Yahoo buys image-recognition startup LookFlow

Acquisitions keep rolling into Yahoo. It is image recognition tech for Flickr this time.


Intel acquires gesture-recognition & tracking company Omek Interactive

Intel’s acquisition of Omek means you might never have to touch a PC again — via The Verge

Intel acquires gesture-recognition and tracking company Omek Interactive for $40million. Its a battle for critical mass – as per this article Intel’s interest in Omek is to benefit from a platform which already supports a wide range of devices.

The Fit for Growth℠ approach & Business Model Innovation

This post is based on my reading of “Fit for GrowthSM Framework for Telecom Operators: Aligning Capabilities, Costs, and Structure” by Martin Reitenspiess, Christine Rupp, Hannes Gmelin, and Chady Smayra, via Booz & Co.

It is an attempt to reconstruct the proposal made in the publication by drawing analogies to other pieces of work. This publication (from April 2013) from Booz & Co proposes a “Fit for Growth” framework to transition from price-based competition strategy to differentiation strategy. Not surprisingly the industry in question, Telecom, is industry characterized by the following observations:

  • Stagnating market due to saturation of primary revenue sources
  • Declining margins accompanied by price competition
  • Substitute OTT (over-the-top) technologies hurting the basic product offerings
  • Shift in consumer behavior demanding higher capital investments in technology upgrades

The figure below depicts the three tier approach proposed by the framework (the process above) and my simplistic interpretation of each step (the process below)

Fit for Growth Approach (by Booz & Co)
Fit for Growth Approach (by Booz & Co)

I couldn’t help but relate this approach to Business model innovation and its representation using the Business Model Canvas. One possible business model representation as described in Business Model Generation is the decoupling of Operations, Customer Relationship Management & Product Innovation.

Business Model Canvas (Source: Business Model Generation)
Business Model Canvas (Source: Business Model Generation)

An organization keen on business model innovation could use the Fit for Growth Framework and communicate the same using the business model canvas representation.

Once the leadership team decides to assess the ground realities of its business and charts out the current business model, it needs to take a call on which of the three aspects it will focus on. It naturally follows that leveraging current competencies is essential & management commitment to additional investments nurturing the key capabilities is imperative.

While additional funding may be secured from external sources, internal cost cutting is a long preferred approach. However this time, as the article suggests there are two ways of doing this. Firstly make ‘cost effective operations’ a way of life, not a one-time business exercise and more importantly identify rightly the good costs vs. bad costs. Secondly, the desired strategic focus area in tandem with the assessment of the current business model will bring out non-core area expenditures – seeking ways to cut costs dramatically in these avenues will go a long way in making a lean cost structure. My analogy between the proposed framework and business model innovation is depicted below:

Fit For Growth (& BMI)
Fit For Growth (& BMI)

The article has extremely interesting insights for this approach to seeking growth. However, I am in a fix about one specific observation. Exhibit 2 in the original article quotes “Experience Players” to be least profitable.

I would rather argue that experience players focus on the “customer experience” & hence should succeed in driving demand and raising the ‘willingness to pay’ among customers, while lowering non-core costs. Having said that, wouldn’t such a player also have a larger share of the industry profit pool?

Your thoughts?

Tale of the two ‘V’s – Vodafone & Verizon

An interesting in-depth view of what Vodafone can do with the 45% stake in it’s American counterpart – Verizon. (The complete article is at Lex in-depth: Vodafone via the Financial Times

Buying back this stake from Vodafone, Verizon will be better able to bear the fruits of profitability. Also, cashing out will bring in a cheque bearing a huge figure to Vodafone.

But (there is always one or more of them…) that said –

  • what can be done with all that cash?
  • what about the several re-organizations in JV’s
  • with the regulatory situation ever make a telco’s path to profitability easier

Yahoo continues its acquisition spree – a bid for Hulu this time!

Yahoo continues its acquisition spree – this time it has bid for

Hulu brings along a lot of content along with demographic data to complement the Tumblr acquisition. Yahoo competes with media giants and private equity firms for this bid! The ‘range’ of the bid indicates its desperation – clearly it does not want to repeat the Youtube bidding scenario.

It might seem like Yahoo is trying to fill the Youtube gap in its portfolio, Hulu has its differences when compared to Youtube. Hopefully Yahoo doesn’t try to replicate Google’s Youtube strategy with Hulu – it deserves a integration & monetizing strategy of its own.

Some more details at Business Review Weekly & Silicon Angle

Yahoo acquires Tumblr – a move towards competitive parity?

Much has been written about the recent announcement of Yahoo’s decision to acquire Tumblr. Here are my two cents in a more than two lines.

As with any acquisition, the key question has always been – will it add value? One of the best ways to look at value addition in an M&A is synergies among the merging firms in the value-chain.

The Internet Value Chain

For the value chain, I decided to refer to a different perspective – The Internet Value Chain (from the ‘Internet value chain economics‘ proposed by Mark Page & Christophe Firth from ATKearney back in 2010). I did this more so because Yahoo and Tumblr are primarily internet-companies – with lots of online-properties and services!

The Internet-Value-Chain talks about the path travelled by “data” and the value added to it at various junctures – from origination to consumption!

The figure below indicates that Yahoo (depicted by “Y”) is present in multiple stages of the value-chain – content generation, online services and enabling technology services – a common occurrence in this value-chain and in this industry.

Yahoo & Tumblr - A place on the Internet value Chain
Yahoo & Tumblr – A place on the Internet value Chain

Tumblr, on the other hand, is primarily a part of the “User Generated Content” box of Content Rights and the User Interface-Applications! It goes to show that Yahoo’s interest in Tumblr is primarily in the user-base and audience of Tumblr and in reusing its mobile-app development capabilities. In the recent past, Tumblr has added advertising to monetize its content base – this is still in a nascent phase.

Tumblr’s revenue sources pre-acquisition are the advertising clicks, premium blog themes and premium blogger accounts (say those hosted by companies looking for greater visibility). Yahoo also relies heavily on advertising revenues – driven by display ads on its online properties and those driven by its search collaboration with Microsoft (an alliance reportedly not doing too well).

What is Yahoo’s strategic interest in Tumblr?

Why is Yahoo interested in Tumblr? Yahoo is faced with two issues with respect to its service (online properties and ad-revenues):

Firstly, insufficient traction on handheld devices – creating difficulty in reaching Gen X and Gen Y users

Yahoo’s latest acquisitions indicate an attempt to bridge the gap in the ‘App Store’ eco-system.  Can Tumblr assist here? 
Tumblr’s mobile app is rated higher than any of Yahoo’s apps on the iPhone (An almost similar situation in the Android platform). Yahoo itself has been revamping several of its mobile apps to gain traction here.

Secondly, its user demographics – An aging client base alienating advertisers

Yahoo’s current demographics suggest about 50% of its traffic comes from audience < 35 yrs. In case of Tumblr the same segment comprises 72% of the total traffic. If time was to freeze and users were to remain completely loyal to the platforms, Yahoo can pull up the 50% figure up to 58%!  (Referred from here & here).

Looking to bridge these gaps, Yahoo will have to work around several challenges with this acquisition.

The integration challenges ahead!

While Yahoo will hope to exploit these synergies steam through; there are more challenges ahead with respect to the strategy, product integration and economic value extraction.

Although Tumblr’s mobile app is an advantage, it is ranked much lower than that of the likes of Facebook, Instagram & Twitter. On handheld devices – the merger will help improve the situation – raise it closer to competitive parity – but will not win it the game!

On the demographic front too, the hope to raise share of the young audience to 58% – rests on a big assumption of user loyalty. I have attempted to plot the relationship between the percentage of young users (< 35 years of age) leaving Tumblr’s platform and the resulting impact on Yahoo’s users resultant demographic mix (depicted below)

Impact of Tumblr users leaving...
Impact of Tumblr users leaving. What’s the threshold?

While Yahoo deals with the user base and mobile traction challenges, yet another front to address is the quality of content on Tumblr. Reportedly, much of Tumblr’s content has been said to be ‘objectionable’. 22% of the referrals to Tumblr come from porn sites which puts in doubt its attractiveness as an advertising platform.

In light of the recent introduction of advertising to monetize Tumblr’s platform, it is noteworthy that users have been happy with non-intrusive advertising. Integrating with Yahoo and starting a display-advertisement model like on other online Yahoo properties could potentially see users rushing out of the door – bringing Yahoo back to the demographics problem.

Tumblr’s themes will bring insignificant share of revenues and advertising revenues will meet a steep curve (ads prices on mobiles are cheaper than on desktops). Are the ad-revenues from premium bloggers enough to sustain valuations?

Coming down to the moolah! Tumblr reportedly spent $13 million in operations in 2012 while its ad-revenues were about $25 million. This is an unfavorable ratio accompanied by an unknown source of confidence in the projected $100 million revenues for 2013.

From Yahoo’s perspective, where’s the money coming from? Financial reports suggest a free cash flow reserve of $150 million – and reports say that Yahoo will mostly pay in cash for this $1.1 billion acquisition. There are indications of cash infusion from a stake sale of Alibaba which may be used to fund the Tumblr acquisition.

The question remains – in light of the strategic challenges involved and the best-possible value extraction toward competitive parity – is it the best use of this cash?