The Cost of Not Being Cool

Here are two sets of net income numbers for the first two quarters of 2010:

A: $299M / $206M
B: $310M / $213M

What two companies would you guess this information belonged to? I’ll give you a hint, they are both tech (web) companies. They’ve both been around for more than a decade.

Still not enough? Alright, the two companies are Yahoo and Amazon. Now, which set of numbers belongs to which company? Enough with the suspense, the answer is Amazon is set A and Yahoo is set B. Surprised? Yeah, so was I. Who knew that the net income of Yahoo was larger than that of Amazon for the first half of 2010?

Yahoo has become an easy target to beat up on. As an outsider looking at the numerous reports of how Yahoo is dead I was surprised to see they make a profit at all. Granted the ‘Net Income’ line on an income statement isn’t the whole story of a company, so here are a few more. Yahoo is much more efficient at generating a net income as a percentage of revenue compared to Amazon. For 2009 Yahoo’s net income was $597M on $6,460M in revenue. Amazon’s net income was significantly higher at $902M, but that was on $24,509M in revenue. As a percentage that’s a hefty difference (9.2% vs. 3.6%).

I think few people would rate Yahoo above Amazon though, at least based on general perception of how the two companies are doing. The bottom line? Yahoo just isn’t cool. This led me to the question, what is the cost of not being cool for a company?

Paul Graham recently wrote about his impression about what was wrong at Yahoo and Michael Arrington wasn’t impressed with Yahoo’s three year plan. I still remember Yahoo as a search company, one I have long since left. That said, I have a Flickr account that I generally enjoy (I have a few complaints, but I have at least a few complaints on nearly every web service I’ve ever used). On the flip side, I have a Delicious account that I haven’t touched in years.

All of this discussion is only worth while if you ask the hard questions though. If you were in charge at Yahoo what would you do to help turn improve things? Both the perception of the company (uncool) and performance (flat, or dropping).

I think the first thing on my list would be to make some serious commitments to their developer community. With the search back end being replaced by Bing many of their APIs were given end of life dates. This makes developers hesitant to trust that you won’t pull the carpet out from under them again.

Next would be to beef up execution of current and new products. It is no secret that a number of people have left Yahoo in the last years or so. Time to re-focus those that are still there and bring in any needed new talent to make things top notch.

I’ll be honest, looking out towards the future I’d like to see Yahoo do well. I’m not convinced that is how things will turn out, but I think it is possible and I wish them the best of luck at making it happen.