So It’s the Kodak Strategy for Yahoo — The Last Refuge of the Vaguely Patented
It was Yahoo legal head Mike Callahan who had the thankless task yesterday of calling Facebook’s general counsel Ted Ullyot to tell him the Silicon Valley Internet giant was intent on pursuing patent lawsuits against the social networking giant.
The charge was being led by Callahan, as well as Chief Product Officer Blake Irving and, especially, Yahoo’s new CEO Scott Thompson.
Much of Yahoo’s senior leadership had no idea of the impending move until Callahan informed them it was about to happen at meeting Monday.
Facebook had known of the patent concerns of Yahoo for some months — the issue had also gotten some coverage in the media — but had not engaged formally on the topic, several sources said.
So, the suddenly aggressive call also apparently blindsided Facebook, even though it had been aware of the possibility of such an outcome.
Thus, it had little time to respond, since Yahoo was also simultaneously briefing the New York Times, according to numerous sources at both companies, and then released an astonishing statement to the newspaper:
“Yahoo has a responsibility to its shareholders, employees and other stakeholders to protect its intellectual property. We must insist that Facebook either enter into a licensing agreement or we will be compelled to move forward unilaterally to protect our rights.”
Apparently, Yahoo’s new motto: If you can’t beat ‘em — and it can’t — sue ‘em.
That would be Yahoo — the perpetual 98-pound weakling of the Internet these days — threatening powerful Facebook, which had cleanly bested it by attracting hordes of users with a plethora of popular products and services.
Yahoo has already lost its audience to Facebook, which was most recently followed by its frittering away a commanding lead in display advertising, too.
That would also be the Yahoo whose most recent success in improving its increasingly tenuous connections with customers was, in fact, by deeply integrating Facebook’s social hooks into its Web properties.
That would be the Yahoo which has failed time and again to innovate its own offerings so drastically over the years that it has now apparently decided that its first and best strategic move under Thompson’s rule is a shakedown.
Such a cynical move on rights Yahoo has long held seems more a play for the cheap seats of Wall Street, given that the company needs to look like it is doing everything it can to turn things around right now as it faces a proxy challenge.
First, it ended difficult talks with its Asian partners, Alibaba Group and SoftBank, over selling back lucrative stakes there.
Now, according to sources, Yahoo’s Thompson has actually been trying to make very nice with activist shareholder Daniel Loeb of Third Point — on-the-down-low chitchats that might have played a part of this latest unusual move.
At least Kodak had a good excuse. The once iconic camera company had recently been trying to take advantage of its trove of patents as a way to stave off declaring bankruptcy.
That didn’t work for Kodak, and it will also not work for Yahoo, whose only real option is to try to innovate its way out of the mess it has landed itself in.
You know, with good ideas.
Instead, the company’s leadership has opted for a road that could rain down trouble and paint Yahoo as a company bereft of talent to win any other way.
And while a range of intellectual property lawsuits have broken out all over the digital sector, involving Apple, Microsoft, Google and many others, such a strategy for Yahoo could be dangerous if it fails in its legal effort to take advantage of its 1,000-plus patents, including those related to search and advertising.
Others — including such tech luminaries as LinkedIn’s Reid Hoffman, who co-owns the seminal Six Degrees patent for constructing a networking database and system — hold a number of critical social networking patents, too, so who knows where this thing will go.
Nonetheless, Yahoo has decided to emulate those companies with one of the few valuable assets it might have, waging its little war, right as Facebook is in the midst of its initial public offering period.
Yahoo has done this before, of course, having wrangled with Google until right before it went public in 2004 over search patents from its Overture acquisition. The pair settled 10 days before the Google IPO, with Yahoo getting several million more shares of that stock (which it then, of course, sold too soon).
That certainly could happen here, with Yahoo managing to grab a chunk of Facebook’s pre-IPO stock.
That would mean that Yahoo’s most valuable asset would be those shares, as well as its stake in Asian companies it bought a while back for a bargain and now makes up a bulk of the company’s valuation.
As to Yahoo’s core business — investors consider it almost entirely worthless.
And let’s not forget: Facebook could also sue right back, which it very well might do. Or, perhaps, cut off agreeable ties that have aided Yahoo in recent years.
In other words, in poking Facebook, Yahoo might now learn what it is really like to be de-friended.