Yahoo & Facebook: Deal or No Deal?

Now that Yahoo has announced its reorg, many are wondering and speculating as to what the ailing Internet giant might do in terms of M&A. Put another way, will Yahoo rely on acquisitions to fix its problems and plug up its holes? Or will it depend on its internal resources, now that they have streamlined for improved execution, to strengthen its strategic weaknesses. Given the company’s weak stock price, itís much more likely that they will opt for the latter path if at all possible.

Take Facebook as an example. Rumors of on-again, off-again acquisition talks notwithstanding, Yahoo must take steps to gain a leadership position in social networking. As the Internet’s largest community and communications company, the fact that Yahoo is *not* a leader in social networking represents one of the biggest missed opportunities in our industry’s history.

Just as Viacom’s Tom Freston got fired by Sumner Redstone for losing the MySpace deal to Rupert Murdoch, someone’s head should roll at Yahoo for the fact that they have virtually no meaningful presence in social networking.

But what to do? Should Yahoo take the highly dilutive plunge and buy Facebook for $1 Billion-plus? In my opinion, no, they should not — there is an alternative that is better, and a lot cheaper.

Yahoo should immediately clone Facebook. But as not Facebook is today; rather, as Facebook was before they opened up. In other words, Yahoo should develop and launch a social network designed exclusively for college and high school students. This market opportunity, which is the exact same opportunity that Facebook exploited several years ago, is now available once again. It’s a low-hanging fruit in the social networking space, one that would be very easy for Yahoo to pluck off. Cloning the original Facebook would also shore up one of Yahoo’s most glaring weaknesses it would bring back the 14-22 student demo.

For a company like Yahoo, social networking is not a market that they should buy into. Yes, Murdoch needed to, being a traditional media company with no real Internet competency. Even Google’s acquisition of YouTube made sense from the perspective of core competency since Google is notoriously bad when it comes to anything “social.”

But for Yahoo, social media is as natural a market as they come. It already possesses everything it needs to lead and succeed in that space. But they got lost during the last few years. Bringing in someone like Lloyd Braun to head up their Media Group was indicative of how misguided they were. Don’t get me wrong.

Braun is a tremendous TV executive. After all, he’s the one at ABC that green-lighted “Lost” and “Desperate Housewives”. But inside Yahoo, when the big opportunity in the market was clearly social media, it was inevitable that someone like Braun would himself become lost and desperate.