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What We're Reading This Week

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July 28, 2016

What We're Reading This Week

Author: Thad Schlaud

Topics: Careers, News, The Market

German Rockets

Rocket Internet SE reminds me of what I hate about tech startups these days and lots of things I like about poor company management. The German tech company has created 100 startups according to The Journal and many of them continue to remain unprofitable. Even though I am relatively young, I think I remember a day when people started up new companies (you know, “startups”) with the intention of building something useful, something that was new and/or needed. Now, probably because of “incubators,” startups appear to be chasing investment dollars. From Saudi Arabia’s investment in Uber to, well, anyone else’s investment in Uber, new companies no longer dream of that IPO in the sky but in the next round of venture capital. What happened to starting in your garage? Well, at Rocket Internet SE they say, “Garages be damned!”  Their business model may not be new but it feels new to me. As a spawn of the current startup environment, Rocket has employed the “throw spaghetti at the wall” approach to venture capital. On the seventh floor of its headquarters the employees are busy monitoring tech startups all over the globe for business ideas to steal – I mean copy. “When an idea is approved, Rocket assigns marketers, engineers, and managers.” Now we get to the good stuff. “As the business develops, it moves down floor-by-floor, eventually making it to the ground level, where managers start to look for offices outside the building.” This has a few advantages for the employees. Not only does the location of your office serve as a countdown to homelessness, but I also imagine that each subsequent level of the building has better amenities. Like, there probably isn’t really good coffee in the break room until you get to the third or fourth floor. The first floor is probably all hammocks. You don’t see that approach to business management very often because it’s really stupid. Moving your stuff and getting closer to eviction doesn’t seem like much of an incentive for success. It’s maybe the closest I’ve ever seen a workplace mirror a beehive, where worker bees are born into a life of drudgery for several weeks to several months. At the end of which, they die. This is especially fitting for Rocket companies because they were born out of replicating another business. They have a competitor from day one. A competitor, I assume, that hasn’t moved its offices 7 times. 

Part of me hopes that the office works the other way around, with all the best amenities on the top floor. That way, when a manager is assigned to a business model the Rocket executives can sit him down and tell them, “It’s all downhill from here,” and truly mean it.

Yahoo!

So I guess Yahoo finally found a buyer for their operating business. Over the weekend, Verizon announced that they will purchase Yahoo’s operating business for roughly $4.83 billion. Coupled with Verizon’s purchase of AOL, it’s very hard to determine who the winners and losers are. AOL is definitely a winner because they had no real value and still managed to sell the company. Yahoo might be a winner because they did the same thing, however they also might be a loser because they are now on the wall of shame for poor Verizon investments. Verizon is definitely a loser because they sunk $9 billion into these deals when they probably should have just worked on better cell phone reception. Verizon CEO Lowell McAdam defended the purchase stating it “will help Verizon become a bigger player in digital video.” His biggest competitors are currently Facebook and Google, companies that everyone I know uses several times a day. I can’t say the same for AOL or Yahoo. Truthfully, I am not very interested in how Verizon will misuse Yahoo, as Yahoo did a great job of that themselves. I am more interested in Yahoo’s remains. Verizon just bought the operating business, not the company itself. This mean that Yahoo will still exist, albeit under a different name, after the purchase is complete. The remaining assets will consist of $41 billion of investments in Alibaba, Yahoo Japan, and some patents – also, some $4.83 billion in cash from Verizon. Although they will have to subtract Marissa Mayer’s severance package, worth about $57 million, bringing her income total to $218 million for 4 years of work.  Personally, I am surprised she’s not staying. If I were Yahoo I would keep her on to continue selling pieces of the company, because she’s really good at it. I still have no idea what Verizon bought from them. After you subtract the Alibaba stake I’m not convinced there’s a business left, and there will still be the difficult job of selling the Alibaba shares. That will be a tough one as the tax obligation to shareholders will be more than double what Yahoo received from Verizon. As Matt Levine of Bloomberg points out, “the whole point of Yahoo as a company right now is to not pay taxes on Alibaba.” Even after selling their core business, that hasn’t really changed. Oops.

 

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