.5 million people had registered to vote, and that voter registration was up 64% in 21 states (in comparison to 2004). Though initial findings have found that Democrats are benefiting more from the surge in voter registration, search figures have indicated that people tend to be more interested in looking up information on John McCain and Sarah Palin than Barack Obama andJoe Biden.

Among people searches on Spock over the past month, McCain and Palin generated 9 times as many searches as Obama and Biden. Though Obama has been able to maintain a steady search index on Spock over the past 6 months, people searches surrounding Joe Biden have been remarkably low, generating just 3% of the traffic that McCain and Palin have had.

This trend was found on Google as well, where the top searched terms for the past 30 days saw Palin featured over 50 times, and McCain 47 times. Over the same span, Obama and Biden had a collective 56 top searches terms. While some of this is certainly attributed to Sarah Palin’s recent appearance on Saturday Night Live, even on the night of the VP debate she managed nearly three times as much search volume as Joe Biden.

What’s surprising about McCain and Palin’s recent search activity, is that Obama continues to maintain a somewhat sizable advantage in terms of media coverage. Over the past three months, Obama has been featured in on average 10,000 more news stories than McCain, and over 250,000 more blog entries.

Unfortunately for McCain and Palin, their additional search interest may not translate into more votes. A Gallup Media Poll, recently reported that Obama had made up ground on McCain among men, those with less formal education, and middle-aged voters. Obama’s gain among middle aged voters may prove particularly damaging, given that the election will likely be decided by people ages 30-59.

Having just two weeks left till November 4th, both candidates will be aggressively pushing their agendas. While a number of pundits are predicting an Obama landslide victory, if the search figures are any indication, a number of people aren’t quite ready to dismiss McCain.

How to Launch a Start-Up in Today’s Environment

With the financial meltdown yet to be resolved, a slowing economy and VCs backing away from Web 2.0 start-ups, many people assume that now is the worst time to launch a start-up. Yet, now is precisely the best time to launch a tech start-up. Historically some of the most successful companies have started during times of financial uncertainty. Given that IBM, Microsoft, Oracle, and Google were all started during economic downturn, we may see the next big thing emerge.

To begin a start-up the right way in today’s environment, one should go by the following three principles which have become standard issue in Silicon Valley:

1. Focus on Your Business Model and Technology – Investors and entrepreneurs are realizing that a big user base start-up such as a social network or a community powered media site is not necessarily the path to success. Social sites can be hard to monetize, and most social sites do not require the creation of any defensible IP. With no defensible IP or sustainable business model, many recent social and media start-ups are finding it harder to stay afloat.

If you were to begin a start-up today, make sure to start with a strong business model and comprehensive technology. Google is a great example of this. Early on in their development, they made focusing on their technology and business model a priority. With the tech boom busting in 2000, Sergey Brin and Larry Page knew it would be hard to survive without being self-sufficient. In the past, other search engines had made their business model secondary. Having deep pocketed VC’s backing them; it was assumed they’d have ample funding forever.

At Spock.com, we’ve focused on our technology since day one, and have emphasized our business model even more so over the past several months. I cannot tell you how much we have learned about our business and market potential after we focused equally on our technology and business model. I would recommend to every aspiring high-tech entrepreneur to make it a priority to concentrate on building companies with a strong business model and technology. Not only will you be able to survive the lean times, but you will also create something of value that other companies will pay serious money for when it comes time to think about an exit strategy.

Many newly formed start-ups in the Valley are beginning to see the value in this principle. Billshrink.com, a cell phone and credit card comparison site, is an example of a start-up that emphasizes their business model and has a strong focus on building a unique technology to solve a common problem.

2. Hire Great People – There are a lot of great engineers and business types in the marketplace today. During lean times, it is easier to hire great talent because there are not as many start-ups to compete with. If you have a compelling start-up during a downturn, you’ll be able to attract the cream of the crop. This was one of the primary reasons that Google was able to hire a great set of engineers in 2000 after the bubble burst. Since many saw it as one of the few start-ups left that had a chance to succeed, its openings were highly pursued. With such a deep and talented pool to pick from, Google ensured that its new hires met their criteria of engineering horsepower and team culture. In 2006, with Silicon Valley full of new start-ups, it was difficult for Spock to easily hire the top talent. Yet, we made sure to only hire the people who met our unique needs, from experienced engineers to young and motivated talent. To run our search, we picked up Hongche Lui, a seasoned expert in information mining from Yahoo. Our next great hire was Wayne Kao, a young and talented engineer from Microsoft, to run our front end. Both Hongche and Wayne are responsible for the development of Spock and its progress to date. If we had hired the wrong people in the beginning, we may have never gotten off the ground. I cannot stress enough how important hiring the right people is to any start-up. Spend the time necessary to find the right people for your business and never compromise.

3. Create a Prototype First – The days of taking a PowerPoint to a VC and getting a term sheet are extinct. Investors want to see that you can actually build a product and have market feedback. It’s in your best interest to get as far as you can without investors. You’ll be forced to focus on building a quality product and being scrappy. Startups such as GoPlanit.com are examples of companies bypassing initial VC funding while they prove their model works. Ultimately, if your product receives a positive response from the market, you’ll be in a much stronger negotiating position for more favorable term sheets with VCs. From a financial and sustainability perspective I think this is the best approach.

While doing any start-up or business is a daunting task, the better job you do in fine tuning your business model, hiring the right people, and creating the right product upfront, the greater your chances of outlasting the competition and achieving success.

Seattle PI Interviews Jay Bhatti

It’s tech’s turn to feel others’ folly

By BILL VIRGIN |  PDF |  Link To Article

SOMEWHERE IN the tech industry — be it on the Eastside or in Silicon Valley, at a giant like Microsoft or a tiny startup — someone is watching the housing finance debacle eat Wall Street, the banking industry and perhaps the American economy as a whole, and saying, “Well, at least they can’t blame this one on us.”

The one they could blame on tech — and did, and with considerable justification — was the dot-com bust of 2001-02, in which companies closed, people lost their jobs and billions of dollars in market value evaporated.

That downturn was felt beyond the realm of technology, but the ripple effects were nothing compared with the tsunami the housing-finance earthquake has apparently unleashed. The tech bust’s effects also were eclipsed by other hits to the economy, including the post-9/11 contraction of the aerospace industry that translated into thousands of layoffs at Boeing.

Now it’s tech’s turn to be on the receiving end of someone else’s folly.

Just how much it receives is critical to the regional economy, since technology has been one of the sectors propping it up. The Washington Employment Security Department recently reported that the software-publishers category, for example, had 53,000 jobs in August, up 4,300 jobs from the same month a year ago.

For a perspective on this, we turn to Jay Bhatti, who has been in big and small tech. For three years he worked at Microsoft, as product manager in the Windows server marketing group and later in consumer services. More recently, Bhatti was co-founder of Spock.com, which developed a search engine designed specifically for finding people.

Thus Bhatti also has spent time in both the Puget Sound region and the Valley, and before that he worked as a tech consultant for major banks, which is where we begin our journey through the impacts of the financial sector’s swoon on technology.

“In big tech it’s going to have a huge impact,” Bhatti says. At many companies, “What you’re going to see is a lot of (chief information officers) being given memos by their CEOs saying, ‘cut down costs, get rid of some projects that aren’t mission-critical.’ You’re going to see a lot of CIOs cutting out budgets, and going to Microsoft and going to Oracle and going to SAP and telling them, ‘Look, we’re not going to do the upgrade as fast as we planned.’ “

The hit will be felt both by hardware manufacturers, as customers defer spending or look for less expensive alternatives, and software providers who license their products for use on employees’ desktop and laptop computers, he adds.

Even though startups don’t depend on Wall Street or traditional banking channels for their lifeblood, they’ll feel the effects as well, Bhatti says.

Venture capital, private equity and hedge funds draw their money from the same sources — pension funds, endowments, trusts and other pools of investment capital, who are “going to be a lot more prudent and cautious about where they put their investments.”

That will mean a contraction in both the amount and sources of funding. “Over the past two or three years, what’s happened in tech is a lot of the hedge fund guys and private equity guys have gotten in in the later stages,” Bhatti says. “That became a very lucrative option for a lot of entrepreneurs because (they) found a lot of these guys were not price sensitive. Valuation was not a big sticking point for them. … You’re probably going to see that market close up a lot quicker.”

Those still willing to fund startups may not be offering as much money or as attractive terms, and they’re likely to be pickier about the companies they’ll support. “One of biggest things the Valley is learning is because of MySpace and Facebook and all the social networks, that having an advertising-only supported business model is pretty tough.” Start-up funders are “not as excited about companies saying ‘We’re the next social networking site, we’re going to be an advertising business model with a huge user base.’ “

What VCs want to know, Bhatti says, is: Are companies building a compelling, sustainable business model with proprietary technology behind it “that other companies would be willing to pay for to get?”

The result, in Bhatti’s estimation: Fewer startups being formed or getting funded, “but the ones that do get funded, I think you’ll see them having a lot higher potential for success. The VCs will have vetted them out.” Those that have been funded will have to resist the natural urge to grow as fast as possible in order to conserve cash. The “dead pool” of companies that don’t make it will also grow, but the pileup of wrecked companies won’t be as large as last time.

While the excesses of the 2005-06 funding boom were minuscule compared with the late ’90s dot-com boom, the industry did see money thrown at fads and entrepreneurs seeking to build companies on them in the more recent boomlet. As Bhatti puts it, the startup segment of the tech industry “created a mini-bubble, and now it’s time to deflate the bubble.”

In other words, having learned some painful lessons in the past, the tech industry will contract, retrench, focus on fundamentals, examine risk more closely, re-examine goals and strategies and operate with caution and prudence — an operating philosophy that, had Wall Street and the mortgage and banking industries followed it, might have spared the country considerable economic trouble now.

Who would have predicted eight years ago that it would be the tech sector that would one day provide the model for financial rationality?